In a landmark judgment that could reshape how insolvency resolution plans are scrutinized in India, the Supreme Court has cancelled JSW Steel’s Rs 19,350 crore acquisition of Bhushan Power and Steel Ltd (BPSL). Instead, the apex court has ordered the liquidation of BPSL, marking a turning point in one of the most high-profile cases under the Insolvency and Bankruptcy Code (IBC).
Why Was the JSW-BPSL Deal Cancelled?
The case was pushed back into legal spotlight after operational creditors of BPSL raised objections. They argued that their dues were unfairly ignored and that the resolution process was riddled with serious procedural lapses. Their challenge forced a closer judicial review of how the Resolution Professional (RP) and the Committee of Creditors (CoC) handled the matter.
Key Issues Raised by the Supreme Court
The May 2 Supreme Court ruling highlighted several crucial gaps in the process:
Timeline Violations: The court noted that while the CoC approved the resolution plan on October 10, 2018, it was submitted to the National Company Law Tribunal (NCLT) only on February 14, 2019. This delay breached the IBC’s statutory limits — 270 days, extendable up to 330 days. The court said this delay lacked any justifiable explanation and rendered the entire resolution process time-barred.
Lack of Creditor Oversight: There were concerns about how creditor interests were managed. The apex court observed inconsistent oversight and raised alarms over how promoter-linked structures found their way into the resolution plan, despite clear signs of non-compliance.
⚠️ “The process was procedurally flawed and missed key legal benchmarks,” the court observed.
The Financing Structure Under Scrutiny
Interestingly, the JSW Steel transaction was routed through a trust that borrowed funds backed by a put option on JSW Steel itself. This means the company’s own balance sheet was used as credit support — a structure that’s been used in other big-ticket distressed asset deals. Insiders say such setups are often used to facilitate promoter buybacks before re-selling to larger group entities at a premium.
What Happens to the Money Already Paid?
The court clarified that payments already made by JSW Steel, including dues to both financial and operational creditors, would be subject to a March 6, 2020 agreement by the CoC. This agreement had a refund mechanism in case of an adverse ruling — which is now in effect.
Next Steps for JSW Steel
With the JSW-BPSL resolution plan rejected and liquidation underway, JSW Steel’s options are limited:
The company may file a review or curative petition, though legal experts say such pleas rarely succeed.
Renegotiating with the CoC during liquidation is a possibility. JSW could submit a revised plan or participate as a buyer during the asset sale.
Under Section 53 of the IBC, recoveries follow a “waterfall” mechanism. Whether JSW gets any return will depend on how its claims are classified — and whether they are treated as secured creditors.
JSW may also try to enforce the refund clause by legally claiming funds held in escrow accounts.
Lastly, the company might explore tax relief or regulatory support from the Income Tax Department or Ministry of Corporate Affairs. However, the Supreme Court has clarified that such reliefs cannot be sought from the NCLT.
This ruling sets a precedent that insolvency proceedings must follow strict timelines and transparency.
