SC quashes Bhushan Power and Steel resolution; orders liquidation

In a decisive verdict that underscores the sanctity of India’s insolvency framework, the Supreme Court on Friday quashed JSW Steel’s resolution plan for debt-laden Bhushan Power and Steel Ltd. (BPSL), citing gross violations of the Insolvency and Bankruptcy Code (IBC), 2016. The court ordered the immediate liquidation of BPSL, marking a significant setback for JSW Steel and raising questions about corporate governance in insolvency proceedings.

Background: A Protracted Legal Battle
The case traces back to 2017 when Punjab National Bank initiated Corporate Insolvency Resolution Process (CIRP) against BPSL, part of the RBI’s “dirty dozen” accounts. JSW Steel emerged as the highest bidder in 2018 with a ₹19,350 crore resolution plan, approved by the National Company Law Tribunal (NCLT) in 2019. However, operational creditors, erstwhile promoters, and the Odisha government challenged the plan, alleging procedural irregularities. The National Company Law Appellate Tribunal (NCLAT) upheld the plan in 2020 with modifications, prompting appeals to the Supreme Court.

Key Findings: Systemic Failures and Jurisdictional Overreach
Delivering a 105-page judgment, a bench of Justices Bela M. Trivedi and Satish Chandra Sharma identified multiple breaches of the IBC:

1. Timeline Violations: The resolution professional failed to adhere to the mandatory 270-day CIRP period under Section 12. The NCLT approved JSW’s plan 540 days after initiation, rendering the process “vitiated from inception.”
2. Eligibility Concerns: The court raised doubts about JSW’s compliance with Section 29A (which bars related parties from bidding) due to a suppressed 2008 joint venture with BPSL. The resolution professional’s failure to certify JSW’s eligibility was termed a “fatal flaw.”
3. Creditor Discrimination: The plan violated Regulation 38 by prioritizing financial creditors over operational creditors. The court cited the Essar Steel precedent, stressing equal treatment under Section 30(2)(b).
4. NCLAT’s Overreach: The tribunal unlawfully stayed the Enforcement Directorate’s provisional attachment of BPSL’s assets under PMLA, exceeding its jurisdiction under the IBC.

JSW’s “Misuse of Process”
The judgment lambasted JSW for delaying implementation by 900 days despite no stay order, calling it a “fraudulent attempt to enrich itself” amid rising steel prices. The court noted JSW infused only ₹100 crore initially, contravening its ₹8,550 crore equity commitment, and accepted ₹19,350 crore belatedly in 2021–22 under a disputed “fait accompli.”

Liquidation Directive and Fallout
Invoking Article 142, the court directed NCLT to commence liquidation under Section 33, observing that BPSL’s resolution had become “a chimera of promises.” Payments made by JSW will be subject to reversal pending liquidation, per the CoC’s 2020 undertaking.

Broader Implications
The ruling reinforces strict adherence to IBC timelines and creditor parity, echoing the Essar Steel and Ebix judgments. It warns resolution professionals and CoCs against “rubber-stamping” plans without due diligence. Legal experts highlight the message to errant bidders: “Commercial wisdom cannot override statutory mandates,” said senior advocate Ravi Kadam.

For JSW, the decision is a reputational blow, though it may contest the liquidation order. Operational creditors, owed ₹621 crore, face uncertainty, while Odisha’s ₹118 crore tax claim remains unresolved.

Also read: SC quashes tax demand notice against JSW Steel in Monnet Ispat & Energy insolvency case