Supreme Court Ruling on JSW Steel's Resolution Plan for BPSL
The Supreme Court's recent judgment declaring JSW Steel's resolution plan for Bhushan Power & Steel Ltd (BPSL) illegal presents a significant challenge to the current bankruptcy recovery processes. The court's decision, which comes four years post-approval of the resolution plan, mandates the liquidation of BPSL and casts doubt on the efficacy of the Insolvency and Bankruptcy Code (IBC).
Key Findings of the Supreme Court
- Non-conformity with IBC: The resolution plan failed to meet requirements under Section 30(2) of the IBC.
- Resolution Professional's Shortcomings: The resolution professional did not fulfill statutory duties.
- Committee of Creditors (CoC) Failures:
- Failed to apply commercial wisdom in approving JSW Steel's plan.
- Did not protect creditor interests effectively.
- National Company Law Tribunal (NCLT) Oversight: Should have rejected the plan under Section 31(2) of the IBC.
- Misrepresentation and Inaction: JSW Steel misrepresented facts and delayed actions post-approval without consequences.
The court's ruling indicates systemic procedural failures, raising concerns about the bankruptcy process's integrity.
Implications and Challenges
- Lender Impact: Lenders must return recovered funds, affecting financial provisions and profits as they received ₹19,350 crore of a ₹47,204 crore claim.
- Liquidation Concerns: Liquidation contradicts the IBC's goal of debtor revival, potentially diminishing stakeholder value and economic health.
- Historical Precedents: Reference to the unintended economic impacts following the 2012 telecom licenses cancellation.
Recommendations and Future Considerations
- Courts should weigh economic impacts of decisions.
- Consider seeking new bidders with penalties for system exploitation.
- Address tribunal competence and resolution process delays to restore confidence.
- The Union government should analyze and amend IBC and tribunal capacities accordingly.