Imagine putting your house on sale. A buyer pays the full price – clears your dues, installs a brand‑new kitchen, repaints, even moves in with family. Four years later, a court declares the sale null and void. Sounds absurd? Welcome to India’s Bhushan Power & Steel crisis under the Insolvency & Bankruptcy Code (IBC).
On May 2, 2025, the Supreme Court of India quashed JSW Steel’s ₹ 19,700‑crore
resolution plan for Bhushan Power, calling it “illegal” and in direct violation
of IBC provisions. Instead, it ordered liquidation – sending shockwaves through
India’s insolvency regime.
Observations of the Supreme
Court:
- Non‑compliance with Section 30(2)/31(2) – The Court said the plan failed to strictly meet IBC norms
- Misuse of Section 61 appeals – JSW used it beyond permitted grounds, turning judicial relief into a tool for delay
- Delay in payments & use of instruments – Payments delayed up to 900 days, with equity infusion replaced by optionally convertible debentures – seen as dishonest
- Failures by RP and CoC – Both allegedly failed in career duties and commercial wisdom by approving a flawed plan
But let’s be frank. If after four years, hundreds of crores
invested, liabilities cleared, and operational revitalization. If you can still wake up one morning to a
cancellation order – then what hope remains for asset sanctity under
IBC? Sure, courts must protect law sanctity. But there must also be a limit to
retroactive nullification.
- Uncertainty kills investment – With buyers fretting over court reversals, distressed asset buyers – especially foreign funds – will step back .
- IBC’s spirit undermined – The Code was designed to revive assets via resolution, not liquidate them after court reversals. Liquidation recovers far less – on average ~6% versus 40+% from JSW’s plan
- ED’s unnecessary role – The Enforcement Directorate shouldn't have appealed to the Supreme Court. This invokes Section 238 (IBC override clause). ED’s interference derails IBC norms
- NCLAT was competent – The NCLAT rightly approved the JSW plan, post NCLT clearance. There’s precedent and a statutory framework supporting such hierarchical decisions. The Supreme Court negating that sets a dangerous precedent
If corporate buyers, domestic
or foreign, shrinking from acquiring distressed assets for fear their deals
might be reversed after years, the entire architecture of the IBC collapses.
The mantra of time‑bound resolution,
creditor recovery, and commercial certainty risks turning into hollow
catchphrases.
Imagine citing section 33,
section 230, or even 31 as final – but investors see that as paper shields, not
armor. Contingent assets don’t attract funding, bids dry up, NCLTs become
graveyards of stalled insolvency filings.
So what’s the path ahead?
- Clarity on appellate limits – If appeals under Section 61 can scuttle deals years later, build bright‑line rules limiting their scope.
- Section 238 must speak louder – If IBC overrides criminal laws, let that precedence be asserted – no mid‑stream ED appeals to stall processes.
- Statute of repose – Once a resolution plan is fully implemented – payments made, assets handed over – there should be a cut‑off for retrospective scrutiny.
- Corybantic judicial humility – Courts must balance legal perfection with the economic realities of revitalizing a stranded asset. Too much scrubbing can kill the asset’s commercial value.
Yes, rules are rules. But when
they compound to incubate uncertainty,
they defeat their own purpose. Fixing defaulted firms is not writing fairy
tales – it’s engineering. Engineering needs design parameters, timelines, fail‑safes
and finality. Cancel deals four years later, and you don’t engineer hope – you
implode it.
The Bhushan Steel episode may
have taken an ideologically purist stand; but it ends up being a warning shot
for future bidders in India’s insolvency ecosystem. If sanctity of sale is
illusion, who will keep the IBC alive?
