09-05-2025
Bhushan Steel-JSW saga exposes cracks in insolvency code. Where's the finality?
The IBC was meant to be a swift, transparent, and final mechanism for resolving corporate distress. But if every resolution is subject to reversal years later, and every acquirer must factor in the risk of ED or other state action, then the core promise of the code is being undermined.
Setting aside the approved resolution plan in May 2025, the Supreme Court instead directed liquidation of the company. While the court's decision has brought the protracted proceedings to a close, it has raised fundamental questions about how the process is playing out.
The acquisition of Bhushan Power & Steel by JSW Steel has been one of the longest and most contested sagas under the Insolvency and Bankruptcy Code. The case began in July 2017. Then came the multiple appeals, followed by years of litigation, and intervention by the Enforcement Directorate.
Problem of constant appeal
A core principle that shaped the IBC was that of time-bound resolution. Unlike the Board for Industrial and Financial Reconstruction (BIFR) and the Sick Industrial Companies Act (SICA), the IBC would avoid needless delays by limiting judicial discretion and reducing the scope of appeal. The onus for decision making lay on the committee of creditors (CoC), and not the courts. Under Section 61 of the IBC, appeals are meant to be limited to cases where the resolution plan contravenes provisions of law or suffers from material irregularity. Further, the IBC set strict timelines—180 days, extendable to 330—because it recognised that value deteriorates with time.
However, this promise hasn't fully materialised. The default seems to be to appeal every decision, at every level, perhaps because the adjudicating authorities admit each appeal for hearing, regardless of how thin the grounds may appear. The process for BPSL began on 26 July 2017, and resulted in the National Company Law Tribunal (NCLT)'s approval of a resolution plan proposed by JSW on 5 September 2019. Operational creditors and promoters approached the National Company Law Appellate Tribunal (NCLAT) because of dissatisfaction with their payout. If the resolution plan met the procedural criteria laid down by the IBC, then there was no reason to admit the appeal on the payout alone. The NCLAT upheld the earlier JSW plan. The matter, however, did not rest. The appeals continued to the Supreme Court. The current events suggest that there is no configuration where the appeal process would end.
Given this, the Supreme court order on liquidation may have (intentionally or not) set up a different set of incentives for the various parties. Previously, parties would probably pursue an appeal if the cost of appeal was lower than the potential benefit. At worst, they would lose some legal fees; at best, they might delay implementation or extract a better deal than what the resolution plan offered. But if protracted litigation can now result in the Supreme Court ordering liquidation instead of resolution, the payoff matrix changes. The risk of total value destruction may make appeals a far riskier bet than before.
Uncertainty from intervention
Another IBC principle was that of a 'clean slate' in resolution. That is, once a resolution plan is approved, past liabilities—including criminal liabilities—should not attach to the assets being transferred to the new owner. Unless this happens, resolution applicants will continue to fear post-resolution state action. When the future of acquired assets is subject to ongoing or future investigation by agencies with sweeping powers, it becomes virtually impossible to assess risk accurately. Section 32A of the IBC was introduced precisely to address this problem: it provides immunity to the corporate debtor and the resolution applicant from prosecution for prior offences, provided there is a change in management and control.
This design principle also remains unfulfilled. In the JSW-Bhushan Power case, even after JSW's plan was approved and the company was set to be transferred to the new owner, the ED sought to retain attached assets, claiming they were proceeds of crime. In such a context, how could JSW have been reasonably expected to implement the resolution plan? The JSW group had, therefore, also appealed to the NCLT, asking for protection from attachment by the ED. This is not an isolated case, and highlights the absence of a consistent 'clean slate' paradigm within the IBC framework.
Resolution must mean finality—not just from other creditors or promoters, but from the state itself. There must be a disciplined line separating insolvency resolution from enforcement of economic offences. Otherwise, few bidders will have the appetite to take on distressed companies, and liquidation will increasingly become the default—not the exception.
Also read: India's insolvency law needs a middle ground. Both creditors & debtors need protection
Procedural irregularities
The Supreme Court's ruling pointed out several procedural irregularities in the way the resolution plan was approved. It is not possible for us to evaluate whether the Supreme Court was correct in its evaluation, and we have to accept the court's assessment in good faith. But it is odd that both the NCLT and NCLAT did not find any issue when they reviewed this case.
A robust resolution process depends on the reliability of its institutions. If those institutions routinely fail to detect or prevent irregularities, then the problem is deeper than we think. Further, the case has raised the question on whether the final outcome be completely demolished to pay the price for the failings of the adjudicatory system. If the process of resolution is so fragile that errors at any stage render the outcome void, then perhaps it is time to rethink how we structure adjudication under the IBC.
The case was part of the list of high-profile insolvency proceedings identified by the Reserve Bank of India on 13 June 2017 for immediate resolution under the IBC. In hindsight, directing the RBI-12 cases—India's largest and most complex defaulters—into the newly established IBC framework may have been premature. The code was still in its infancy, and the institutional capacity of NCLT, NCLAT, and other actors was untested. A more measured rollout, starting with smaller, less contentious cases, could have allowed the system to mature, rules to clarify, and precedents to stabilise. Instead, the RBI-12 exposed the system's fragilities early on, creating a turbulent learning curve that continues to affect the IBC's credibility today. That is a lesson for future reforms.
Renuka Sane is managing director at TrustBridge, which works on improving the rule of law for better economic outcomes for India. She tweets @resanering. Views are personal.
(Edited by Zoya Bhatti)
