By MS Sahoo Former chairperson, Insolvency and Bankruptcy Board of India
In a landmark ruling on May 2, the Supreme Court of India ordered the liquidation of Bhushan Power and Steel Ltd (BPSL) while disposing of an appeal filed in 2020. The court found grave irregularities, some intentional and collusive, in the approval and implementation of the resolution plan, attributing lapses to the Resolution Professional (RP), the successful Resolution Applicant (RA), the Committee of Creditors (CoC), the National Company Law Tribunal (NCLT), and the National Company Law Appellate Tribunal (NCLAT).
The judgment has since dominated headlines and ignited an intense debate. Supporters have welcomed the verdict, asserting that the integrity of the insolvency process is non-negotiable and the rule of law must prevail. They argue that the decision will act as a deterrent against misconduct and help restore trust in the Insolvency and Bankruptcy Code (IBC). Critics, however, warn of the severe economic and institutional consequences of undoing a resolution years after its implementation. They caution that no prudent RA would invest in a process that remains susceptible to reversal by state authorities even after closure.
From an economic standpoint, whether an insolvency proceeding ends in a resolution plan or liquidation is secondary, as is the scale of operation of the company undergoing the process. What matters is the integrity and finality of the outcome. If a resolution outcome, duly approved by the competent authority and either already implemented or under implementation, is annulled years later, it effectively punishes the company, its new stakeholders, and the broader economy. This is not because of their failings, but due to the failure of those responsible for the approval and implementation of the resolution outcome. A more balanced approach would have been to ring-fence the resolution outcome while ensuring swift and exemplary penalties for the wrongdoers.
The appeal could and should have been resolved in 2020, avoiding the five-year detour culminating in liquidation. The corporate insolvency resolution process for BPSL began on July 26, 2017. Market participants, under the oversight of the RP and the NCLT, submitted the resolution plan for approval on February 14, 2019, roughly taking 18 months. From that point onward, the state machinery (NCLT, NCLAT, and the Supreme Court) took six years to first approve the resolution plan and then overturn it, with the apex court taking the bulk of the time.
Contrast this with earlier cases. In Binani Cements, the NCLAT approved the revised resolution plan on November 14, 2018, and the Supreme Court upheld it within five days. In Essar Steel, the NCLT approved the plan on March 8, 2019, the NCLAT modified it on July 4. Parliament amended the IBC on August 6 to address the concern arising from the NCLAT order, and the Supreme Court upheld the amendment and set aside the NCLAT’s order on November 15 — an eight-month turnaround. That kind of time discipline was instrumental in establishing the IBC as a credible and effective resolution framework.
Unfortunately, the BPSL case is not an outlier, nor can it be attributed to a single agency or market participant. Delays are not confined to admission, approval, or disposal of appeals — they are pervasive across the insolvency ecosystem. These delays steadily erode commercial viability and often render resolution plans unworkable by the time of approval. The apex court has repeatedly emphasised that time is of the essence for the IBC. But timely resolution requires that every institution involved acts with urgency and discipline. It is now imperative for the court to not only demand such discipline from others, but also hold itself to the same standard.
This brings us to a broader and more systemic issue — the role of state authorities in commercial transactions. Insolvency proceedings are akin to a coordinated orchestra. On one side are the market participants — corporate debtor, creditors, CoC, and RAs — and on the other is a hierarchy of public authorities. The RP serves as the conductor. Market players are expected to take commercial decisions swiftly and are held strictly accountable, with both legal penalties and market consequences when they falter.
State authorities, by contrast, operate through layered hierarchies, where each level can revisit and revise the decisions of the one below, even post-implementation. Crucially, such revisions occur without any institutional accountability for the disruption caused. Each authority can afford to be wrong, repeatedly, without consequences. This asymmetry undermines the integrity of the resolution process. If market participants must act decisively and face the consequences for their actions, why should state authorities not be subject to similar standards of responsibility and finality? If business decisions can be made in one go, there is no reason why state approvals cannot be so.
The interest of business and economy demands certainty in commercial transactions. These should, at most, require approval by a single designated authority. Once granted, such approvals should be final. A system of deemed approval, as employed under the Competition Act for mergers and acquisitions, or for RAs in case of resolution of financial service providers, should be instituted where authorities fail to act within a defined timeline.
If irregularities are discovered post-facto, the persons responsible should face civil, regulatory, and criminal penalties — the transaction itself should not be disturbed. Consider transactions in securities markets. Trades executed on stock exchanges are never reversed, regardless of subsequent findings. Public issues of securities are not unwound even when serious irregularities come to light. These transactions require no approval from any state agency, yet any wrongdoing results in severe consequences. A robust regulatory enforcement that does not compromise business certainty is an imperative for a credible insolvency regime.
This principle must extend beyond the IBC. It should form the bedrock of all economic regulatory frameworks. Rigorous oversight is essential to deter misconduct and hold wrongdoers accountable. However, such oversight must be disentangled from the validity of commercial transactions once they have been lawfully approved or deemed approved. A streamlined, single-tier approval process, coupled with institutional accountability for any lapses, is essential for an economy aspiring to become a developed one by 2047.