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The Supreme Court's decision to set aside JSW Steel's resolution plan for Bhushan Steel and Power Ltd (BPSL) marks a significant moment in the interpretation and enforcement of the Insolvency and Bankruptcy Code (IBC), 2016. The apex court's ruling underscores the importance of adhering to the stipulated timelines within the IBC framework, fulfilling statutory duties by the Resolution Professional (RP), and ensuring that the Committee of Creditors (CoC) exercises its commercial wisdom judiciously and without mala fide intent. The judgment serves as a reminder that the IBC is not merely a mechanism for debt recovery but a structured legal process designed to balance the interests of all stakeholders while promoting the revival and rehabilitation of distressed companies. The court's detailed scrutiny of the procedural lapses and questionable conduct of JSW Steel, the RP, and the CoC highlights the need for greater transparency, accountability, and adherence to the principles of natural justice in insolvency proceedings. The case underscores the complexities and challenges involved in implementing the IBC and emphasizes the crucial role of judicial oversight in ensuring that the insolvency resolution process is conducted fairly and effectively. The Supreme Court’s emphasis on the mandatory nature of timelines under Section 12 of the IBC is pivotal. The court reiterated that the corporate insolvency resolution process (CIRP) must be completed within the statutorily prescribed period, initially 180 days extendable by a maximum of 90 days (prior to the 2019 amendment), totaling 270 days. This strict adherence to timelines is essential for preventing undue delays that can erode the value of the corporate debtor and undermine the effectiveness of the IBC. In the BPSL case, the court found that the RP had failed to file an extension application as mandated under Section 12(2) and Regulation 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The fact that the resolution plan was submitted to the NCLT almost four months after the e-voting process further compounded the violation of the timeline requirements. The court emphasized that such delays are unacceptable and that the NCLT should not have entertained the application for approval of the plan filed in contravention of Section 12. This part of the judgment serves as a strong deterrent against dilatory tactics and underscores the need for strict compliance with the statutory timelines to ensure the efficient and timely resolution of insolvency cases. The Supreme Court's criticism of the RP's failure to file applications for avoidance transactions under Chapter III of the IBC is another crucial aspect of the judgment. Avoidance transactions, including preferential transactions, undervalued transactions, extortionate credit transactions, and fraudulent transactions, are detrimental to the interests of creditors and can undermine the integrity of the insolvency process. The court noted that when the RBI had directed Indian banks to initiate CIRP against the 'dirty dozen' companies, including BPSL, it was obligatory for the RP to investigate and file applications for avoidance transactions. The failure to do so constitutes a serious dereliction of duty and deprives creditors of the opportunity to recover assets that may have been improperly transferred or dissipated. This aspect of the judgment reinforces the importance of thorough investigation and proactive action by the RP to identify and address avoidance transactions, thereby maximizing the recovery of assets for the benefit of all stakeholders. Further, the court highlighted several other non-compliances by the RP, including the failure to certify the eligibility of JSW Steel under Section 29A of the IBC, the failure to confirm whether the plan complied with all applicable laws, and the failure to ensure priority payment to operational creditors as per Section 30(2). Section 29A lays down qualifications for a person to be an eligible plan applicant, and compliance with this provision is essential to ensure that only credible and responsible parties are allowed to participate in the resolution process. The court also noted that the resolution plan gave priority to the payment of dues of financial creditors over operational creditors, contrary to Regulation 38(1) as it stood prior to its amendment in November 2019. This regulation required that the amount due to operational creditors be given priority in payment over financial creditors. The court's emphasis on these non-compliances underscores the need for the RP to diligently fulfill all statutory and regulatory requirements to ensure the fairness and integrity of the resolution process. The court's scathing remarks about the CoC's failure to exercise its commercial wisdom prudently and without bias are particularly noteworthy. The court emphasized that the commercial wisdom of the CoC means a considered decision taken with reference to the commercial interest, the interest of revival of the corporate debtor, and maximization of the value of its assets. The CoC must take into consideration the mandatory requirements of the Code and the Regulations framed by the Board, and ensure that the insolvency resolution is completed in a time-bound manner and for maximization of value of assets. The court found that the CoC had failed to ensure that the RP complied with all relevant statutory provisions and that the plan was feasible as per the IBC Act and 2016 Regulations. The court also frowned upon the possible collusion between the applicant, CoC, and the RP, considering that the CoC changed its stance in the proceedings before the court and accepted Rs. 19,350 Crores at a very belated stage, after having previously criticized JSW for not implementing the resolution plan. This shifting stance of the CoC raised serious doubts about the exercise of its commercial wisdom and suggested a possible lack of bona fides. The court's strong condemnation of the CoC's conduct sends a clear message that the CoC must act independently, transparently, and in the best interests of all stakeholders, and that any collusion or bias will not be tolerated.
