JSW-Bhushan Steel saga: The infamous “dirty dozen” and the future of IBC

The Supreme Court's recent judgment in the matter of Kalyani Transco v. Bhushan Power & Steel Ltd has generated substantial interest and curiosity among stakeholders, prompting speculation regarding the future of the Insolvency and Bankruptcy Code, 2016 (IBC/Code). Although the Code is still in the process of  evolution, its functioning occasionally exhibits both excitement and  disappointment, while simultaneously captivating the attention of stakeholders.

For a thorough examination, we must revisit the fundamental principles, particularly the objectives delineated in the preamble of the Code. These objectives encompass, among others, time-bound resolution, value  maximisation, entrepreneurship promotion and credit availability. The  initial inquiry is whether the Code has effectively achieved these stated objectives. If the answer to this question is negative, it raises a more profound question: Why?

The objectives of the Code are interdependent. For instance, if there is no time-bound resolution, there cannot be value maximisation, nor can there be entrepreneurship promotion. If there is no certainty and finality in corporate insolvency resolution processes (CIRPs), it may not instill confidence in prospective resolution applicants. Once prospective resolution applicants lose confidence, the CIRP will become a non-starter, and consequently, the Code will be unable to achieve its objectives.

We may like to see this judgment from this standpoint. The National Company Law Tribunal (NCLT) approved the resolution plan on September 5, 2019. The National Company Law Appellate Tribunal (NCLAT) upheld the NCLT order on February 17, 2020 and the appeal before the Supreme Court was filed thereafter. Thus, the matter was pending before the Supreme Court for over five years until it was decided on May 2, 2025. The findings of the Supreme Court are summarised as under: 

(i) Successful resolution applicant (SRA) can’t be a “person aggrieved” if the resolution plan is approved by NCLT;

(ii) Gross violation of mandatory provisions of IBC by the Resolution Professional (RP), Committee of Creditors (CoC) and SRA, who were in collusion with each other;

(iii) RP has not verified the eligibility of SRA u/s 29A IBC;

(iv) Violation of mandatory time lines u/s 12 of the IBC and no extension was sought by RP/CoC beyond 180 days of insolvency commencement date, although resolution plan was approved after 180 days;

(v) Breach in implementation of plan, as payments to claimants delayed;

(vi) Out of equity commitment of ₹8,550 crore, ₹8,450 crore was infused by way of compulsorily convertible debentures (CCD), thus modifying the approval plan;

(vii) H-1 not declared by CoC. Negotiations carried out only with JSW and amended plan was submitted. RP did not verify whether amended plan was IBC compliant;

(viii) CoC failed to exercise commercial wisdom;

(ix) Consequently, the orders of NCLT/NCLAT approving the plan have been set aside.

In 2019, JSW acquired the corporate debtor (CD), Bhushan Steel, as a going concern following the approval of the resolution plan. For five years, the CD was managed under the new leadership, with a renewed business philosophy aimed at reviving the troubled enterprise. There would have been improvements in technology, marketing  strategies, management focus etc. The stakeholders, including thousands of employees, suppliers and buyers, were expected to adapt to the changed business environment. However, the recent order resets the clock back to July 26, 2017, the commencement date of the insolvency proceedings, while simultaneously directing liquidation. The big question being widely  discussed is, could this have been avoided?

Even if the grounds of rejection of the resolution plan are not controverted, had the appeal before the Supreme Court been decided expeditiously, in 2020 itself, would it have caused the kind of jitters being felt now? Perhaps not. After failure of erstwhile management, five years are too long for a corporate enterprise to run under a new entrepreneurship. New business relationships are built, new stakeholders get onboarded with global ramifications.

There is no justification for the irregularities in the resolution plan approval process, violation of mandatory provisions of the Code, the delay or breach of its implementation, or the dubious role of the CoC/RP. In fact, the deterioration in the functioning of the CoC or the RP is more evident in general than the specifics of this case, which necessitates a renewed approach for stricter action. Regrettably, in this case, while holding that the CoC/RP/SRA were in collusion with each other and violated mandatory provisions of the Code, there is no mention of any action against them or  penalties being imposed.

In this context, we must address the pressing question: could the events have unfolded differently? Specifically, we can consider the following scenario: 

(i) While upholding the violations of the Code, the Supreme Court could have invoked Article 142 of the Constitution of India. This would have allowed the resolution plan to proceed, and the Supreme Court could have directed the SRA to pay interest on delayed payments, impose penalties for delays or violations, and simultaneously stated that this would not be considered a precedent; and 

(ii) The Supreme Court could have penalised and directed strict action against the CoC/RP to establish a precedent that would restore confidence in the IBC’s functioning.

Does setting the clock back after a long period of five years inspire confidence of global investors in the IBC process in India? Does it restore the faith in certainty and finality in the IBC mechanism in India? Would  entrepreneurs looking for inorganic growth get inspired? If the answer to these questions is in the negative, then what will be the fate of IBC if there are no takers for resolution plans?

It may be beneficial to reiterate the objectives of the Code: time-bound  resolution, value maximisation, entrepreneurship promotion and credit availability. 

Is the remedy worse than the disease? The jury is out!

Atul V Sood is an Advocate.