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.