Supreme Court’s recall of Bhushan Power and Steel judgement is a step in the right direction

Bhushan Power and Steel

The Supreme Court’s recall of its earlier judgment in the Bhushan Power and Steel Limited (BPSL) matter offers a glimmer of hope for commercial certainty under the Insolvency and Bankruptcy Code. When the two-judge bench acknowledged that the earlier judgment “does not correctly consider the legal position as has been laid down” in several precedents and scheduled the matter for fresh hearing, it marked a welcome recognition of the concerns that many of us in the legal fraternity had harboured about that troubling verdict.

The recalled judgment of May 2, 2025 (May Judgment) had set aside JSW Steel’s Resolution Plan for BPSL –  approved by the NCLT in 2019 and upheld by the NCLAT in February, 2020 – after more than five years of successful implementation. More disturbingly, it had directed liquidation of a fully revived company by invoking its extra-ordinary powers under Article 142 of the Constitution of India.

IBC, a path breaking law legislated by Indian Parliament, is an economic legislation with the objective to attain economic growth.  It has been labelled as the ‘blue chip reform’ intended to be transformative piece of legislation, seeking to bring revolutionary and cultural transformation. The intelligentsia has gone to the extent of claiming that IBC has potential in providing “the road to Viksit Bharat” with the hope that India takes up insolvency global thought leadership.

BPSL stood fully revived and well established and production of steel multiplied.  The Judgement not only set aside the finally approved Resolution Plan, but also directed liquidation of BPSL by invoking Article 142 of the Constitution thereby sounding death knell to a previously insolvent company which had been turned around into a profit making one. The recall of this judgment provides hope for the restoration of commercial certainty.

The May Judgment had given its reasons for arriving at a conclusion that the Resolution Plan suffered from some procedural irregularities.  There can be a legitimate debate on the correctness of those reasons itself. Keeping the issue on merits aside, the general concerns are discussed hereunder:

The May Judgment did not keep in mind the interest of the concerned parties and economic interest of the nation. Imbuing economic jurisprudence in decision making is the need of the hour.

The legal regime in our country is moving in the direction of economic welfare and efficiency, and enactment of IBC is an outstanding example thereof. At the same time, the judicial wing is also required to perform its role in this direction while undertaking the task of performing its judicial function. The judiciary carries out the role of interpreting the law and it should harmonize its interpretation wherever possible with our social and economic development. The May Judgment had departed from this approach.

This was done in order to uphold the objectives of the IBC and to serve the larger economic interest of corporate revival.

Maximising asset value, preserving jobs, and maintaining the going concern of the business are not only broader goals of IBC, they have direct connect with the economic growth of the nation. The judiciary has repeatedly recognised, and rightly so, that multiple stake-holders stand to lose significantly if a Resolution Process fails.  While addressing procedural anomalies is important, it is crucial to remain mindful of the larger economic import and the primary goal of providing a second chance to failing but viable businesses. 

Proof of pudding is in its eating.  Here, BPSL had been fully revived.  However, the May Judgment had ordered liquidation in the name of some procedural anomalies, contrary to the ethos of IBC which aims at avoiding reversal of Resolution Plans, upholding the commercial wisdom of the CoC and engendering certainty, predictability and the rule of law.

As one of sharp minds and visionary, Mr. Amitabh Kant puts it “the IBC is one of the flagship reforms of the last few years. It helped reverse the twin balance sheet crisis, with NPAs now at a historic low. Importantly, it has inculcated credit disciple and reinstated, perhaps for the first time the sanctity of the credit contract. … A recent judgement of the Supreme Court has unfortunately shaken the foundation of the IBC, and indeed raised concerns about the rule of law – by reversing a resolution plan that was 5 years previously on thin procedural grounds, disregarding the commercial wisdom of the Committee of the Creditors (CoC).  By directing the liquidation of BPSL, the Court reversed one of the most elaborate resolution processes in India’s insolvency history. …”

While the Supreme Court’s recall of the May Judgment is a welcome step that may help restore investor confidence, the concerns I have highlighted regarding the original judgment remain relevant for the insolvency framework. The recall demonstrates judicial recognition that post- implementation reversal of resolution plans can bring down investor confidence in India and disincentivize prospective Resolution applicants intent on turning around distressed assets, given that it creates a troubling precedent of post-implementation vulnerability. This, in turn, will impact ability of banks and financial institutions to lend in the normal course of business.

The Supreme Court bears a grave responsibility when exercising power under Article 142 of the Constitution. This Constitution of India endows with Court with the ability to ensure that ‘complete justice’ is delivered in any case before it. However, such extraordinary power must be wielded with utmost care and must not become a tool for upending statutory framework such as the IBC.