Bhushan Power verdict: A triumph of rule of law; a setback for insolvency resolution

New Indian Express

06-05-2025

By MS Sahoo
In a landmark judgment dated 2nd May 2025, the Supreme Court of India disposed of an appeal filed in 2020 concerning the resolution of Bhushan Power and Steel Ltd. (BPSL). The judgment is detailed, incisive, and beyond reproach by any legal standard. It lays bare a series of grave illegalities and lapses, some deliberate and collusive, in the approval and implementation of the company's resolution plan.
Considering the illegalities, the Court set aside the resolution plan approved by the Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT) in 2019, subsequently affirmed by the National Company Law Appellate Tribunal (NCLAT). Invoking its extraordinary powers under Article 142 of the Constitution, the Court directed the liquidation of BPSL. The message is unambiguous and emphatic: India is governed by the rule of law, and no illegality in the sacrosanct insolvency process will be tolerated.
The resolution plan, under implementation since 2019, had envisaged a payment of approximately ₹20,000 crore to creditors and had successfully revived operations, with production levels reaching almost twice that of the pre-resolution period. The liquidation now ordered operates, in effect, as a penalty, not on the wrongdoers (the resolution professional, successful resolution applicant, CoC, NCLT, and NCLAT), but on the company and the broader economy.
Further, BPSL today is a different entity from the one that entered the insolvency proceedings in July 2017. Its liquidation will impact a new ecosystem of stakeholders (employees, creditors, suppliers, and investors), many of whom joined the company post-resolution. Rewinding the clock is neither easy nor painless. It raises a compelling counterfactual: had the company gone into liquidation and the Supreme Court, years later, found that liquidation to be illegal, could it have reversed the liquidation?
While the judgment reinforces the primacy of law, it undermines the very objective of the IBC. Once a resolution plan is approved by the competent authority and implemented, undoing it years later carries significant economic and institutional costs. No prudent resolution applicant would be willing to invest if there remains a lingering risk that a state authority, no matter how well-intentioned, might overturn the transaction decades later.
Had this judgment been delivered in 2020, as it ideally should have, the damage to the IBC would have been considerably less. Compare this with the timelines in earlier landmark cases. In Binani Cements, the NCLAT approved the revised plan on 14th November 2018, and the Supreme Court upheld it, within five days, on 19th November 2018. In Essar Steel, the NCLT approved the plan on 8th March 2019; the NCLAT modified it on 4th July; Parliament amended the IBC on 6th August; and the Supreme Court finally upheld the amendment and set aside the NCLAT order on 15th November, all within eight months. That time discipline allowed the IBC to emerge as a credible mechanism for stress resolution.
The Supreme Court itself has often reiterated that time is of the essence under the IBC. But timely resolution is possible only when all institutions- stakeholders, regulators, the executive, and the judiciary- act with urgency and discipline. It is now imperative for the Court not only to demand this discipline of others but also to hold itself to the same standard.
Notably, in Essar Steel, the Supreme Court had found both resolution applicants ineligible on the relevant date. Yet, it invoked Article 142 to allow them time to regularise their position. One did so, submitted a resolution plan, and rescued the company. A similar approach could have been adopted in the present case: to preserve the company, rather than liquidate it, while bringing those responsible for the illegalities to account.
Post-facto discovery of illegalities must lead to swift and exemplary penalties for wrongdoers. But it should not invalidate the transaction itself. A useful parallel can be drawn from the securities market: if irregularities are discovered after a public issue, the persons responsible are punished, but the issue is not reversed. The same principle should govern insolvency resolution. Robust oversight must be accompanied by proportionate and targeted consequences, but the resolution, whether by way of a resolution plan or liquidation, must not be undone once it is approved by the competent authority and implemented. Judicial intervention in commercial transactions should be rare and, when unavoidable, must carefully consider the economic realities.
The author is former chairman of Insolvency and Bankruptcy Board of India (IBBI)