Bhushan Power saga: Why did Supreme Court reject JSW Steel takeover bid and order liquidation?

Indian Express

05-05-2025

The Supreme Court on Friday rejected steel major JSW Steel Ltd's Rs 19,350 crore bid to acquire Bhushan Power and Steel Ltd (BPSL) through the Corporate Insolvency Resolution Process (CIRP) route, and ordered the liquidation of the company. While ordering the liquidation, the biggest in the corporate history, a bench of Justice Bela Trivedi and Justice Satish Chandra Sharma lambasted the delay on the part of JSW Steel to implement the resolution plan and said the Committee of Creditors (CoC) failed to exercise its commercial wisdom while approving the Resolution Plan.
JSW Steel, controlled by Sajjan Jindal, and lenders are likely to go for appeal against the SC order as both the parties will suffer a setback if liquidation of BPSL is implemented.
First big deal to face liquidation
The liquidation of BPSL is set to be the biggest in the history of the corporate sector in terms of the size of the debt. Supreme Court of India earlier ordered the liquidation of Jet Airways, a once prominent Indian airline, due to the failure of a resolution plan and the inability of the Jalan-Kalrock Consortium (JKC) to fulfil its financial obligations. While Jet Airways was estimated to have owed its financial creditor around Rs 7,800 crore, a total of around Rs 15,723 crore was admitted as claims by the National Company Law Tribunal when the airline was first grounded in 2019.
The number of cases ending in liquidation in FY24 was 2,476 involving total claims of Rs 11 lakh crore, according to Insolvency and Bankruptcy Board of India (IBBI). However, the liquidation value is just Rs 69,634 crore, just 6.33 per cent of admitted claims.
SC censures delay by JSW
SC said 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 IBC, and consequently had vitiated the CIR proceedings of the corporate debtor-BPSL. 'In the instant case, JSW did not implement the Resolution Plan for about two years since its approval by the NCLAT, though there was no legal impediment in implementing the same. Such flagrant violation of the terms of the Resolution Plan, has frustrated the very object and purpose of the Code,' the Supreme Court said.
After obtaining the approval of its Resolution Plan from CoC by presenting a rosy picture, misguiding the CoC, and defeating the rights of other resolution applicants, JSW did not respect and honour the said commitments, the SC said. On the contrary, it tried its level best to delay the implementation of the Resolution Plan without any cogent reason or justification, the order said.
Though the said plan was got approved from the NCLT by the Resolution Professional (who was overseeing the resolution process) without confirming the compliance of Section 30(2) and the Regulations 38 and 39, JSW instead of complying with the terms and clauses of the approved Resolution Plan filed the company appeal before the NCLAT, just to delay the implementation of the Plan, the order said.
'This is nothing but a misuse of process of law and a fraud committed by JSW with the CoC and other stakeholders,' the order said.
JSW played smart, SC says
According to SC, it is pertinent to note that though all throughout from the date of order passed by the NCLT till March, 2021, the stand of the JSW evidenced through an affidavit was that it was not obliged to implement the plan because of the pendency of these appeals. However, JSW played smart by making part payment to the financial creditors in March, 2021, realising the beneficial market trend of the steel, it said.
It also surreptitiously got the effective date extended to March 31, 2021 from the so-called core group of CoC, which had already become functus officio and which had no authority to extend the said effective date, the court said. The net result is that the upfront payments as agreed to be made in the Resolution Plan within 30 days of the approval of the plan by NCLT was delayed by 540 days in respect of payment to the financial creditors and by 900 days in respect of payment to the Operational Creditors. 'The equity commitment as per clause 2.3 of the Resolution Plan with regard to the infusion of equity into the company for an amount aggregating Rs 8,550 crore, to be infused upfront on the effective date, was also not complied with by JSW,' the order said.
SC criticises lenders committee, RP
The Supreme Court said the Committee of Lenders (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 the court, and accepting the payments from JSW without any demurer, and supporting JSW to implement its ill-motivated plan against the interest of the creditors, SC said.
