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Deccan Herald
2 days ago
- Business
- Deccan Herald
Insolvency regime needs hard reform
The Supreme Court's recent annulment of JSW Steel's Rs 19,700-crore acquisition of Bhushan Power and Steel Ltd (BPSL) under the Insolvency and Bankruptcy Code (IBC) has reignited a deeper question about the balance between legal form and economic function. The Court's reasoning was sound: material deviations from the approved resolution plan were made without returning to the Committee of Creditors (CoC) or the NCLT for consent. Legally, the process mattered. But the implications of this decision go far beyond legality. They touch the foundations of India's financial case serves as a reminder that while India's insolvency regime has made significant progress, the broader financial infrastructure on which it relies remains incomplete. The JSW-BPSL outcome isn't a failure of law; it's a signal that the institutions surrounding it must evolve to support more complex economic resolution plan used a Special Purpose Vehicle, a standard acquisition structure, and financed part of the deal through Optionally Convertible Debentures, an established instrument globally. Yet, under Indian insolvency procedure, such post-approval changes must receive renewed creditor and tribunal consent. The absence of that step rendered the plan invalid, despite repayment having message isn't one of malfeasance or manipulation, but of a system that hasn't yet adapted to the evolving needs of modern restructuring. JSW acted within widely accepted financial logic but discovered that process constraints flexibility. The broader lesson is that strategic capital may hesitate to engage with distressed assets unless resolution mechanisms allow for well-regulated innovation. That holds consequences not only for bidders but also lenders, employees, and the JSW case reveals the need for deeper institutional capacity in insolvency governance. The CoC, composed mainly of banks, brings financial skin in the game, but often lacks the commercial restructuring expertise to evaluate unconventional plans. Meanwhile, the NCLT, pivotal to resolution, continues to face resource to advanced economies, where restructuring decisions are shaped by capital market actors, specialist advisers, and commercial courts, India's process leans heavily on legal formalism. India must bring in independent expertise and strengthen the interplay between legal and financial perspectives to enable effective resolution. Encouragingly, these gaps are not insurmountable; they are reform out, this episode reflects a broader challenge in India's financial evolution. The post-liberalisation decision to convert Development Finance Institutions into commercial banks was bold, but it assumed the rise of a vibrant corporate bond market. That market remains most long-term credit still flows through banks and NBFCs, intermediaries not designed to handle complex risk-pricing over time. Corporate bond issuances are often private, illiquid, and difficult to trade. The result is that bankruptcy resolution ends up doing work that well-functioning capital markets would normally share: absorbing risk, repricing assets, and enabling JSW case demonstrates that even when operations resume and creditors are paid, a procedural lapse can unwind a resolution. For capital to engage sustainably, investors need assurance not just of legality, but of must solution is not to weaken the IBC but to fortify it with institutional and market reforms. A regulated, liquid secondary market for distressed debt would allow for dynamic pricing, risk-sharing, and investor entry without the delays of judicial vital is enhancing the capability of the NCLT. Resolution decisions with major economic impact should benefit from commercial expertise and capital market insight. The process must evolve beyond a legal tribunal into a financially informed once a resolution plan is approved and executed in good faith, it should enjoy legal stability, subject to apparent exceptions like fraud. This would strengthen investor trust. And as India continues its financial modernisation, it's worth reconsidering the current ban on leveraged buyouts, which are globally standard tools that, if properly regulated, can enable efficient asset thoughtful financial structuring should be seen not as a risk, but as a route to economic recovery. Mergers and acquisitions during insolvency are not loopholes but part of the JSW-BPSL episode is not a story of legal overreach or corporate miscalculation; it is a moment of reckoning for how far India's financial ecosystem has come and how much farther it needs to go. It calls for the next chapter of reform: one that builds out institutional capacity, deepens capital markets, and ensures that law and finance move in step, not in conflict. India has made bold strides in building an insolvency regime. With the right reforms, the regime can now deliver not just resolution but real renewal..(The writer teaches finance at IIT Kharagpur)
Economic Times
08-05-2025
- Business
- Economic Times
Future tense for many past-perfect IBC deals: After JSW setback, past insolvency resolutions under the lens
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. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads ( 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 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 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 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 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 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.'
Time of India
07-05-2025
- Business
- Time of India
Future tense for many past-perfect IBC deals: After JSW setback, past insolvency resolutions under the lens
The employees, who were without salaries since Sept, recently approached NCLAT seeking intervention to clear their dues 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. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads 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 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 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 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 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 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.
