Clipped from: https://www.thehindubusinessline.com/opinion/bhushan-steel-was-liquidation-the-only-solution/article69546180.ece
The SC judgment has followed the letter of the law. But it has hit the interests of the company, creditors and employees
The Supreme Court verdict is a setback to the resolution process | Photo Credit: lakshmiprasad S
Can a judgment be correct in law, but nevertheless be wrong? The answer appears to be yes in the case of the Supreme Court’s recent judgment setting aside JSW Steel Ltd’s (JSW) resolution plan for the acquisition of Bhushan Power and Steel Ltd (BPSL).
More than five years after the resolution plan was approved by the National Company Law Tribunal (NCLT) and affirmed by the National Company Law Appellate Tribunal (NCLAT), the Court has ordered that BPSL be liquidated.
The Court minced no words in holding that there had been egregious lapses on the part of the resolution professional, the committee of creditors (CoC) and the successful resolution applicant, JSW, in the conduct of the insolvency resolution process as well as in JSW’s implementation of the resolution plan.
The lapses
Among the many lapses highlighted by the Court were the following.
First, the resolution professional had not made its application for approval of the resolution plan to the NCLT within the 270-day timeline prescribed by the Insolvency and Bankruptcy Code, 2016 (IBC), which, in itself, should have been reason for the NCLT to reject the plan.
Second, the resolution professional had not ensured that the resolution plan was compliant with the IBC before presenting it to the CoC. For example, the resolution professional had failed to check JSW’s eligibility to submit a plan under Section 29A of the IBC, a provision that restricts related parties of the debtor company from submitting resolution plans. The resolution professional had also allowed the plan to be submitted for consideration by the CoC even though it did not provide (as required under the regulations) for operational creditors to be paid in priority to financial creditors.
Third, the CoC had failed to exercise its commercial wisdom for the benefit of all creditors and in accordance with the IBC and had also failed to consider the viability of the resolution plan submitted by JSW. Finally, JSW had acted with mala fide intentions and misused the legal process, by, among other things, failing to disclose its relationship with BPSL to the CoC and subsequently delaying implementation of the resolution plan by over 500 days. JSW ultimately made the required payments to the financial creditors in March 2021 and to operational creditors in March 2022.
BPSL was one of the “dirty dozen” debt laden companies that had initially been directed to the IBC process by the Reserve Bank of India and its resolution process was plagued with complications.
Soon after the resolution plan was approved by the NCLT, the Enforcement Directorate (ED) ordered the provisional attachment of BPSL’s assets for offences under the Prevention of Money Laundering Act and it appears that the delays in implementation were, at least in part, driven by the ED’s actions.
However, the findings do indicate violations on the part of various stakeholders that the Supreme Court rightly called out. Indeed, the Court went on to say that allowing the implementation of the plan as a “fait accompli” would amount to condoning the illegalities in the process and giving a clean chit to JSW.
But was liquidation the only option available? While the judgment follows the letter of the law, it is detrimental to the larger goals of the IBC of timely resolution, maximisation of value and predictability.
The consequences
Unwinding a resolution plan that has already been implemented holds dire consequences for all stakeholders and, in particular, the debtor company itself, its creditors and employees. The Court’s judgment in BPSL is also likely to have negative consequences for the development of a market for distressed assets in India.
If a resolution plan can be re-opened and set aside several years after its implementation, prospective resolution applicants are likely to be hesitant to bid for companies under the IBC.
While the Court was correct to emphasise the need for all stakeholders, including the successful resolution applicant, to strictly adhere to the timelines and process under the IBC, it could have explored alternatives to liquidation that might have been more consistent with a purposive interpretation of the law.
There have been occasions where the Supreme Court, in the interests of revival of the corporate debtor, has modified the portion of a resolution plan that was illegal rather than striking it down altogether.
In this case too, the Court could have considered a middle ground, such as imposing penalties on the wrong doers, given the disastrous effects that unwinding a resolution plan has on transaction certainty.
The elephant in the room is the timing of the Court’s judgment. The insolvency application against BPSL was admitted in 2017; JSW’s resolution plan was approved in 2019 by the NCLT and affirmed by the NCLAT a few months later; various petitioners appealed the NCLAT order to the Supreme Court in 2020.
The Supreme Court finally delivered its judgment in May 2025, a few years after the very belated implementation of the resolution plan. Perhaps, if the Supreme Court had applied the criticality of timelines under the IBC to itself, this mess could have been avoided?
The writer is a partner at S&R Associates. Views expressed are personal
Published on May 6, 2025
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