In a scathing judgment, the Supreme Court of India on Friday quashed JSW Steel's ₹19,700 crore resolution plan for Bhushan Power and Steel Ltd (BPSL) calling it a "flagrant violation of the IBC's mandatory provisions" and a dishonest and fraudulent attempt made by JSW.
In a strongly worded judgment, a Bench of Justices Bela Trivedi and Satish Chandra Sharma said that JSW did not make upfront payments as committed by it and unjustly enriched itself. It then sought to comply with the terms of the resolution plan after rise in the price of steel, the Court said while also flagging collusion with the resolution professional (RP) and the committee of creditors (CoC).
"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,” the Court stated.
Therefore, it set aside resolution plan approved by National Company Law Appellate Tribunal (NCLAT) earlier, and directed liquidation of the debt-laden steelmaker.
The court criticised JSW Steel's conduct, stating that the company had "played smart" and demonstrated mala fide and dishonest intention throughout the insolvency process.
"Nobody should be permitted to misuse the process of law nor should be permitted to take undue advantage of the pendency of any proceedings in any Court or Tribunal," the Court observed, rejecting JSW's attempts to present a situation of fait accompli before the Supreme Court.
The judgment highlighted that JSW did not implement the approved resolution plan for about two years after its approval by the NCLAT, despite no legal impediment. The upfront payments, which were to be made within 30 days of the NCLT's approval, were delayed by 540 days for financial creditors and 900 days for operational creditors.
"Such flagrant violation of the terms of the resolution plan, has frustrated the very object and purpose of the Code," the Court stated.
JSW Steel had emerged as the successful resolution applicant for BPSL in 2019 after offering to pay over ₹19,000 crore to financial creditors. The plan was approved by the National Company Law Tribunal (NCLT) in September 2019. It was later upheld by the NCLAT as well despite legal challenges, including concerns raised by the Enforcement Directorate (ED) regarding the attachment of BPSL’s assets.
The matter reached the Supreme Court amid growing concern that JSW Steel had not implemented the plan for the years since approval. The Court noted that the resolution applicant failed to fulfill essential post-approval obligations, undermining the very objectives of the IBC, which includes time-bound resolution of insolvency and maximization of asset value.
Notably, in December 2024, the ED decided not to pursue its appeal before the Supreme Court against JSW Steel's takeover of BPSL under the IBC.
The Court severely criticised the resolution professional for "utterly failing to discharge his statutory duties" during the Corporate Insolvency Resolution Process (CIRP).
According to the judgment, the RP did not adhere to the mandatory timeline for completing the CIRP within the prescribed 270 days from the commencement date.
"The Committee of Creditors 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 Court noted, questioning the changing stance of the CoC throughout the proceedings.
The Court also said that NCLAT’s decision in the case was "perverse, coram non judice and liable to be set aside."
The Court specifically ruled that NCLAT had exceeded its authority when it entertained JSW Steel's appeal against conditions imposed by NCLT. According to the judgment, JSW's appeal before NCLAT was not legally maintainable since none of the grounds specified in Section 61(3) of the IBC existed to challenge the NCLT's approval of JSW's own resolution plan.
"The NCLAT vide the impugned judgment dated 17.02.2020, not only entertained but also allowed the said Appeal of JSW which was not legally maintainable, modified the conditions which were not suitable to JSW, and dismissed all the other Appeals filed by the Operational Creditors, the Ex-Promoters and the State of Odisha," the Court noted.
The Court was particularly critical of NCLAT's decision to rule on matters related to the Prevention of Money Laundering Act (PMLA). After the NCLT approved JSW's resolution plan on September 5, 2019, the ED provisionally attached BPSL's assets under the PMLA on October 10, 2019.
The Supreme Court found that NCLAT had no power to review decisions made by statutory authorities under public law statutes like the PMLA.
"The observations made and the findings recorded by the NCLAT in the impugned judgment with regard to the PAO dated 10.10.2019 passed by the Directorate of Enforcement under the PMLA, being without any authority of law and without jurisdiction, were coram non judice," the Court ruled.
The Court identified several critical failures in the insolvency resolution process:
The RP failed to file an application for extension of time before the expiry of the 180-day period as required by Section 12(2) of the IBC, and submitted the resolution plan for approval after nearly one and a half years, far beyond the 270-day maximum period.
The resolution plan violated Regulation 38 of the CIRP Regulations by not giving priority to payments for operational creditors over financial creditors.
JSW failed to implement the approved resolution plan for about two years, delaying upfront payments to financial creditors by 540 days and to operational creditors by 900 days.
In its final order, the Supreme Court:
- Quashed and set aside the judgments of both the NCLT and NCLAT;
- Rejected JSW's resolution plan for non-conformity with Section 30(2) of the IBC;
- Directed the NCLT to initiate liquidation proceedings against BPSL;
- Ordered that payments made by JSW to creditors be dealt with according to previous statements recorded by the Court;
The appellants were represented by Senior Advocate Dhruv Mehta with Advocate Ranjeeta Rohatgi, Milind Kumar, VD Khanna, Arup Banerjee, Mayank Kshirsagar and Samapika Biswal.
The CoC was represented by Senior Advocate Abhishek Manu Singhvi with a team from Cyril Amarchand Mangaldas.
BSPL was represented by Senior Advocates Shyam Divan and Navin Pahwa with a team from Shardul Amarchand Mangaldas.
JSW was represented by Senior Advocates Neeraj Kishan Kaul, Gopal Jain and Madhavi Divan with a team from Karanjawala & Co.
The Government of India was represented by Additional Solicitor General KM Natraj.
[Read Judgment]
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