The Supreme Court on Friday overturned its earlier decision ordering liquidation of Bhushan Power and Steel (BPSL), restoring approval to JSW Steel’s Rs 19,700-crore resolution plan.
The bench headed by Chief Justice BR Gavai, along with Justices SC Sharma and K Vinod Chandran, stressed that the commercial wisdom of creditors must be given primacy and not interfered with lightly. It also criticised attempts by erstwhile promoters to stall the proceedings, noting that they had lost control of the company once insolvency was initiated.
Upholding creditor’s commercial wisdom and finality
The ruling brings an end to months of uncertainty triggered by a two-judge bench verdict on May 2, which had scrapped the JSW plan on grounds of delay in implementation and the use of optionally convertible debentures instead of pure equity for part of the funding. That order had directed the liquidation of BPSL, even though the resolution had been implemented nearly four years earlier and the company integrated into JSW’s operations.
Friday’s judgment upheld the plan that had been cleared by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), rejecting objections raised by former promoters and certain creditors. The bench also rejected additional claims amounting to more than Rs 600 crore, raised by the committee of creditors (CoC), after the resolution plan was approved and implemented.
The top court observed that reopening an already executed resolution would destabilise the insolvency framework. “Allowing such appeals after JSW has revived the loss-making entity by infusing huge amounts of funds will lead to disastrous results,” the bench said. It warned that entertaining such challenges “at a belated stage…could open a Pandora’s box and the very purpose of the IBC providing sanctity to the finality of the resolution plan duly approved would stand vitiated”.
Impact on IBC framework and legal precedent
The judges underlined that JSW could not be penalised for reviving a bankrupt company, noting: “The very purpose for which the IBC was enacted—namely, to ensure that the corporate debtor continues as a going concern—has not only been achieved, but the corporate debtor has been transformed from a loss-making to a profit-making entity.”
The court, in its ruling, also observed that the matter is not entirely new, and has a precedent citing the case related to Essar.
“This court, in the case of Supreme Court Essar has clearly held that such could not have been the intention of the legislature as this would amount to hydra heads popping up after the approval of the resolution plan. It has been categorically held that the SRA cannot be forced to deal with claims that are not a part of the RfRP issued in terms of Section 25 of the IBC or a part of its Resolution Plan,” chief justice Gavai said, delivering the judgment.
“The court has given impetus to the overall intention of IBC to highlight that CIRP is not to push a company into liquidation, but to ensure that the Corporate Debtor turns profitable, which has been achieved by JSW. The court has taken a big-picture approach, and the judgment will increase trust in the IBC process boosting the investor sentiment,” said advocate Mukund P Unny at the SC.
Legal experts added that with this ruling, the apex court has also set precedent that a company cannot be penalised for making an entity acquired though the insolvency proceedings profitable.
The May decision had unsettled creditors, including State Bank of India and Punjab National Bank, who faced the prospect of heavy write-downs, and also rattled investors, with JSW Steel shares falling sharply in response.
As a result, JSW Steel had filed a review petition, and on July 31, the Chief Justice-led bench exercised its review powers to recall the earlier order and reheard the matter in open court, resulting in Friday’s verdict. BPSL was one of the Reserve Bank of India’s “dirty dozen” large defaulters referred to insolvency in 2017, with dues of more than Rs 47, 000 crore. The NCLT admitted the case in July that year.
Thirteen companies expressed interest, and by October 2018, JSW Steel’s plan emerged as the highest evaluated bid. The CoC approved the consolidated plan, which involved an upfront payment of about Rs 19,300 crore, followed by equity infusion and commitments to modernise operations. The NCLT cleared it in September 2019, and the NCLAT upheld the approval in February 2020.
But progress was slowed by investigative proceedings, with the Enforcement Directorate attaching assets in connection with alleged fraud and money laundering. Although courts later stayed the attachment and directed handover of assets to JSW, the disputes delayed implementation. JSW completed payments to financial creditors in March 2021, with overall investments of nearly Rs 20,000 crore.