Supreme Court: Liquidation of Bhushan Power and Steel Limited – A cautionary tale

Partners: Karishma Dodeja and Tine Abraham, Senior Associate: Deepali Verma.

On 2 May 2025, the Supreme Court of India passed an order (Judgment) for the liquidation of Bhushan Power and Steel Limited (BPSL) under Chapter III of the Insolvency and Bankruptcy Code, 2016 (IBC). The order came in an appeal by the promoters and operational creditors of BPSL against the order of the National Company Law Appellate Tribunal (NCLAT) dated 17 February 2020 (NCLAT Order). The NCLAT Order confirmed the approval of the resolution plan of JSW Steel (JSW) (Resolution Plan) by the National Company Law Tribunal (NCLT) (order dated 5 September 2019). The Supreme Court also ordered that payments made by JSW to financial creditors and operational creditors and towards equity contribution (after BPSL was successfully acquired by JSW under the aegis of the corporate insolvency resolution process (CIRP) under the IBC in 2022) are required to be returned within two months from the date of the Judgment.

To provide context, BPSL was part of the Reserve Bank of India’s “dirty dozen” list – a deeply stressed asset, with an outstanding liability of INR 47,825.90 crore. It was a unique case because the Enforcement Directorate attached the assets of BPSL after the approval of the Resolution Plan (of an aggregate value of approximately INR 20,000 crore) by the NCLT in 2019 (ED Attachment). JSW challenged the attachment before the NCLAT and the Supreme Court in 2019 and obtained interim protection against the attachment. In December 2019, the government also introduced Section 32A of the IBC, providing resolution applicants/bidders with immunity against offences committed by corporate debtors prior to the commencement of the CIRP. However, Section 32A was not retrospective in effect. Given the uncertainty arising out of the ED attachment, JSW effectively implemented its Resolution Plan in three phases – (a) equity infusion of INR 100 crore in BPSL in 2021; (b) payment of approximately INR 19,350 crore to financial creditors of BPSL in 2021; and (c) payment of approximately INR 350 crore to operational creditors of BPSL in 2022.

A key point to note is that the Committee of Creditors (CoC), while initially supportive of JSW’s need for deal certainty (by way of filing appeals challenging the ED Attachment before the NCLAT and the Supreme Court), later challenged the delay in the implementation of the Resolution Plan before the Supreme Court contending that pendency of appeals by the operational creditors and promoters of BPSL before the Supreme Court does not tantamount to a stay on the implementation of the Resolution Plan. Despite this, the CoC accepted the payment of amounts under the Resolution Plan on a belated basis. The Supreme Court, in its order dated 6 March 2020, had recorded the statement of the CoC counsel that the “CoC” will return all amounts within two months if the appeals by the promoters and operational creditors of BPSL succeeded.

Now, three years after the implementation of the Resolution Plan, the Supreme Court has ordered the return of amounts by the CoC and operational creditors. It has rejected the Resolution Plan on the basis that it did not strictly comply with the requirements under the IBC. The Supreme Court has also observed that the resolution professional of BPSL (Resolution Professional) did not duly discharge his duties under the IBC and that the CoC has failed to exercise its commercial wisdom in terms of approving a Resolution Plan which was in contravention of the IBC.

This update sets out the key grounds cited by the Supreme Court as the basis for rejecting the Resolution Plan, the way forward and the implications of the Judgment for the IBC and the larger cause of ease of doing business in India.

Rationale of the Supreme Court

Broadly, the Supreme Court has cited the following grounds for its rejection of the Resolution Plan.

Misutilisation of Section 61 of the IBC

Under Section 61 of the IBC, an appeal against an order approving a resolution plan can be filed on certain grounds, such as the approved resolution plan being in contravention of the law, material irregularity in exercise of powers by the resolution professional, and the debts of operational creditors not being provided for in the resolution plan as specified under the IBC. JSW filed an appeal before the NCLAT against the order of the NCLT seeking modification of certain conditions imposed by the NCLT in its Resolution Plan and also challenged the ED Attachment.

According to the Supreme Court, (i) JSW’s appeal did not meet the requirements of Section 61, and therefore, JSW could not have utilised Section 61 to file an appeal against an order approving its own Resolution Plan; and (ii) the NCLT or NCLAT is not vested with the power of judicial review over decisions taken by the government or statutory authorities in relation to a matter which is in the realm of public law, and accordingly, the NCLAT should not have applied Section 32A and held that the assets of BPSL were immune from the ED Attachment. On (ii), the Supreme Court further held that given an appeal was pending against the ED Attachment before the Supreme Court, the NCLAT should not have decided the issue because it was beyond the NCLAT’s jurisdiction under Section 61 of the IBC.

Absence of Section 29A affidavit

Section 29A of the IBC sets out the criteria for rendering a bidder ineligible to submit a Resolution Plan. This is a key requirement under the IBC. Generally, bidders are required to certify their compliance with Section 29A by way of an affidavit as part of their resolution plans. Resolution professionals further verify the eligibility of bidders by way of investigations/diligence. According to the Supreme Court, JSW did not submit such an affidavit. The Resolution Professional also did not verify JSW’s eligibility because the NCLAT Order records JSW’s joint venture with BPSL in 2008 without examining the implications of this from a Section 29A perspective.

