In a landmark judgment that could reshape the future of insolvency resolutions in India, the Supreme Court of India has cancelled JSW Steel’s Rs 19,350 crore acquisition of Bhushan Power and Steel Ltd (BPSL), citing multiple procedural and legal violations under the Insolvency and Bankruptcy Code (IBC). The apex court’s May 2 verdict has sent strong signals across corporate India and the financial ecosystem, redefining the standards for resolution plan approval and enforcement.

Background of the Deal

JSW Steel’s takeover of Bhushan Power and Steel was among the largest and most complex insolvency resolutions in India. Approved by the Committee of Creditors (CoC) in October 2018, it was submitted to the National Company Law Tribunal (NCLT) in February 2019, significantly exceeding the statutory timeline under Section 12 of the IBC, which allows a maximum of 330 days for completion.

Despite the delays, the NCLT cleared the plan on September 5, 2019, and JSW Steel was supposed to infuse Rs 8,550 crore in equity, along with payments to creditors. However, the company delayed these payments, eventually making partial disbursements years later — a delay the court noted had no legal justification and appeared to coincide with a rise in steel prices, implying commercial opportunism.

Supreme Court's Observations on Procedural Lapses

The Supreme Court focused sharply on missed statutory deadlines and failure to justify delays, stating that no legitimate reasons were provided for submitting the resolution plan after the 330-day cap.

Key Lapses Identified:

• Time-Barred Resolution Plan:
  The plan was submitted to the NCLT beyond the allowed period under the IBC, which invalidates it under Section 12.

• Failure to Assess Eligibility (Section 29A):
  The Resolution Professional (RP) failed to verify whether JSW Steel or its promoter-linked entities were ineligible under Section 29A, which bars defaulting promoters and associated entities.

• Violation of Section 30(2):
  Operational creditors were not treated fairly and equitably, violating a key IBC requirement.

• Avoidance Transactions Ignored:
  No effort was made to pursue avoidance transactions, which are essential to claw back assets siphoned off by former promoters.

Conduct of CoC and Resolution Professional Under Scrutiny

The Committee of Creditors, tasked with safeguarding the interests of lenders, was found to have overlooked major compliance gaps and accepted delayed payments without protest. The court said this compromised the commercial wisdom doctrine, where creditor decisions are generally upheld unless legally flawed.

Further, the Resolution Professional, whose duty is to act independently and uphold the law, failed to do proper due diligence in verifying eligibility, timelines, and fair distribution of proceeds — core elements of any resolution process.

JSW Steel’s Conduct Criticised

While the NCLT cleared the resolution plan in September 2019, JSW Steel did not act to implement it immediately. Instead, it deferred payments to financial creditors until March 2021 and to operational creditors until March 2022.

In parallel, JSW filed an appeal before the National Company Law Appellate Tribunal (NCLAT) challenging certain conditions, instead of executing the plan as approved. The apex court found this legally untenable, and observed that steel prices rose during this period, suggesting the delays were motivated by commercial benefits.

NCLAT’s Role and Overreach

The Supreme Court also reprimanded the NCLAT for exceeding its jurisdiction, particularly for modifying the terms set by the NCLT and for passing unrelated directions. This included decisions involving Nova Iron and Steel, a sister concern of BPSL, which was outside the purview of the original resolution plan.

Questionable Financial Structuring

Another red flag raised was the financing structure of the acquisition. JSW’s deal was routed through a trust entity, which borrowed funds with a put option backed by JSW Steel. This effectively meant the listed company’s balance sheet was used as a credit support, which the court hinted was a problematic structure mirroring previous dubious practices.

Such trust-based structures are often used to enable promoters to acquire distressed assets and then resell them to group entities at a premium, raising transparency concerns.

Supreme Court’s Verdict: Liquidation Ordered

Considering the above lapses, the Supreme Court set aside the resolution plan and ordered the liquidation of BPSL. In its judgment, the court highlighted that IBC’s timelines and statutory compliance are sacrosanct, and cannot be overridden by commercial interests.

Payments already made by JSW Steel were referred to a March 6, 2020 undertaking by the CoC, which had agreed on a refund mechanism in case of an adverse court decision. Now, this refund will be processed according to that mechanism, likely under escrow arrangements.

What Lies Ahead for JSW Steel?

The court’s decision leaves JSW Steel with few legal options:

1. Review or Curative Petition:
   JSW may file for a review or curative petition, but such appeals are rarely successful and face a high legal bar.

2. Participate in Liquidation:
   JSW could renegotiate with the CoC during the liquidation phase or bid again as an external buyer. However, its previous conduct may weigh heavily on such considerations.

3. Enforce Refund Clause:
   JSW may now seek to enforce the CoC’s 2020 refund clause, possibly through fresh litigation or negotiations to retrieve its investment.

4. Regulatory Remedies:
   JSW may approach the Income Tax Department or the Ministry of Corporate Affairs for tax or regulatory relief, but the Supreme Court has clarified that such forums cannot interfere with the insolvency process.

Industry-Wide Impact

This ruling is expected to set a precedent for future insolvency cases, especially:

• Enforcement of statutory timelines under the IBC.

• Strict scrutiny of resolution plans, including financing structures.

• Accountability of CoC and RPs, making them more cautious.

• Discouragement of strategic delays by resolution applicants.

This case might also influence how future deals are structured and how promoters and group companies participate in distressed asset acquisitions.

Conclusion

The Supreme Court’s ruling is a watershed moment for India’s corporate insolvency landscape. It reinforces the sanctity of IBC processes, timelines, and principles — signaling that legal shortcuts and opportunistic behavior will not be tolerated, no matter how large the deal.

The cancellation of JSW Steel’s high-profile acquisition of Bhushan Power and the liquidation order is not just a setback for a single company, but a warning to all stakeholders in the insolvency ecosystem to prioritize compliance, fairness, and integrity over expediency.

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