NCLT asks JSW Steel, lenders to present plan to reverse JSW Steel’s Bhushan Power takeover in May 26 hearing

The NCLT also expressed that the order of the Supreme Court is required to be implemented in its letter and spirit.

The National Company Law Tribunal (NCLT) in its hearing on the Bhushan Power and Steel case on May 21 has directed all stakeholders involved in the Bhushan Power and Steel case to appear on Monday, May 26, with a well-defined plan to implement the Supreme Court’s order scrapping JSW Steel’s acquisition of the debt-ridden company.

The directive was issued during the hearing on May 21, with the NCLT stating unequivocally that timely and full compliance with the Supreme Court’s ruling was imperative. The apex court had earlier set aside the approved resolution plan that allowed JSW Steel to take over Bhushan Power, citing procedural lapses and breaches of statutory duties by the Committee of Creditors (CoC) and resolution professionals during the insolvency proceedings.

The NCLT instructed the advocates representing various stakeholders to come prepared on May 26th with the plan of way forward to implement the order of the Supreme Court. The NCLT also expressed that the order of the Supreme Court is required to be implemented in its letter and spirit.

The case, which dates back over four years, has reached a critical juncture as JSW Steel had already taken control of Bhushan Power and infused significant funds into the company. The Supreme Court, however, ruled that the ownership and assets must be restored to Bhushan Power and Steel Ltd as they existed before the flawed resolution plan was approved. While referring to the judgment passed in the matter of Jet Airways of the Supreme Court, the Tribunal also expressed that it’s imperative that the Supreme Court’s order is implemented with strict timelines.

One of the key legal steps expected from the Tribunal is the appointment of a liquidator to oversee the process of reversing the resolution plan. This is a point of contention, as JSW Steel is opposing the appointment, arguing that all assets have already been transferred and integrated into its operations.

The financial complexities are significant. CoC members who had received payouts under the scrapped resolution plan may now be required to return those funds. Once repaid, lenders will also need to recreate their security charges – legal claims over the borrower’s assets that were extinguished when JSW took control.

“A security charge is a form of collateral that lenders create over the borrower's assets. All of this will now need to be done again, from scratch, as the transaction is being reversed,” Honey Satpal, Founder, HS Legal, told Moneycontrol.

Furthermore, there are additional complications arising from new investments JSW may have made post-acquisition. The company may have taken on fresh debt or encumbered assets in ways that could now conflict with the court’s restitution order.

"The Supreme Court's order leaves a complex path ahead with many unanswered questions, particularly concerning JSW's capital contributions over the past five years, the treatment of profits, and the future of the workforce involved," Satpal said. "It will be a significant challenge to unwind this implemented transaction. While a review petition may soon be filed, however it will be interesting to see the arrangement that may be put in place in interim to oversee the situation and for implementation of order of Supreme Court "