JSW Steel Setback as Supreme Court Orders Bhushan Power Liquidation

Apex Court Rejects ₹19,700-Crore Resolution Plan, Terms It Legally Flawed Under IBC Framework

In a significant legal blow to JSW Steel, the Supreme Court of India on May 2 rejected its ₹19,700-crore resolution plan for Bhushan Power and Steel Ltd (BPSL), thereby ordering the company’s liquidation. The verdict represents a major reversal for JSW Steel, which had already acquired an 83.3% stake in BPSL effective from October 1, 2021, following a protracted insolvency battle. The apex court ruled that the resolution plan approved by the Committee of Creditors (CoC) was illegal, effectively voiding one of India’s largest insolvency-driven takeovers under the Insolvency and Bankruptcy Code (IBC).

Highlights:

• Supreme Court declares JSW Steel’s IBC resolution plan illegal: Invalidates CoC-approved takeover of Bhushan Power and Steel.

• Orders liquidation of BPSL: Nullifies JSW’s 83.3% ownership acquired in 2021.

• ₹19,700-crore resolution bid now void: One of the biggest insolvency resolution deals overturned by SC.

Two Major Violations Cited by Supreme Court in JSW Steel-BPSL Deal

Equity-Debenture Mix and IBC Timeline Breach Identified as Core Legal Issues

The Supreme Court cited two specific violations in JSW Steel’s resolution plan that led to its rejection. Firstly, the company used a mix of equity and optionally convertible debentures (OCDs) to finance the acquisition of BPSL, while the plan should have been executed exclusively through equity, as mandated under IBC norms. Secondly, JSW Steel failed to implement the resolution plan within the statutory deadline specified under the IBC, a delay that proved fatal to the legality of the takeover. These violations led the court to question both the legal structure and timing of the acquisition, ultimately resulting in its cancellation.

Highlights:

• Violation #1: Use of OCDs alongside equity deemed impermissible under IBC.

• Violation #2: Delay in implementing resolution plan violated IBC timeline provisions.

• Court ruling underscores strict adherence to IBC procedures: Sets precedent for future insolvency resolutions.

Market Reacts Sharply: JSW Steel Shares Fall Amid Legal Uncertainty

Stock Drops 6% on BSE as Legal Cloud Hangs Over Major Acquisition

The Supreme Court’s ruling triggered an immediate and adverse reaction in the financial markets. At 1:30 pm on May 2, JSW Steel’s stock was trading nearly 6% lower at ₹965 apiece on the Bombay Stock Exchange (BSE), reflecting investor apprehension over potential financial write-downs and strategic uncertainty following the court’s decision. The development could have far-reaching implications not just for JSW Steel, but also for other potential resolution applicants under the IBC framework, as it reinforces the judiciary’s intent to ensure full compliance with statutory insolvency procedures.

Highlights:

• JSW Steel shares tumble 6%: Stock reacts negatively to SC liquidation order.

• Investor sentiment shaken: Concerns over strategic implications and financial provisioning.

• Reinforces legal scrutiny over IBC transactions: Adds caution for future resolution applicants.

JSW Steel Responds to Court Ruling, Awaits Full Order Before Legal Recourse

Company Seeks Legal Advice Before Charting Future Course

Following the apex court’s verdict, JSW Steel issued a formal statement acknowledging the rejection of its resolution plan. The company clarified that while the Supreme Court has pronounced its judgment, it is yet to receive the complete written order to fully understand the basis for rejection. JSW Steel added that it would consult legal advisors before deciding on its next steps, which could include filing for a review or seeking alternate remedies under law. The company’s acquisition of BPSL had earlier been cleared by the National Company Law Appellate Tribunal (NCLAT), which has now been effectively overruled by the Supreme Court.

Highlights:

• JSW Steel acknowledges SC ruling: Confirms plan rejection and potential legal review.

• Awaits complete court order: Decision on legal strategy pending full analysis.

• NCLAT approval overridden: Supreme Court invalidates lower tribunal’s clearance.

Bhushan Power and Steel’s Troubled Insolvency History

Massive Debt, Fraud Allegations and ED Probe Complicate Resolution

Bhushan Power and Steel was among the first batch of 12 high-value corporate debtors that the Reserve Bank of India directed lenders to refer to insolvency under the IBC framework. The company, with admitted claims of ₹47,158 crore, had defaulted on its loan obligations, prompting its lead creditor, Punjab National Bank (PNB), to initiate insolvency proceedings. JSW Steel had emerged as the successful bidder with a ₹19,700-crore offer after a prolonged legal battle. Adding to the complexity, BPSL was also named in a 2020 prosecution complaint by the Enforcement Directorate (ED) in connection with a ₹47,000-crore bank fraud and alleged money laundering activities by its former chairman and managing director. Although the Delhi High Court had quashed money laundering charges against BPSL earlier this year, the company’s controversial past added layers of legal uncertainty to the resolution process.

Highlights:

• BPSL was in RBI’s first IBC referral list: Insolvency triggered by ₹47,158 crore in unpaid dues.

• PNB-led lender consortium initiated insolvency: Recovery from resolution was pegged at ₹3,800 crore.

• ED probe linked to ₹47,000-crore fraud: Former top management accused of laundering loan proceeds.

• Delhi HC quashed ED charges earlier this year: Legal complexities persisted despite court relief.

Implications for Punjab National Bank and Other Creditors

PNB May Miss Recovery Target as Liquidation Disrupts Resolution Plan

The Supreme Court’s liquidation directive may also adversely impact the expected recoveries of the lender consortium, led by Punjab National Bank. PNB had earlier expected to recover ₹3,800 crore from the BPSL resolution, forming a crucial component of its annual cash recovery target of ₹8,000 crore for FY25. With the resolution plan now scrapped, the bank’s recovery projections face significant risk, as liquidation typically results in lower asset realization compared to an operational resolution. This development could affect balance sheet provisioning and recovery timelines for multiple banks exposed to BPSL’s loans.

Highlights:

• PNB expected ₹3,800 crore recovery from BPSL: Key part of ₹8,000 crore annual target.

• Liquidation may lower recovery prospects: Potential write-downs or delays likely.

• Banking sector braces for hit: Lenders exposed to BPSL may need to revise recovery assumptions.