Mandatory timeline under the IBC

Under the unamended Section 12 of the IBC, the outer timeline for the conclusion of a CIRP was 270 days. According to the Supreme Court, the Resolution Professional: (i) did not file an application for extension of the timeline from 180 days to 270 days; and (ii) filed an application for approval of the Resolution Plan with the NCLT after the expiry of 270 days. Given the delay in filing the application, the NCLT should not have entertained it.

Non-compliance with the IBC

Under Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), amounts under a resolution plan to operational creditors are required to be paid in priority to financial creditors. As highlighted earlier, amounts were paid to operational creditors in 2022 but to financial creditors in 2021. According to the Supreme Court, this was in clear contravention of the IBC and the CIRP Regulations.

Delay in implementation of the Resolution Plan

The IBC does not legislate the implementation of a resolution plan. This is typically provided for in the resolution plan itself, with the CoC generally being granted the flexibility and discretion to decide on the extension of the period of implementation. It appears from the Judgment that the “Effective Date” for implementation of JSW’s Resolution Plan was to occur within 30 days from the date the NCLT approved the Resolution Plan.

According to the Supreme Court, while JSW had the necessary approval of the CoC, JSW significantly delayed the implementation of its Resolution Plan with there being a delay of more than 540 days in the partial implementation of the Resolution Plan, with payments being made to operational creditors after a period of 900 days. It was only after considering the rising prices of steel that JSW implemented the Resolution Plan. The Supreme Court also made a technical point on the CoC being functus officio after the approval of the Resolution Plan by the NCLT, and accordingly, was not entitled to extend the Effective Date.

The changing stance of the CoC

The Supreme Court observed that the CoC at its 19th meeting on 10 October 2018 had raised objections against the Resolution Plan in terms of how only JSW was permitted to submit an amended resolution plan, the compliance of the Resolution Plan with the IBC (specifically, Regulation 38), etc. It appears that a core committee of lenders had negotiated the Resolution Plan only with JSW after which JSW submitted a consolidated Resolution Plan which was further amended. Despite these objections, the Supreme Court observed that the CoC had approved the Resolution Plan.

Thereafter, given the delay by JSW in implementing the Resolution Plan on account of the pendency of appeals filed by the promoters and operational creditors of BPSL, the CoC challenged such delay and alleged the misuse of the court process by JSW. The Supreme Court observed that despite this, the CoC accepted the payments under the Resolution Plan at a belated stage and that this implied that the Resolution Professional, the CoC and JSW had acted in collusion.

What happens next?

Based on a review of the Judgment:

Appointment of liquidator

Given that the Supreme Court has ordered liquidation under Chapter III of the IBC, the CoC will be required to be reconstituted by the erstwhile Resolution Professional to appoint a liquidator and approve liquidation costs.

Unwinding of all transactions

Within a period of two months from the date of the Judgment, (i) BPSL will be required to return the equity investment made by JSW, accordingly, BPSL will no longer be a subsidiary of JSW; (ii) financial creditors will be required to return all amounts they have received under the Resolution Plan to JSW, accordingly, any utilisation of such amounts or accounting in their books will be required to be reversed; and (iii) operational creditors (comprising government authorities, vendors, suppliers, service providers, employees, etc.) will be required to return all amounts they have received under the Resolution Plan to JSW although it is not clear how they will return such amounts. Overall, all claims/debts against BPSL will stand revived. Operationally, the erstwhile Resolution Professional and the reconstituted CoC may be required to drive the unwinding process.

JSW’s investment in BPSL

Any capacity addition or CAPEX by JSW in BPSL may have to be written off unless this is capable of being neatly divested from BPSL. JSW’s investment in BPSL will likely be a sunk cost. This is in addition to the potential loss of synergies and cost optimisation that JSW would have received from its investment in BPSL. To the extent that JSW has previously benefitted from the BPSL acquisition in terms of dividends or EBITDA, that will continue to be retained by JSW.

Questions on commercial discretion

The free exercise of commercial discretion by lenders will be severely impacted. After this decision, lenders are likely to act much more cautiously on resolutions under the IBC and be inflexible with respect to compliances and timelines under the IBC.

Assessment of compliance by resolution professionals

Going forward, compliance related points are likely to be assessed by resolution professionals more closely through necessary diligence/investigations on the eligibility of bidders. This will usher in more discipline in the process.

Conclusion

Purely from a legal standpoint, the Supreme Court has raised several critical issues. However, the timing of it may be too late – unwinding a complex restructuring that led to significant value for stakeholders and the meaningful investment by JSW in reviving a distressed asset and generating more employment is no easy feat. Reversing transactions/payments which have already been utilised or diverted to investors is a commercially perverse outcome. More importantly, the judgment will severely erode investor faith in terms of participating in CIRPs and considerably impair IBC as a resolution strategy. This could consequently affect the ease of doing business in India and further has the potential to reopen previously implemented resolution plans.

Another key consequence of the Judgment is that the Supreme Court has failed to honour the settled position on the primacy of the CoC’s commercial wisdom in terms of approving the Resolution Plan and its decisions in relation to the implementation of the Resolution Plan.

Instead of unwinding the Resolution Plan, the Supreme Court could have potentially ordered the Insolvency and Bankruptcy Board of India to investigate and institute proceedings against the relevant parties. This would have been a far better outcome as against ordering the liquidation of a previously resolved distressed asset.

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