The Supreme Court also took a stern view of the 'delay tactics' adopted by JSW Steel. The court noted that JSW, instead of complying with the terms and clauses of the approved resolution plan, filed a company appeal before the NCLAT, just to delay the implementation of the plan. Even after the NCLAT allowed the resolution plan of the SRA, JSW deliberately delayed the implementation of the plan by using the pendency of the appeals as an excuse, despite the absence of any stay granted on the implementation of the plan. The court found that JSW had filed interim applications during the proceedings just to further delay the implementation of the plan. The court expressed dissatisfaction at the whole scenario and observed that such delay tactics were done with a mala fide intent. The court's strong condemnation of JSW's conduct serves as a deterrent against similar attempts to abuse the insolvency process. The court made it clear that nobody should be permitted to misuse the process of law or to take undue advantage of the pendency of proceedings in any court or tribunal. Instituting vexatious and frivolous litigations in the NCLT or NCLAT and delaying the implementation of the resolution plan under the garb of pendency of proceedings was deemed a clear manifestation of mala fide and dishonest intention on the part of JSW. The court emphasized that such acts of misuse and abuse of the process of law cannot be vindicated and would tantamount to ratifying and pardoning the illegal acts committed by JSW. The court's reference to the decision in State Bank of India and Others Vs. Consortium of Murari Lal Jalan and Florian Fritsch and Another further reinforces the principle that neither the tribunal nor the courts should give excessive leeway to the successful resolution applicant to act in flagrant violation of the terms of the resolution plan or in a lackadaisical manner. The judgment in the BPSL case has far-reaching implications for the implementation of the IBC. It underscores the importance of strict adherence to timelines, diligent fulfillment of statutory duties by the RP, prudent exercise of commercial wisdom by the CoC, and the need to prevent and penalize delay tactics and mala fide conduct by any of the stakeholders. The judgment serves as a reminder that the IBC is a comprehensive legal framework designed to balance the interests of all stakeholders and to promote the revival and rehabilitation of distressed companies in a fair and transparent manner. The Supreme Court's decision in the BPSL case is likely to have a significant impact on future insolvency proceedings. It will encourage greater scrutiny of procedural compliance, discourage dilatory tactics, and promote greater transparency and accountability in the resolution process. The judgment will also serve as a guide for RPs, CoCs, and other stakeholders in ensuring that the IBC is implemented effectively and in accordance with its intended objectives. In conclusion, the Supreme Court's decision to set aside JSW Steel's resolution plan for Bhushan Steel and Power Ltd is a landmark judgment that reinforces the principles of the IBC and underscores the importance of fairness, transparency, and accountability in the insolvency resolution process. The judgment serves as a reminder that the IBC is not merely a mechanism for debt recovery but a structured legal process designed to balance the interests of all stakeholders while promoting the revival and rehabilitation of distressed companies. The court's detailed scrutiny of the procedural lapses and questionable conduct of JSW Steel, the RP, and the CoC highlights the need for greater vigilance and adherence to the principles of natural justice in insolvency proceedings.
The case of Kalyani Transco vs M/s Bhushan Steel and Power Ltd and connected appeals, as cited in 2025 LiveLaw (SC) 524, offers critical insights into the judicial interpretation of the Insolvency and Bankruptcy Code (IBC) and the standards expected from various stakeholders involved in the corporate insolvency resolution process (CIRP). The Supreme Court’s decision to set aside JSW Steel's resolution plan for Bhushan Steel and Power Ltd (BPSL) was primarily driven by five key aspects, each revealing significant lapses in procedural compliance and ethical conduct. First, the court highlighted the non-compliance with the timelines prescribed under Section 12 of the IBC 2016. The stipulated timelines are designed to ensure that the CIRP is completed expeditiously, preventing value erosion of the corporate debtor. The court emphasized that these timelines are mandatory, as affirmed in Arcelormittal India Private Limited vs. Satish Kumar Gupta and Others. In the BPSL case, the Resolution Professional (RP) failed to file an application to extend the CIRP within the stipulated time, resulting in a violation of Section 12. This delay not only contravened the law but also prolonged the uncertainty for all stakeholders involved. Second, the court criticized the failure to file applications for avoidance transactions. Under Chapter-III of the IBC, certain transactions conducted by a corporate debtor prior to insolvency, such as preferential, undervalued, or fraudulent transactions, can be avoided to protect the interests of creditors. The RP's neglect to investigate and file applications for such transactions deprived the creditors of potential recoveries, underscoring a significant breach of duty. Third, the court identified other non-compliances by the RP, including the failure to certify whether JSW Steel was an eligible person under Section 29A of the IBC and to ensure compliance with Section 30(2) regarding priority payments to operational creditors. Additionally, the resolution plan prioritized the payment of financial creditors over operational creditors, contrary to Sub-regulation (1) of Regulation 38, which mandates priority for operational creditors. These failures highlighted systemic deficiencies in the RP's adherence to regulatory and statutory requirements. Fourth, the court scrutinized the Committee of Creditors (CoC) for not applying its commercial wisdom on the feasibility of the plan and for taking contradictory stands in litigation. The CoC's role is to make informed decisions based on the commercial interest and the revival prospects of the corporate debtor. The court found that the CoC failed to ensure the RP complied with all relevant statutory provisions and that the plan was feasible. The CoC's shifting stance and acceptance of a belated offer from JSW Steel raised serious doubts about their bona fides and the exercise of their commercial wisdom. Fifth, the court condemned JSW Steel for purposefully delaying the implementation of the resolution plan. JSW's conduct, including filing appeals and interim applications, was seen as a deliberate attempt to prolong the process and take advantage of market conditions. The court highlighted that JSW's actions not only violated the spirit of the IBC but also demonstrated a mala fide intention to manipulate the insolvency process for its own benefit. The Supreme Court's detailed analysis and critique of these five aspects underscore the importance of upholding the integrity of the insolvency process and ensuring that all stakeholders adhere to the principles of fairness, transparency, and efficiency. The decision serves as a strong precedent for future cases and highlights the need for continuous vigilance and enforcement of the IBC to protect the interests of all parties involved. In summary, the Kalyani Transco case provides valuable insights into the judicial interpretation of the IBC and the standards expected from various stakeholders. The Supreme Court's emphasis on procedural compliance, ethical conduct, and the prevention of mala fide practices reinforces the need for a robust and effective insolvency framework that promotes fair and efficient resolution of corporate distress. The court's decision to set aside JSW Steel's resolution plan sends a clear message that deviations from these standards will not be tolerated, thereby strengthening the credibility and effectiveness of the IBC.
Source: Explained| Why Supreme Court Set Aside JSW's Resolution Plan For Bhushan Steel & Power Ltd