Supreme Court Quashes Bhushan Power & Steel Resolution Plan, Mandates Liquidation

In a landmark judgment, the Supreme Court of India has quashed the Resolution Plan for M/s. Bhushan Power and Steel Limited (BPSL), previously approved by both the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The Court’s decision highlights critical failures in adhering to the mandatory provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and its associated Regulations, ultimately directing the initiation of liquidation proceedings against BPSL.

Background of the Case

The case originates from the Corporate Insolvency Resolution Process (CIRP) initiated against BPSL, one of the twelve “big accounts” identified by the Reserve Bank of India (RBI) in 2017 for immediate resolution under the newly amended Banking Regulation Act, 1949. Punjab National Bank triggered the CIRP on July 26, 2017, when its petition was admitted by the NCLT. Claims totalling over INR 4.72 lakh crores from financial creditors and INR 621 crores from operational creditors were admitted.

JSW Steel (JSW) emerged as the successful resolution applicant (SRA) after submitting its resolution plan, which was approved by the Committee of Creditors (CoC) through e-voting on October 15-16, 2018. The NCLT subsequently approved JSW’s plan on September 5, 2019, subject to several conditions.

Following the NCLT’s approval, the Directorate of Enforcement (ED) provisionally attached BPSL’s assets on October 10, 2019, under the Prevention of Money Laundering Act, 2002 (PMLA), citing criminal proceedings against BPSL’s erstwhile directors. JSW challenged these conditions and the ED’s attachment before the NCLAT. On February 17, 2020, the NCLAT largely upheld the NCLT’s judgment but modified certain conditions and stayed the ED’s provisional attachment order.

A batch of appeals challenging the NCLAT’s order were subsequently filed before the Supreme Court by various parties, including Kalyani Transco (an operational creditor), Mr. Sanjay Singal (erstwhile promoter), Jaldhi Overseas Pte. Limited (operational creditor), M/s. Medi Carrier Private Limited (operational creditor), CJ Darcl Logistics Limited (operational creditor), and the State of Odisha.

Supreme Court’s Critical Findings

The Supreme Court meticulously examined several aspects of the CIRP, revealing significant procedural and substantive flaws:

1. Maintainability of Appeals:
   The Court affirmed that “any person aggrieved” by an NCLAT order, including operational creditors, erstwhile promoters, and government authorities, has the locus to file an appeal before the Supreme Court under Section 62 of the IBC. This interpretation underscored the in rem nature of insolvency proceedings, where all creditors and stakeholders are necessary participants.
2. Maintainability of JSW’s Appeal before NCLAT:
   The Supreme Court held that JSW’s appeal to the NCLAT challenging the conditions imposed by the NCLT was not maintainable under Section 61(3) of the IBC. Section 61(3) specifies limited grounds for appealing an approved resolution plan (e.g., contravention of law, material irregularity by RP, inadequate provision for operational creditors). Since JSW’s plan was approved, it could not claim to be “aggrieved” on these statutory grounds.
3. NCLAT’s Jurisdiction over PMLA Matters:
   The Court strongly criticized the NCLAT for exercising judicial review powers over the ED’s provisional attachment order, a matter falling within the realm of Public Law. Citing its precedent in Embassy Property Developments Private Limited vs. State of Karnataka & Ors., the Supreme Court reiterated that neither the NCLT nor the NCLAT is vested with powers of judicial review over decisions of statutory authorities in public law matters. The NCLAT’s findings on this issue were declared coram non judice (without legal authority).
4. Gross Non-Compliance with Mandatory IBC Provisions: This formed the core of the Court’s decision to reject the plan.
   • Time-Bound Process Violation: The Court found that the CIRP grossly exceeded the statutory maximum period of 270 days (as per Section 12 prior to its 2019 amendment, which was applicable) from the admission date of July 26, 2017. The Resolution Professional (RP) filed the application for plan approval on February 14, 2019, long after the 270-day limit. No application for extension was filed by the RP within the prescribed period, nor did the NCLT verify adherence to the timeline.
   • Resolution Professional’s Dereliction of Duty: The RP failed to ensure mandatory compliance, including verifying JSW’s eligibility under Section 29A and ensuring the resolution plan provided priority payment to operational creditors as mandated by Regulation 38(1). The RP also failed to file applications for avoidance of transactions, despite BPSL being a “dirty dozen” account.
   • CoC’s Failure in Commercial Wisdom: While the commercial wisdom of the CoC is usually given primacy, the Court found the CoC’s actions to be “dubious” and lacking true commercial wisdom. The CoC approved a plan with “many loose ends” and contradictions, including non-compliance with the priority payment to operational creditors. Furthermore, the CoC initially raised serious allegations against JSW for delaying plan implementation but later changed its stance without demur, accepting belated payments.
   • JSW’s Misuse of Process and Delays: JSW was found to have made misrepresentations to the CoC, delayed upfront payments for significant periods (540 days for financial creditors, 900 days for operational creditors), and failed to infuse equity as committed. The Court stated that JSW created a fait accompli situation by making payments during the pendency of the appeals, an act that “cannot be vindicated by this Court”. Such conduct was deemed “misuse of the process of law and a fraud committed by JSW with the CoC and other stakeholders”.
   • NCLT’s Error in Approval: The NCLT erred in approving JSW’s plan without verifying compliance with Section 12 (timeline) and Section 30(2) (mandatory requirements).

