The Supreme Court's order to cancel the resolution plan which involved JSW Steel's acquisition of Bhushan Power and Steel Ltd (BPSL) has set a cat among the pigeons. Highly placed sources say the government and committee of creditors (CoC) are working on likely legal remedies ahead of them.
The SC's verdict may have an unprecedented impact in the financials of banks and other lenders represented by the CoC and JSW Steel itself. Many fear hit on the balance sheet may severe the business growth for lenders and the company if SC's judgement is upheld even after seek any legal remedial actions.
On May 5, M. Nagaraju, Secretary, Department of Financial Services, said that the government is studying the judgement and may finalise the next steps after the consultation with the government advocates.
Most bankers Moneycontrol spoke to on this matter had a similar response. Sources, in fact say, there is no consensus among bankers with respect to seeking legal recourse as yet.
A banker contacted by the Moneycontrol said that the SC verdict has been like a bolt from the blue. "We were not prepared for a verdict like this," he said.
"Given that this verdict has come as a surprise, we need more time to come to a consensus (among bankers in the CoC) on this issue," another banker said who didn't want to be named
On Friday last week (May 2), the Supreme Court cancelled JSW Steel’s Rs 19,350 crore acquisition of BPSL and ordered the company's liquidation.
The matter was pursued by BPSL’s operational creditors, who challenged the approval of the resolution plan on the grounds that their claims were unfairly treated and key procedural lapses had gone unaddressed.
The May 2 ruling highlights procedural and legal lapses in one of the most high-profile takeovers under the Insolvency and Bankruptcy Code (IBC), as the apex court raised questions around missed timelines, inconsistent creditor oversight, and the role of promoter-linked structures in resolution plans that were allowed to proceed despite non-compliance on several fronts.
According to the Macquarie report, banks who have received money from the JSW Steel after the resolution have to give it back to the company. Future recoveries which may arise from making fresh provisions towards this exposure also seems bleak at the moment.
Nonetheless, a senior officer at the state-owned bank said this judgement will require banks to make adequate provisioning for the sums likely to be returned to JSW in Q2 or Q3 of FY26. For now, banks are confident that even if the order is upheld by the Supreme Court their financials are strong enough to repay JSW Steel money back.
Interestingly, Macquarie's report points out that even as the JSW Steel may get the money back from the banks, it is not clear whether the company has any recourse to the amount invested in BPSL between 2021 (when it took possession of BPSL).
“If it got to keep the EBITDA between 2017 to 2021 despite not owning BPSL, can the court rule that liquidation of BPSL also happens on as is basis. If that happens then the investments done by JSW Steel in BPSL would be at risk,” report added.
Experts said that JSW Steel could file a review petition within 30 days of the judgment before the same bench which delivered the judgment, where the CoC could also be parties to the appeal process. A review petition that goes against JSW and CoC may be further appealed through a curative petition, though a practicing according to a SC advocate who didn't want to be named said, "judgements on commercial agreements, often civil in nature are less likely to be taken up by the courts with utmost urgency and historically these cases have not had too many orders in their favour".
“A review petition is limited to remedying an apparent error or discovery of new evidence. and it is not to be used for the purpose of a rehearing and a fresh decision in the case. If the review petition is dismissed JSW Steel could file a curative petition,” Macquarie report said.
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