The Supreme Court of India has rejected JSW Steel’s much-publicized resolution plan for Bhushan Power and Steel Limited (BPSL), ordering the liquidation of the debt-ridden company. This verdict, delivered by a bench comprising Justice Bela M Trivedi and Justice Satish Chandra Sharma, comes four years after JSW Steel completed its acquisition of BPSL under the Insolvency and Bankruptcy Code (IBC). The court’s decision is a major blow to JSW Steel, which is led by Sajjan Jindal. The company had hoped that the acquisition would increase its operational capacity and strengthen its position in eastern India.
The Supreme Court found that the resolution plan, valued at ₹19,700 crore, was “illegal” and in direct violation of the IBC and related regulations. The plan, which was initially approved by the Committee of Creditors (CoC) and later by the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), was deemed not to have conformed to the requirements of Section 30(2) of the IBC. The bench criticized both the CoC and the Resolution Professional for failing to exercise due diligence and commercial wisdom, stating that the plan should have been rejected at the outset.
Key Reasons Behind the Supreme Court’s Decision:
The apex court’s decision centered on several critical lapses in the approval and implementation of the resolution plan. One of the primary issues cited was the use of a mix of equity and optionally convertible debentures (OCDs) for funding the takeover, rather than using equity alone as mandated by the insolvency law. The court also pointed out that the resolution plan was not implemented in the allotted period, which hampered the settlement process and compromised the IBC’s goals.
The Supreme Court also pointed out that JSW Steel, the CoC, and the Resolution Professional had made an effort to hide a number of important facts, including as the Enforcement Directorate’s (ED) ongoing actions against BPSL. JSW Steel was accused by the court of taking unfair advantage of the ongoing ED proceedings and of not carrying out its responsibilities under the resolution plan for two years, calling its acts “malafide and dishonest.” According to the court, this delay undermined the IBC’s primary goal of ensuring prompt resolution of stressed assets.
Immediate Impact on JSW Steel and Bhushan Power and Steel:
The fallout from the Supreme Court’s verdict was immediate and dramatic. Shares of JSW Steel plunged sharply, closing down by over 5% on the Bombay Stock Exchange and wiping out nearly ₹13,731 crore in market capitalization. This represents the company’s most significant single-day loss in nearly a month, reflecting investor concerns about the impact of the ruling on JSW Steel’s growth strategy and financial performance.
The court has directed that all payments made by JSW Steel to BPSL’s financial and operational creditors, as well as any equity contributions, must be returned by the CoC within two months. This directive follows the Supreme Court’s earlier order from March 2020, which stipulated that funds received by the CoC would be returned if appeals by operational creditors were successful. With the liquidation process now set in motion, BPSL’s assets will be sold to repay creditors, and JSW Steel’s ownership in the company, which stood at 83.3% as of October 2021, will be nullified.
JSW Steel, in response to the ruling, stated that it would review the Supreme Court’s order with its legal advisors before determining its next steps. The company emphasized that it had not yet received the formal copy of the judgment and would keep stakeholders informed of any further developments.
Broader Implications for India’s Insolvency Framework:
The Supreme Court’s decision to scrap JSW Steel’s acquisition of Bhushan Power and Steel carries significant implications for India’s insolvency and bankruptcy framework. The decision emphasizes how crucial it is to strictly follow the IBC’s rules and how the settlement process must be transparent and thorough. Additionally, it acts as a warning to creditors and resolution seekers alike, emphasizing the dangers of procedural errors and the consequences of noncompliance with legal requirements.
For the broader steel sector, the liquidation of BPSL will have a notable impact. The Bhushan Power unit accounted for about 14% of JSW Steel’s total crude steel production in the December 2024 quarter and contributed 10% to the parent company’s operating earnings before interest, tax, depreciation, and amortization. The loss of this asset will affect JSW Steel’s production capacity and its strategic positioning in the highly competitive steel industry.
As the liquidation process unfolds, the case will be closely watched by industry stakeholders, legal experts, and policymakers for its long-term effects on the resolution of distressed assets and the evolution of India’s insolvency regime. The Supreme Court’s verdict reinforces the principle that commercial wisdom must be exercised within the boundaries of the law, and that any deviation can have far-reaching and irreversible consequences.
