MC EXCLUSIVE Studying verdict, exploring all options: DFS Secy on SC order against JSW-Bhushan deal

The court observed that payments due to creditors within 30 days of the NCLT’s approval of the resolution plan (2019) remained unpaid until March 2022.

The government is currently “examining” the May 2 Supreme Court order linked to Bhushan Power and Steel Ltd’s (BPSL) insolvency--which declared the JSW Steel’s acquisition of BPSL “illegal”—and is mulling to take the necessary steps through which the implementation of the resolution plans, once approved, can be monitored effectively, two government officials told Moneycontrol on May 5.

“We are studying the judgment and we are exploring all the options,” Financial Services Secretary M Nagaraju told Moneycontrol.

“We need to ensure that the implementation of resolution plans is monitored properly, so that the creditors get their rightful dues on time,” another official told Moneycontrol.

There is a concern within the government that the judgement could dampen business sentiment. Last week, 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.

JSW had bid for acquisition of Bhushan Steel and Power via IBC. 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.

In February, the Insolvency and Bankruptcy Board of India (IBBI) had made it mandatory for the Committee of Creditors (CoC) to constitute a “monitoring committee” for overseeing the execution of a resolution plan. This was done after the Supreme Court in November 2024--while declaring its verdict in Jet Airways case--had stressed on the need for the existence of such a committee for all cases resolved through IBC.

The monitoring committee is responsible for supervising the implementation of the resolution plan until all obligations are fulfilled and control is formally transferred to the successful resolution applicant. It typically comprises representatives of the CoC, the resolution professional, and the resolution applicant, and ensures adherence to timelines, regulatory filings, and financial commitments post-approval. This structural addition aims to bridge the gap between plan approval by the National Company Law Tribunal (NCLT) and actual operational takeover.

The government, however, feels that there needs to be more steps taken to ensure strict adherence to the terms of resolution plan, so that no creditor—financial or operational—is defrauded, said the officials.

In 2020, JSW Steel was declared the successful resolution applicant for BPSL—which won the bid for acquired the distressed company for Rs 19,700 crore—after getting approval through the NCLAT, which it had approached following National Company Law Tribunal’s (NCLT) order that imposed conditions on the company while approving JSW as the successful applicant for BPSL (in 2019).

The NCLAT took nearly five months to approve JSW Steel’s resolution plan after the NCLT’s conditional approval in September 2019, finally clearing the plan in February 2020. BPSL, which owed over Rs 47,000 crore to creditors, was among the largest defaulters referred under the IBC and had attracted multiple bids due to its strategically located steel assets and production capacity.

However, on May 2, a two-judge bench of the apex court rejected the 2019 resolution plan, and called it a “flagrant violation of IBC’s mandatory provisions”. The SC held JSW responsible for the indefinite delay in completing the resolution process, and pointed out a collusion between the company, the CoC, and the resolution professional (RP) to cover up gross violations of the law and its regulations.

‘IBC PROCESS VIOLATED’

The court observed that payments due to creditors within 30 days of the NCLT’s approval of the resolution plan (2019) remained unpaid until March 2022. It stated that upfront payments, as stipulated in the resolution plan, were delayed by 540 days for financial creditors and 900 days for operational creditors.

The SC also 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 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 noted no legitimate explanation was provided for this delay, rendering the process time-barred under the law.

The judgement further points to serious lapses on the part of both Resolution Professional (RP) and Committee of Creditors (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.

The bench was also “stunned” by the NCLAT’s opinion to ignore a crucial revelation made by the Enforcement Directorate (ED) during its PMLA probe against BPSL. The anti-money laundering investigations disclosed that JSW had entered into a joint venture agreement with BPSL and one more company Jai Balaji pursuant to a government order in March 2008. However, in its resolution plan, JSW had suppressed this material fact.

The NCLAT, moreover, had stated that ED did not have the power to attach BPSL’s assets while the insolvency process was ongoing, which the apex court called an error of judgement. The SC said that neither the NCLT nor the NCLAT is vested with the powers of judicial review over decisions taken by the government or a statutory authority in relation to public law.

EXPERTS’ TAKE

Experts say that the decision of the SC shows several systematic issues within the IBC that hinders the effective implementation of the resolution plan and undermines its objective.

Former Chairperson of IBBI MS Sahoo told Moneycontrol: “Of course, there should be no leniency towards any irregularities by stakeholders in the IBC process. But, it must be ensured that the entire resolution process is completed soon. Why did it take five years for the resolution plan, which was accepted by everybody, to be declared null and void? Should resolution applicants/stakeholders now wait for all levels of appeals to be exhausted, to witness a successful resolution plan.”

Vijay K Singh, Senior Partner, S&A Law Offices said: “The IBC lacks adequate provisions to make RPs and CoC members accountable for acting negligently and colluding with successful resolution applicants (SRAs), which compromises the interest of the creditors and stakeholders.  The decision shows IBC lacks mechanism to prevent frivolous litigations filed by SRA to cause deliberate delays which harms the interest of creditors and stakeholders.”

Sushmita Gandhi, Partner, IndusLaw said that IBC has not stood the test of time in achieving time-bound implementations leading to liquidation which essentially defeats the very objective of revival and continuity.

“It is essential that the legislature focuses on implementation of fast-track process (under IBC), which will allow speedy implementation of plans in distressed companies of a particular size," Gandhi added.