Supreme Court's JSW-BPSL judgment restores investor confidence in IBC, says official

"The judgement affirms the sanctity of the IBC process," the official said.

The Supreme Court’s recent reversal of its ruling in the JSW-BPSL case reinforces the "pivotal role" of the committee of creditors (CoC) in the resolution process under the insolvency and bankruptcy code (IBC), a government official told Moneycontrol.

The apex court upheld the tenets of IBC, which restores investors' confidence in the insolvency regime, the official said.

"The judgement affirms the sanctity of the IBC process," the official said, adding that the previous SC judgment had "errors".

On September 26, a three-judge bench, led by Chief Justice of India BR Gavai, upheld the JSW Steels’ Rs 19,700-crore bid to acquire Bhushan Power and Steel Ltd (BPSL) through the corporate insolvency resolution process (CIRP) route.

The order reversed the court’s May 2 order that directed the liquidation of Bhushan Power and Steel.

JSW acquired BPSL in 2021 after the NCLAT approved its resolution plan a year earlier.

But it May, the SC annulled the BPSL’s takeover and ordered its liquidation, citing lapses in the conclusion of the insolvency process by several stakeholders.

The two-judge bench order raised questions around missed timelines by resolution professional, inconsistent creditor oversight, and the role of promoter-linked structures in resolution plan that was allowed to proceed despite non-compliance on several fronts.

It also pointed to serious lapses on the part of both Resolution Professional (RP) and CoC.

The RP had 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.

The CJI-led bench, however, ruled that JSW's acquisition of BPSL fulfilled the core purpose of the IBC. JSW heavily invested in BPSL’s modernisation, protected thousands of jobs and ensured the company remained a "going concern".

Reopening claims after the CoC had approved a resolution plan would undermine the law, especially because neither the CoC nor JSW Steel was responsible for the delays, the court said.

"The court adopted a pragmatic and positivist approach, focusing on the legal text and the commercial reality that JSW had already infused funds, revived Bhushan Power & Steel, and protected jobs and creditors," said Zeeshan Farooqui, Partner, King Stubb & Kasiva, Advocates and Attorneys.

"Undoing the plan at this stage would have caused economic harm and undermined the code’s purpose of value maximisation and certainty," Farooqui said.

Ketan Mukhija, senior partner at Burgeon Law, said the decision confirms that commercial wisdom exercised by creditors and the sanctity of approved resolution plans must be protected from belated challenges.

IBC 2.0 to prevent a repeat of May 2?

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, contains provisions that would prevent a repeat of the JSW-BPSL case, the official said.

It seeks to insert provisions to restore the CIRP in exceptional cases, provided CoC makes such a request.

"After considering the application, the adjudicating authority (NCLT) will determine if the application demonstrates that there is still some potential to resolve the insolvency of the corporate debtor and may, by an order, restore the process.

“This ensures that 'errors', which cause either the process not to be completed on time or the resolution plan to be rejected, do not prevent a corporate debtor from successfully resolving insolvency and avoid forcing it into liquidation," the bill’s statement of objects and reasons says.

The proposed amendments aim to prevent situations like the May 2nd ruling of the SC from recurring. The new bill “proposes clearer provisions regarding the treatment of operational creditors and mandates a more structured process for scrutinising resolution plans”, said Amit Kumar Nag, Partner, AQUILAW.

There is a growing realisation that the IBC framework must address the complexities arising from the preferential treatment of certain creditors and enhance the transparency of the resolution process, Nag said. The bill also seeks to reinforce the accountability of CoCs and mitigate any potential for bias in the resolution plans, he said.

Abhirup Dasgupta, Partner at HSA Advocates, said that judgment reinforces the primacy of the IBC's purpose and objectives — ensuring the continuity of companies and recognising liquidation as a measure of last resort.

What is IBC?

The Insolvency and Bankruptcy Code aims to rescue viable businesses and maximise the value of assets, promoting a shift from a "debtor-in-possession" to a "creditor-in-control" regime.

What are the amendments being proposed?

The changes aim to bring key reforms, including the group insolvency and cross-border insolvency frameworks and a creditor-led resolution process.

It mandates that insolvency applications be admitted within 14 days, against the present average of over 434 days, which causes considerable value loss for the debtor.

The amended bill says that an application for initiating the corporate insolvency resolution process by creditors shall be admitted if a default exists, and no other grounds shall be considered for deciding such an application.