In a decision likely to impact how large insolvency resolutions are reviewed and enforced, the Supreme Court cancelled JSW Steel’s Rs 19,350 crore acquisition of Bhushan Power and Steel Ltd (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. Their petition prompted a deeper judicial review of the handling of the case by the resolution professional (RP) and the Committee of Creditors (CoC).
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.
The court observed that JSW Steel’s resolution plan was approved by the CoC on October 10, 2018. However, the resolution professional submitted the plan to the National Company Law Tribunal (NCLT) only on February 14, 2019 — well beyond the statutory limit of 270 days and the outer cap of 330 days permissible under Section 12 of the IBC. The court said no legitimate explanation was provided for this delay, rendering the process time-barred under the law.
Apart from the timeline violation, the judgment points to serious lapses on the part of both RP and CoC. The RP failed to verify JSW Steel’s eligibility under Section 29A of the IBC, a provision that bars certain persons and their affiliates from submitting a resolution plan. Section 29A disqualifies not just the defaulting promoters but also “persons acting in concert” and “connected persons.”
Under IBC, a person acting in concert refers to individuals or entities who, by formal or informal understanding, directly or indirectly cooperate to acquire shares, voting rights, or control over a company. The court found the RP had not adequately examined whether JSW Steel or entities connected to its promoters fell under these disqualified categories.
The RP also failed to ensure compliance with Section 30(2), which requires fair and equitable treatment of operational creditors. In addition, avoidance transactions — meant to claw back diverted assets — were not pursued.
The CoC approved the plan despite these gaps and accepted delayed payments from JSW Steel without objection, a move the court said undermined the commercial judgment standard that creditor decisions are generally protected under.
JSW group’s conduct
JSW Steel’s conduct during the post-approval phase also came under scrutiny. Although the NCLT had cleared the resolution plan on September 5, 2019, JSW delayed implementation without any legal restriction. Payments to financial creditors were deferred until March 2021 and to operational creditors until March 2022.
The company also failed to infuse the committed Rs 8,550 crore in equity and instead filed an appeal before the National Company Law Appellate Tribunal (NCLAT), which the court deemed legally untenable. It said the delays coincided with a rise in steel prices, suggesting commercial advantage may have influenced the stalling.
The court also said the NCLAT exceeded its jurisdiction by modifying the conditions set by the NCLT and passing directions unrelated to the resolution plan, including those involving Nova Iron and Steel, a sister company of BPSL.
Ordering liquidation of BPSL, the country's top court said payments already made by JSW Steel — to financial and operational creditors are to be dealt with as per a March 6, 2020 statement by the CoC, which agreed to a refund mechanism in the event of an adverse ruling.
The case has also drawn attention to the structure of the financing itself.
The transaction was routed through a trust. This entity borrowed funds backed by a put option on JSW Steel, effectively using the listed company’s balance sheet as credit support. The arrangement, insiders say, mirrored previous structures used in other large distressed asset deals, where promoters acquired companies and later sold them to group firms at a premium.
Way ahead for JSW
Given the liquidation order and the rejection of the resolution plan, JSW Steel is left with limited options. Legal experts say that the company could file a review or curative petition, though the threshold for success is low.
It may also attempt to renegotiate with the CoC to submit a revised plan during liquidation or participate as a stakeholder in the asset sale process. While Section 53 of the IBC defines the waterfall structure for recoveries, any return for JSW would depend on the nature of its claim and negotiations with secured creditors.
JSW may also seek enforcement of the refund clause in the CoC’s March 2020 undertaking, possibly through legal action to release funds held in escrow. Separately, it could explore tax relief or regulatory adjustments through the Income Tax Department or the Ministry of Corporate Affairs, though the Supreme Court has said the NCLT is not the appropriate forum for such waivers.
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