In a rare and consequential verdict impacting India's insolvency landscape, the Supreme Court of India on May 2, 2025, set aside the resolution plan submitted by JSW Steel for Bhushan Power and Steel Ltd. (BPSL) and directed the initiation of liquidation proceedings for the corporate debtor. The Court found the entire Corporate Insolvency Resolution Process (CIRP) to be vitiated by gross violations of the Insolvency and Bankruptcy Code (IBC) and its accompanying regulations by the Resolution Professional (RP), the Committee of Creditors (CoC), and the successful Resolution Applicant (SRA), JSW Steel.
The judgment came in a batch of appeals challenging the orders of the National Company Law Tribunal (NCLT), which had initially approved the plan, and the National Company Law Appellate Tribunal (NCLAT), which had upheld the approval with modifications.
Appeals Allowed and Their Grounds
Multiple appeals were considered by the Supreme Court in this matter, each raising distinct grievances against the approval of JSW Steel’s resolution plan by the NCLT and subsequently by the NCLAT:
- Operational Creditors’ Appeals: Kalyani Transco, Jaldhi Overseas Pte. Ltd., Medi Carrier Pvt. Ltd., and CJ Darcl Logistics Ltd. (all operational creditors) challenged the NCLAT order on grounds of inadequate payment, delayed implementation, and non-compliance with IBC provisions.
- Ex-Promoters’ Appeal: Mr. Sanjay Singal and others, the erstwhile promoters, contested the approval process, highlighting procedural lapses.
- State of Odisha’s Appeal: The state government challenged the treatment of statutory dues and procedural irregularities.
- Other Creditors: The Government of Odisha and other parties raised concerns over the distribution of proceeds and adherence to statutory requirements.
The Supreme Court found merit in these appeals, concluding that the approval and implementation of JSW’s plan were marred by serious legal and procedural violations.
Reasons for Setting Aside JSW Steel’s Resolution Plan
1. Flagrant Violations of the IBC and CIRP Regulations
The Court’s judgment highlighted multiple “flagrant violations” of the IBC and the CIRP regulations by JSW, the Resolution Professional (RP), and the Committee of Creditors (CoC). Key findings included:
- Mandatory Timelines Disregarded: The application seeking approval of JSW's resolution plan was filed before the NCLT on February 14, 2019, well beyond the maximum permissible period of 270 days (as the law stood at the time of the CIRP initiation in 2017, prior to the 2019 amendment introducing the 330-day limit). The RP failed to seek an extension of time from the NCLT as required, and the NCLT erred in entertaining the application filed after the expiry of the statutory period.
- Delayed Implementation: The upfront payments to financial creditors were delayed by 540 days, and payments to operational creditors by 900 days-far beyond the timelines mandated under the IBC. The Court noted that there was no legal stay preventing JSW from making timely payments.
- Failure to Verify Eligibility under Section 29A: The Resolution Professional failed in his duty to verify and certify JSW Steel's eligibility to submit a resolution plan under Section 29A of the IBC. The mandatory compliance certificate in Form H of the CIRP Regulations, 2016, was not submitted by the RP, and there was nothing on record to show that the RP had verified the contents of the affidavit filed by JSW regarding its eligibility.
- Resolution Plan Contravention of Law: The approved resolution plan was in direct contravention of Regulation 38(1) of the CIRP Regulations, which, at the relevant time, mandated that the amount due to operational creditors under a resolution plan must be given priority in payment over financial creditors. JSW's plan did not adhere to this mandatory requirement, giving priority to financial creditors.
- Suppression of Material Facts: JSW was found to have suppressed crucial information during the process, undermining transparency and fairness.
- Non-Compliance by RP and CoC: The RP and CoC failed to discharge their statutory duties with due diligence, particularly in protecting the interests of all creditors and ensuring compliance with the IBC.
2. Improper Use of Appellate Process
- JSW’s Appeal Not Maintainable: The Supreme Court observed that JSW, as the successful resolution applicant, had no legal grounds under Section 61(3) of the IBC to appeal the NCLT’s approval of its own plan. The NCLAT’s decision to entertain and allow JSW’s appeal, while dismissing those of other aggrieved parties, was deemed a clear abuse of process.
- Modification of Plan Conditions: The NCLAT modified several conditions of the plan to suit JSW without ensuring fresh compliance or re-approval from the CoC, undermining the sanctity of the resolution process.
3. Unjust Enrichment and Misuse of Process
- Unjust Enrichment: The Court found that JSW delayed compliance with the resolution plan to benefit from favorable market conditions (i.e., rising steel prices), thereby unjustly enriching itself at the expense of creditors.
- Creation of a Fait Accompli: JSW’s belated compliance attempts were rejected by the Court, which held that parties cannot create a “fait accompli” to frustrate judicial proceedings, especially when the entire CIRP stood vitiated due to non-compliance with mandatory legal provisions.
4. CoC’s Lack of Commercial Wisdom
- The Supreme Court criticized the CoC for acting without proper commercial wisdom, failing to ensure that the resolution plan was in conformity with Sections 30(2) and 31(2) of the IBC. The Court observed that while the commercial wisdom of the CoC is paramount, it must be exercised within the bounds of the law. The CoC approved a plan that was in contravention of mandatory IBC provisions and regulations and later took contradictory stands, which the Court found dubious and not in the best interest of all creditors. The Court emphasized that the CoC’s decisions must always be in compliance with the law and protect the interests of all stakeholders.
Finding that the entire CIRP was fundamentally flawed and vitiated by the aforementioned irregularities and violations, the Supreme Court set aside the orders of both the NCLT and the NCLAT. The Resolution Plan of JSW Steel was rejected for not conforming to the requirements of the IBC and its regulations.
In exercise of its powers under Article 142 of the Constitution of India and in view of the provisions of Section 33(1) of the IBC (which mandates liquidation if a resolution plan is not received within the maximum period or is rejected), the Supreme Court directed the Adjudicating Authority (NCLT) to initiate liquidation proceedings against BPSL in accordance with the law.
The payments made by JSW Steel during the pendency of the appeals were deemed subject to the outcome of the appeals and are to be dealt with by the parties as per the statement recorded in the Court's earlier order. The issue of entitlement to Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) generated during the CIRP was left open.
This Supreme Court’s judgment sets a strong precedent for strict adherence to the IBC’s timelines and procedural safeguards, underscoring the judiciary’s commitment to upholding the integrity of the insolvency process and protecting the interests of all stakeholders.
Judgment: https://api.sci.gov.in/supremecourt/2020/7358/7358_2020_9_1502_61572_Judgement_02-May-2025.pdf
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