Liquidation Over Resolution? The Troubling Logic of the Supreme Court’s Ruling in the JSW-Bhushan Case

The Supreme Court’s landmark decision in the case of Kalyani Transco v. Bhushan Power and Steel Ltd. and Ors., to reject JSW Steel Limited’s (“JSW Steel”) takeover of Bhushan Power & Steel Ltd. (“Bhushan Power”) and direct its liquidation, has sent shockwaves across India’s corporate and legal worlds. The judgment marks a watershed moment in the interpretation of the Insolvency and Bankruptcy Code, 2016 (“IBC”) and raises crucial questions about the interplay between procedural standards and the pragmatic realities.

It poses a fundamental question: Should procedural legality always be safeguarded by the courts at the expense of reversing transactions and jeopardising investor confidence, or should they ensure finality and stability even if there are substantial flaws in the process?

The Supreme Court’s Decision

The Court’s decision rests on four main grounds that together show a strict reading of the IBC. To begin with, the Court pointed to a serious breach of the deadline set out in Section 12 of the IBC. The Corporate Insolvency Resolution Process (“CIRP”) for Bhushan Power ran 540 days beyond the 270-day ceiling, including the optional 90-day grace period. The Court expressed disapproval at the fact that no valid plea for an extension had ever been brought before the National Company Law Tribunal (“NCLT”), calling this a fundamental breach of the IBC’s time-bound resolution. This protracted delay not only flouted the letter of the law but also defeated the IBC’s core aim to deliver quick resolution and shield distressed firms from further loss of value.

Secondly, the Court observed that JSW Steel strayed significantly from its approved resolution plan by swapping the promised upfront equity infusion of ₹8,550 crore for optionally convertible debentures (“OCDs”). This shift in the deal’s financial structure breached Section 30(2) of the IBC, which states that every approved term of the resolution plan must be followed as the CoC intended. The Court dismissed JSW’s claim that the new instrument was a commercially reasonable adjustment, stressing that any material deviation from the resolution plan, whether economically advantageous or not, damages the sanctity of the insolvency process.

Thirdly, the judgment criticised the Resolution Professional (“RP”) for not conducting proper due diligence and not verifying the eligibility of JSW Steel under Section 29A of the IBC, which stops wilful defaulters and their connected parties from participating in resolution processes. The Court pointed out that the RP never filed the crucial compliance certificate in Form H confirming JSW’s eligibility.  The Court found that the RP had failed to carry out their legal duties, and the CoC didn’t step in to ensure that the approved plan was followed on time. This amounted to what the Court called a ‘collective failure’ by both the RP and CoC, which vitiated the entire insolvency process.

Fourthly, the Court addressed the jurisdiction of the National Company Law Appellate Tribunal (“NCLAT”) over cases falling under the Prevention of Money Laundering Act, 2002. It ruled that the NCLAT did not have jurisdiction to rule on ED’s order of attachment of assets under PMLA. However, refused to rule on the retrospective effect of Section 32A of the IBC. Importantly, while the delay in implementation by the ED was considerable, the burden of that delay was laid entirely on the resolution applicant and creditors.

The Supreme Court explained that it was not challenging the commercial decisions of the CoC by reversing the plan but exercising statutory discipline. Although the commercial merits of resolution plans cannot be inquired into by courts, it held that legal violations cannot be ignored. Statutes have to be complied with, and where the basic IBC provisions are violated, judicial intervention is warranted. Due to the continuing and incurable violations, the resolution plan was void ab initio, and a remand was useless since the CIRP had already crossed the 330-day timeline and was legally irretrievable.The Court, exercising its power under Article 142, ordered cancellation of the plan and liquidation under Section 33.

Assessing the Broader Consequences of the Judgement

The Supreme Court’s judgement has attracted biting criticism from several stakeholders for its potential to cause economic havoc and for its ramifications on India’s insolvency landscape going forward.

The order has resulted in the destruction of valuable economic worth. Under JSW Steel, Bhushan Power was a profitable going concern that made money, and experts say that liquidation can cut JSW’s production by 10–15%, which is a disproportionate price for procedural errors. While the Court was correct in holding that a void process cannot be validated retrospectively, it ignored that the IBC is a commercial regime based on multi-stakeholder plans vetted by professionals and approved under Section 31. The Court’s assertion that it did not trespass into the commercial merits of the resolution plan is not tenable. The CoC had consciously accepted altered terms, such as OCDs instead of equity and deferred payment, without objection, clearly exercising its commercial wisdom. But the Court treated them as incurable legal defects and, instead of remanding the matter, invoked Article 142 to direct liquidation, essentially overriding the CoC. This is a deviation from its own precedent in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors., where it had ensured the primacy of CoC’s commercial wisdom. By ascribing the fault to the CoC for accepting deferred payments without interest, the Court arguably transgressed into evaluating commercial decisions, vitiating the restricted judicial scrutiny envisaged under the IBC.

