SC scraps IBC buyout of Bhushan Power & Steel by JSW Steel

The Supreme Court on Friday declared JSW Steel Limited’s resolution plan for Bhushan Power & Steel Limited (BPSL) “illegal” and ordered the latter’s liquidation, four years after the company was acquired by JSW Steel under the Insolvency and Bankruptcy Code (IBC).

Following the ruling, JSW Steel shares fell sharply.

On the BSE, the stock closed at Rs 972.15, down 5.46 per cent.

The court’s decision came from a two-judge Bench comprising Justices Bela M Trivedi and Satish Chandra Sharma.

The Bench held that the resolution plan was “illegal” and “contrary” to the provisions of the IBC.

"The resolution plan of JSW, as approved by the CoC (committee of creditors), did not conform to the requirements in Section 30(2) of the IBC, the same being in flagrant violation of the express provisions of the IBC and CIRP (Corporate Insolvency Resolution Process) regulations.

"The said resolution plan was liable to be rejected by the NCLT (National Company Law Tribunal) under Section 31(2) at the very first instance.

"The impugned judgment passed by the NCLAT (National Company Law Appellate Tribunal) is perverse and corum-non-judis and is liable to be set aside,” the Bench said.

The CoC, the court further said, “had failed to exercise its commercial wisdom while approving the resolution plan of JSW”, which was again in “absolute contravention” of the mandatory provisions of the IBC and CIRP regulations.

“The CoC also failed to protect the interests of the creditors by taking contradictory stands before the Supreme Court and accepting the payments from JSW without any demurrer and supporting JSW’s ill-motivated plan against the interests of the creditors,” the court said.

Sharp observations were also made about the resolution professional (RP) overseeing the process.

The Supreme Court found that the RP had “utterly failed” to discharge his statutory duties under the IBC and CIRP regulations.

The Bench observed that JSW wilfully contravened and did not comply with the terms of the resolution plan for a period of two years, which frustrated the very object of the IBC and consequently vitiated the insolvency process of BSPL.

Making the above observations, the court set aside the orders of the NCLT and the NCLAT of September 5, 2019, and February 17, 2020.

“The resolution plan of JSW, as approved by the CoC, stands rejected, it being not in conformity with Section 30(2) IBC read with Section 31(2) of the IBC,” it said.

The payments made by JSW to financial creditors and operational creditors, as also the equity contributions if any infused under the garb of execution of the resolution plan, will be subject to the outcome of the present set of appeals and shall be dealt with by the parties according to the statement given by the CoC based on the March 6, 2020 order.

The court also held that JSW had secured the winning bid by misrepresenting facts before the CoC.

“Also, after the approval of the resolution plan, it did not act on it for two years, though there was no legal impediment,” it further said.

The ruling came on a set of appeals filed by operational creditor Kalyani Transco, Sanjay Singhal (former promoter of BPSL), and creditors Jaldhi Overseas and CJ Darcl Logistics.

As the court rejected JSW’s resolution plan, it did not express anything on the State of Odisha’s claims related to electricity and tax dues, and disposed of the state’s appeal accordingly.

The story of BPSL’s resolution -- one of the first 12 cases flagged by the RBI under the insolvency law -- was protracted, marked by delays, disputes, and legal hurdles.

The debt-laden company was admitted for resolution under CIRP in 2017.

JSW Steel’s Rs 19,700 crore resolution plan -- the company’s largest acquisition -- was approved by the NCLT in September 2019.

The plan included a Rs 19,350 crore payment to financial creditors, translating into a recovery of 41.03 per cent on admitted claims of Rs 47,157.99 crore.

However, in October 2019, the Enforcement Directorate issued a provisional attachment order for BPSL assets worth Rs 4,025.23 crore, citing alleged violations by the former promoters under the Prevention of Money Laundering Act (PMLA).

JSW Steel challenged the attachment before the NCLAT, which ruled in its favour in February 2020, stating the ED’s action was without jurisdiction.

Later, in December 2024, the Supreme Court also directed the ED to hand over the attached assets to JSW.

But Friday’s setback in the apex court comes at a time when JSW Steel has already invested in expanding BPSL capacity from 2.75 million tonne (mt) at the time of acquisition to 4.5 mt.

The acquisition, which gave JSW Steel a foothold in the east, has plans to increase capacity further to 5 mt by September 2027.