Future tense for many past-perfect IBC deals: After JSW setback, past insolvency resolutions under the lens

Economic Times

08-05-2025

A Supreme Court ruling impacts past insolvency resolutions. Some deals, similar to the JSW-Bhushan Power case, face scrutiny. These resolutions involved deferred payments or quasi-equity instruments. Ruchi Soya, Jaypee Infratech, and others are under observation. Experts report increased inquiries post the judgement. Patanjali Foods claims the ruling does not affect its Ruchi Soya acquisition.
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( Originally published on May 07, 2025 )
New Delhi: Past IBC resolutions of some distressed companies could be questioned in the aftermath of the recent Supreme Court ruling striking down JSW Steel 's acquisition of Bhushan Power and Steel (BPSL), showed ET's analysis of more than a dozen insolvency cases having some similarity with the JSW-BPSL deal.Perusal of the National Company Law Tribunal (NCLT) records revealed similar features in at least five of these cases, wherein payout to lenders by the acquirers were either deferred or made through quasi-equity instruments , and not directly in cash.While the SC judgement did not explicitly term quasi-equity instruments illegal, it demanded proof from JSW Steel that funds promised through these instruments actually came into BPSL. Of its offer of ₹19,300 crore, JSW Steel had committed to contribute ₹8,450 crore by subscribing to compulsorily convertible debentures (CCDs) of a special purpose vehicle (SPV) that would later be merged with BPSL. The top court was presented with a board resolution showing allotment of CCDs but it was not impressed by the move.IBC resolutions of Ruchi Soya , Jaypee Infratech, Jhabua Power, Essar Power MP, and KSK Mahanadi Power had built-in clauses for deferred payments to lenders over the course of the resolution plan or involved quasi-equity instruments, as per resolution plans filed with NCLT. Insolvency experts said they have been flooded with enquiries since the Supreme Court judgement. Ruchi Soya Industries (RSI) was acquired by Patanjali Ayurved in 2019. Of the total resolution offer of ₹4,350 crore made by Patanjali Ayurved to Ruchi Soya's creditors, Rs 900 crore was to be paid by subscribing to preference shares and non-convertible debentures (NCDs) of an SPV. Patanjali Foods claimed the Supreme Court judgement has 'no bearing' on its acquisition of Ruchi Soya. "The underlying issues of fact and law are substantially different in both matters," it said. "The resolution in the case of RSI stands fully implemented nearly six years ago and all payments and obligations under the plan were fulfilled in accordance with the terms approved by NCLT and NCLAT.""Specifically in the subject matter (BPSL), the effective date stood breached and was never formally extended by the tribunals. This was not the case in the acquisition of RSI," it said in a statement.The much-publicised Jaypee Infratech insolvency for which Suraksha Realty's ₹20,000-crore resolution offer got approval of creditors and NCLT, involved paying ₹1,280 crore by subscribing to NCDs.'We are not affected by the Bhushan Power and Steel judgement. All compliances has been done as committed,' said Sudhir Valia, promoter of Suraksha Group. Valia is also a director at Sun Pharma Ashish Chhawchharia, partner at Grant Thornton Bharat however underscored that in the current scenario, 'there is clearly a possibility that aggrieved individuals such as ex-promoters may approach company law tribunals citing the Supreme Court judgement and demand a review of the insolvency resolutions of their companies.'BPSL's former promoter Sanjay Singhal was one of the aggrieved parties to approach the apex court seeking cancellation of the JSW Steel-BPSL deal. NTPC 's resolution plan for Jhabua Power involved fund infusion through NCDs. It is not clear if NTPC infused the funds instantly or over a period of time. NTPC did not respond to queries. Adani Power 's 2021 acquisition of Essar Power MP also involved deferred payments to creditors, while JSW Energy 's resolution plan for KSK Mahanadi Power proposed part-payment through quasi-equity instruments to creditors.People aware of the matter said Adani Power completed payments to the financial creditors ahead of the agreed schedule. Adani Power did not comment on the matter. JSW Energy did not respond to requests for comment.'I don't think there is a non-compliance with respect to the mode of payment. Such structures through quasi equity instruments are allowed. They (JSW Steel) made the payments,' said Anil Goel, founder, AAA Insolvency. 'Only non-compliance as per the Supreme Court was that there was a delay. That is what the apex court wants to set a precedent against. Otherwise, every resolution applicant will use the judicial system to defer payments.'