JSW Wanted to Have it Their Way, SC Stopped it

The Supreme Court judgment ordering liquidation (now stayed by another bench of the Court) of Bhushan Power and Limited (BPSL), identified by the Reserve Bank of India among the dirty dozen which had gone bankrupt, smacks of a story as to how the JSW, whose Resolution Plan was approved,  the Resolution Professional and the Committee of Creditors (CoC) tried to have their way throwing all the mandatory compliances to the wind but they failed miserably in their bid when their beans got spilled before the Court.

``The respondents-JSW, CoC and Resolution Professional have sought to sweep many seminal issues under the carpet to cover up gross violations of the provisions of the IBC and of the Regulations 2016, at every stage of the Corporate Insolvency Resolution Process (CIRP) proceedings initiated against the corporate debtor BPSL,’’ the Supreme Court said before the examining the appeals against the Resolution Pan submitted by the former operators and others of the company.

The Resolution Professional received various claims, and out of it he admitted claims to the tune of Rs. 4,72,04,51,78 crore in respect of the Financial Creditors and admitted claims to the tune of Rs. 6,21,37,61 crore in respect of Operational Creditors.

JSW had scored the highest and their Resolution Plan was admitted and approved.  JSW, CoC and the Resolution Professional submitted in the Court that the Resolution Plan was implemented in part by making payments to the Financial Creditors in March, 2021 and in full by making payments to the Operational Creditors in 2022.

Corporate Insolvency Resolution Process (CIRP) proceedings were triggered against BPSL at the instance of Punjab National Bank, which filed a company petition in 2017 before the NCLT under the provisions contained in the Insolvency and Bankruptcy Code (IBC).

According to them, though JSW initially infused only Rs.100 Crores as share capital towards equity contribution commitments, subsequently pending the present appeals, the reconstituted board approved issuance of compulsory convertible debentures to Piombino Steel Limited (group entity of SRA-JSW which was to be merged into BPSL) having value of Rs.8,450 Crores, and thus requirement of infusion of Rs.8,550 Crores was complied with.

The Court said that it was not impressed by these submissions. ``JSW even after the approval of its Plan by the NCLAT, wilfully contravened and not complied with the terms of the said approved Resolution Plan for a period of about two years, which had frustrated the very object and purpose of the Insolvency and Bankruptcy Code (IBC) and consequently had vitiated the CIRP proceedings of the Corporate Debtor-BPSL,’’ the Court said on the JSW conduct.

On the role of the Resolution Professional, the Court said: ``The Resolution Professional had utterly failed to discharge his statutory duties contemplated under the IBC and the CIRP Regulations during the course of entire CIRP proceedings of the Corporate Debtor BPSL.’’

The Court came heavily on the Committee of Creditors for not exhibiting commercial wisdom while approving the Resolution Plan. The CoC had failed to exercise its commercial wisdom while approving the Resolution Plan of the JSW, which was in absolute contravention of the mandatory provisions of IBC and CIRP Regulations.

The CoC also had failed to protect the interest of the Creditors by taking contradictory stands before this Court, and accepting the payments from JSW without any demure, and supporting JSW to implement its ill-motivated plan against the interest of the creditors,’’ it said.

The order has a clear-cut and emphatic message—any wrongdoing will not be spared at any cost. However, while some experts pointed out that the judgment is “beyond reproach by any legal standard” and that the law of the land should be followed by one and all, others view that while the judgment upheld the primacy of law, it has sent an unpleasant and uncomfortable signal to the investors.  “Will a prudent investor join in the resolution process for a distressed company, as any outcome of today may be altered in future?” said some experts. 

IBC provides a structured and time-bound framework for resolving distressed companies. The preamble states that the Code aims to preserve the value of the assets while protecting the interests of the creditors. It provides a new approach to companies facing insolvency and bankruptcy. IBC’s primary objective is to resolve distressed companies. When all efforts to revive the company through the resolution process fail, the next alternative, liquidation, comes into play. As of December 2024, 2,707 companies had ended in liquidation.

IBC has significantly improved the credit discipline, with 30,310 cases settled before admission under the IBC, covering underlying defaults worth Rs 13.78 lakh crore till December 2024. The pace of distressed companies going into liquidation has decreased over the years. While the ratio of resolution to liquidation was 1:5.06 in 2027-18, it has declined to 1:1.32 by December 2024, data compiled by the Insolvency and Bankruptcy Board of India (IBBI) showed.

The BPSL saga will take longer to settle. There will be a review petition, and a fresh CIRP cannot be ruled out. The judgment has brought many unpleasant questions out in the open, putting a huge question mark on the country’s insolvency and resolution mechanism. A country aspiring to become a developed nation must have a more robust, leak-proof system in place.