The Resolution Professional (RP) had utterly failed to discharge his statutory duties contemplated under the IBC and the CIRP Regulations during the course of entire CIR proceedings of the corporate debtor (BPSL), SC said.
'Just as the Resolution Professional had failed to examine and confirm the compliance of mandatory provisions of the Code, to secure the interests of all the stakeholders involved in the process, the CoC also did not discharge its duty to carefully examine the feasibility and viability of the plan, and the capacity and resources of the Resolution Applicant-JSW for the implementation of the plan proposed by it,' SC said.
There was a dishonest and fraudulent attempt made by JSW, misusing the process of the court by not making the upfront payments as committed by it for about two and a half years and thereby enriching itself unjustly, and thereafter considering the rising prices of steel in the market, JSW sought to comply with the terms of Resolution Plan at a very belated stage, in collusion with the CoC and the Resolution Professional, SC said.
What it means for JSW
BPSL which came under the JSW fold in 2021 has been contributing to JSW's revenue and profit. The BPSL plant made a profit of Rs 11 crore in third quarter of FY25, loss of Rs 93 crore in Q2 of FY25 and a profit of Rs 300 crore in Q1. JSW is likely to face a decline of around 8-10 per cent in EBITDA (earnings before interest, tax, depreciation and amortisation) and revenue for FY26 if BPSL is liquidated, said an analyst.
Further, JSW will have to recover Rs 19,300 crore given to the lenders if the liquidation is implemented. BPSL had expanded (Phase-II) of its plant from 3.5 MTPA to 5 MTPA. BPSL is a leading manufacturer of flat and long products and has state-of-the-art plants at Chandigarh, Derabassi, Kolkata and Odisha in India.
Options before JSW, BPSL
Liquidation means end of the road for BPSL. When BPSL is liquidated, its assets are sold to settle debts, often at distressed prices, leaving less money for banks. This could result in significant losses for lenders, who have already taken a huge haircut. The unwinding of this transaction is expected to have far-reaching consequences for the banking sector and IBC cases.
However, JSW Steel and lenders are likely to go for an appeal against the SC order on liquidation, banking sources said. The court battle is expected to continue as JSW and lenders have odds stacked against them. 'We are yet to receive the formal copy of the order to understand the grounds for rejection in detail and its implications. Once we receive the order and are able to review the same along with our legal advisors, we will decide on our further course of action,' JSW Steel said in a stock exchange filing on Friday.
A senior bank official with a nationalised bank said banks are studying the SC order. 'There could be some appeals against the SC verdict. There's a possibility that JSW might also appeal against the order,' he said.
With the company going into liquidation, banks are unlikely to recover much, potentially leading to further losses.
Four-year process
Bhushan Power, which was the top bank defaulter listed by the Reserve Bank of India (RBI), which went through the insolvency process under IBC, was acquired by JSW Steel after a four-year long process. The petition filed by the Punjab National Bank (PNB) against the company was admitted on July 26, 2017 and CIRP was initiated. It took 771 days to complete the resolution process, with JSW steel Limited becoming the successful resolution applicant, as National company law tribunal (NCLT) approved the resolution plan on September 5, 2019 and the National Company Law Appellate Tribunal (NCLAT) upheld JSW's resolution plan. After a two-year delay, JSW finally acquired BPSL in March 2021 under the Insolvency and Bankruptcy code.
Original resolution plan
According to the resolution plan, the financial creditors were to be paid upfront a sum of Rs 19,350 crore on pro-rata basis against the admitted claims of Rs 47,157.99 crore. Accordingly, the resolution plan provided for a recovery of Rs 41.03 per cent to the financial creditors. As far as operational creditors are concerned, the resolution plan provided for the payment of 47.69 per cent of their admitted claims of Rs 621 crore. No claims were received from workmen/employees and other creditors. Apart from JSW Steel, Tata Steel limited (TSL) and Liberty House group had also submitted the resolution plan.