The judgment also carries an unintended irony for operational creditors, who ironically had themselves initiated the legal process that resulted in this judgment. In JSW’s resolution plan, operational creditors were to get about 50% of their admitted claims, a recovery much better than they would now make in liquidation, where they would rank below financial creditors and often recover nothing.

At a systemic level, the judgment reveals various structural inadequacies in India’s insolvency system. One is the problem of asymmetrical accountability. While corporate debtors and resolution applicants are severely penalised for procedural shortcomings, there are no such disincentives for delays due to adjudicating authorities, i.e. the NCLT and NCLAT or investigation agencies such as the ED, whose provisional attachment of the assets of Bhushan Power was one of the principal reasons for the implementation delays. Such asymmetry generates perverse incentives and weakens faith in the system.

The ruling risks undermining the finality of resolved cases, an essential building block of a working insolvency regime. The Court also ordered funds to be returned. If resolution plans that have been completed over many years can be reversed on account of procedural flaws, it would lead to procedural uncertainty, causing prospective investors to naturally call for higher risk premiums or alternative restructuring tools beyond the IBC mechanism. This will have the effect of substantially shrinking the number of potential bidders for assets under stress and driving down recovery rates for creditors.

Most troubling perhaps is the judgment’s potential to influence the conduct of insolvency professionals and creditors. The RP here was severely criticised for not adequately checking JSW’s eligibility under Section 29A, even though the company had a sound track record as a quality industrial house. Consequent to this judgment, RPs would be unnecessarily risk-averse and reject what could be a conceivable resolution plan at the first technical deficiency instead of applying commercial common sense. Likewise, financial creditors, already reprimanded by the Court for going along silently with JSW’s tardy payments, would hesitate to approve any resolution plan with even minor deviations from original proposals, irrespective of their economic sensibility.

Conclusion & the Path Forward

The case offers an opportunity for substantial reforms that can enhance India’s insolvency framework while maintaining its economic goals. Various important steps can prove to be effective in achieving a more appropriate balance between legal compliance and commercial pragmatism.

The IBC must have clearer guidelines for differentiating between material and immaterial departures from resolution schemes. All procedural flaws need not be equally penalised. Instituting a “materiality threshold” would permit minimal, commercially reasonable adjustments without preventing essential changes prejudicing stakeholders.

The adjudicatory process must be streamlined urgently. The six-year time frame from the commencement of CIRP to the final decision of the Supreme Court is just not compatible with the IBC’s vision of time-bound resolution. Setting up specialised insolvency benches with tight deadlines for the disposal of cases, along with restrictions on adjournments, may go some way in solving this problem. The government may also think of setting up a special appellate forum for insolvency cases to decongest the NCLAT and help resolve issues quickly.

The accountability system must be rebalanced. While it is proper to hold RPs and CoCs accountable in case of gross negligence, investigative agencies and adjudicating authorities must be held accountable for unreasonable delays as well. The ED’s freezing of Bhushan Power’s assets after the NCLT had already cleared the resolution plan was especially egregious and was a major contributor to the implementation delays. There must be clear protocols to avoid such jurisdictional conflicts.

The IBC would also be helped by including more flexible remedies for procedural defaults.  The courts might be authorised to impose proportionate remedies like financial penalties, obligatory further disclosures, or directives to compensate concerned parties. This would save going concerns while still deterring abuse.

As for the particular case, JSW Steel has submitted a review petition against the Supreme Court’s order of liquidation for Bhushan Power on June 23, 2025. An interim stay over liquidation proceedings has since been granted by the Court, awaiting the result of the petition. The review attempts to reverse the Court’s conclusion on procedural non-compliance, such as the replacement of equity with OCDs. Although the fate of the petition is yet to be known, its

outcome will serve to demarcate the scope of technical irregularities that can be addressed after approval under the IBC. The order would also establish a precedent on the degree to which the CoC and RPs may be permitted to exercise commercial discretion without crossing statutory limits.