By upholding the National Company Law Appellate Tribunal (NCLAT) order of February 17, 2020, which approved JSW Steel’s resolution plan for Bhushan Power and Steel Ltd (BPSL), the Supreme Court (SC) has generously admitted the error of judgement of another SC bench. On May 2, a bench of Justices Bela Trivedi and SC Sharma had quashed and set aside the NCLAT order, saying the resolution plan approved by the Committee of Creditors (CoC) was “not in conformity with the provisions…of the Insolvency and Bankruptcy Code (IBC)”. Exercising suo motu powers under Article 142, the court also directed the National Company Law Tribunal (NCLT) to initiate liquidation proceedings against BPSL, reversing one of the most elaborate resolution processes in India’s insolvency history.
Initial verdict’s flaw
By undoing, on rigid procedural grounds, a long-drawn resolution process that seemed to have the buy-in of the CoC, the verdict had introduced an element of uncertainty among investors. What was striking was the court’s single-minded emphasis on the 330-day outer limit for resolution while ignoring the commercial complexity of resolving large entities with multiple stakeholders, including erstwhile promoters who might have an interest in creating obstacles in the process. It’s unfortunate that the court tried to apply a one-size-fits-all approach to all corporate insolvency resolution process (CIRP) cases. The quashing of the order was all the more necessary because of the inordinately long time taken by the apex court itself. In 2019, the NCLT had approved the acquisition of BPSL as part of the proceedings under the IBC. But the dramatic reversal came after five years, bringing uncertainty and chaos with it. Had this verdict been delivered within weeks of the case reaching the apex court, it might have served some purpose. It would have also sent out a strong signal to all Resolution Professionals to be extremely careful in ensuring adherence to each and every aspect of the law. The delay negated that purpose.
Friday’s judgment is path-breaking in that sense. The court recognised the fact that JSW invested huge amounts in modernisation and expansion of BPSL. As such, the very purpose for which the IBC was enacted—namely to ensure that the corporate debtor continues as a going concern—has not been achieved. “If, after the implementation of the Resolution Plan, JSW has converted a loss-making entity into one making profits, can it be penalised for that?” asked the court. If the Resolution Plan is derailed at such a belated stage, it could open a Pandora’s Box, and the very purpose of the IBC providing sanctity to the finality of the plan duly approved would stand vitiated. The decision also acknowledges the implications of the earlier judgment on thousands of BPSL workers.
Prioritising substantive justice and IBC’s core objectives
No one can suggest that either courts or tribunals should allow successful resolution applicants to flout legal requirements or delay the process under the guise of ongoing litigation. Abuse of process certainly has no place in the insolvency framework and if proved finally, JSW and other stakeholders should have been penalised. On the other hand, there are numerous judgments of the Supreme Court that affirm the principle that procedural lapses cannot override substantive justice. More importantly, mandating liquidation, if upheld, would have shaken the confidence in the finality and sanctity of long-settled commercial decisions. A primary objective of the Code is the “maximisation of value of assets” of the corporate debtor. Liquidation would have thus been a pointless exercise.
Copyright: Project Syndicate, 2025.