Supreme Court Judgment on Bhushan Power and Steel (BPS) Case

The Supreme Court's recent decision on the BPS case highlighted significant issues in the resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC).

Key Findings

• The judgment identified multiple illegalities and lapses during the resolution process, involving the resolution professional (RP), resolution applicant (RA), committee of creditors (CoC), and adjudicating authorities like the NCLT and NCLAT.
• Despite these findings, the court refrained from issuing preventive or penal actions, opting to let the law address the wrongdoers over time.

Order for Liquidation

• The Court ordered the liquidation of BPS, initially rescued under the IBC in 2019, noting that the process contained significant irregularities.
• This decision, while legally sound, poses economic challenges and impacts business confidence and the broader economy.

Concerns Raised

• Timeliness: Delays in decision-making by public agencies can render transactions unviable due to the time value of money, which is crucial in commercial transactions.
• Finality: Undoing transactions long after their implementation increases economic and institutional costs and dissuades potential investors due to the risk of reversal.
• The decision suggests that any commercial transaction, regardless of state approvals, can be overturned, creating uncertainty in the business environment.

Structural Asymmetries

The current framework exhibits two key asymmetries:

• Asymmetry of Timelines:
   
  • Market participants face strict timelines and accountability, whereas adjudicating authorities operate without binding timelines, leading to delays. 
  • The principle actus curiae neminem gravabit (the act of the court shall prejudice no one) is often cited, allowing adjudicatory delays.
• Asymmetry of Decision-Making:
• Market players make decisions with full accountability, while adjudicatory structures can revise decisions without bearing responsibility. 
• Business decisions should be irreversible, and state approvals should reflect the same permanence.

Recommendations for Policy and Institutional Reform

• Finality of Transactions: Commercial transactions should be final post-approval, with a system of deemed approval if authorities fail to act timely.
• Accountability and Punishment: Irregularities should lead to swift penalties for responsible parties without disturbing the underlying transactions.
• Economic regulations should prioritize transactional certainty while enabling rigorous oversight to prevent misconduct.
• Institutional reforms should focus on a single-tier approval mechanism with professional competence and accountability.

These insights highlight the need for a balanced approach to insolvency resolutions, ensuring both rigorous oversight and transactional certainty to foster a stable economic environment.