Supreme Court’s Verdict

Based on these findings, the Supreme Court passed the following order:

• The judgments and orders of the NCLT (September 5, 2019) and NCLAT (February 17, 2020) were quashed and set aside.
• JSW’s Resolution Plan was rejected for non-conformity with Sections 30(2) and 31(2) of the IBC.
• The Adjudicating Authority (NCLT) was directed to immediately initiate liquidation proceedings against BPSL under Chapter III of the IBC.
• Payments made by JSW to creditors under the guise of plan implementation were declared subject to the outcome of the appeals, implying a potential refund obligation for the CoC, as per an earlier statement by the CoC’s senior advocate.
• The question of law regarding Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) was left open.
• The appeals filed by Kalyani Transco, Sanjay Singhal & Another, Jaldhi Overseas Pte. Limited, M/s. Medi Carrier Private Limited and CJ Darcl Logistics Limited were allowed.
• The appeals by the Government of Odisha and the State of Odisha were disposed of without expressing an opinion on their claims, given the rejection of the resolution plan.

Conclusion & Way Forward:

The decision is likely to have far-reaching implications for several entities that were revived through the CIRP, especially in cases where the validity of the resolution process remains under litigation before the Hon’ble Supreme Court. A particularly challenging aspect is that the potential reversal of resolution comes years after the completion of the CIRP. In the case of JSW, significant time and resources have already been invested in integrating BPSL into its operations in addition to capital expenditure incurred to expand BPSL’s capacity. The practical feasibility of unwinding post-resolution activities now remains a critical concern.

At the same time, the judgment serves as a strong reminder of the mandatory nature of the IBC’s provisions—especially the importance of strict adherence to timelines and the responsibilities of all stakeholders, including Resolution Professionals, Committees of Creditors, and Successful Resolution Applicants. It underscores the judiciary’s commitment to preserving the integrity of the insolvency resolution framework and ensuring accountability for any attempts to circumvent or delay the process, even in scenarios presented as a fait accompli. The ruling reinforces that the “commercial wisdom” of the CoC, while given due regard, is not absolute and must conform to the fundamental legal tenets of the Code.

Currently, the Hon’ble Supreme Court has granted temporary relief to JSW by directing a status quo with respect to the proceedings before the Learned NCLT. This order shall remain in effect pending the disposal of the review petition(s) to be filed by the Company and adjudicated by the Hon’ble Court.

It remains to be seen how the situation unfolds. In the event of a reversal, critical questions will arise regarding how JSW will operationally and legally unwind the completed transaction and what ramifications such a reversal may have on all stakeholders, particularly in terms of legal exposure, accounting treatment, and tax implications.