India’s Supreme Court has declared JSW Steel Limited’s resolution plan for Bhushan Power & Steel Limited (BPSL) “illegal” and ordered the latter’s liquidation, four years after the company was acquired by JSW Steel under the Insolvency and Bankruptcy Code (IBC), as per a court verdict delivered on Friday, May 2.
The court’s decision came from a two-judge bench which held the resolution process for bankrupt BPSL to be “illegal” and “contrary” to provisions in the IBC.
“The resolution plan of JSW, as approved by the CoC (committee of creditors), did not conform to the requirements in Section 30(2) of the IBC, the same being in flagrant violation of the express provisions of the IBC and CIRP (Corporate Insolvency Resolution Process) regulations. The said resolution plan was liable to be rejected by the NCLT (National Company Law Tribunal) under Section 31(2) at the very first instance. The impugned judgment passed by the NCLAT (National Company Law Appellate Tribunal) is perverse and coram-non-judice and is liable to be set aside,” the bench said.
“The CoC also failed to protect the interests of the creditors by taking contradictory stands before the Supreme Court and accepting the payments from JSW without any demurrer and supporting JSW’s ill-motivated plan against the interests of the creditors,” the court said.
Sharp observations were also made about the resolution professional (RP) overseeing the process. The Supreme Court found that the RP had “utterly failed” to discharge his statutory duties under the IBC and CIRP regulations.
The court also held that JSW had secured the winning bid by misrepresenting facts before the CoC. “Also, after the approval of the resolution plan, it did not act on it for two years, though there was no legal impediment,” it further said.
“We learnt that the Supreme Court pronounced judgment on May 2, rejecting the resolution plan submitted by the company and approved by NCLAT, on certain grounds. We are yet to receive the formal copy of the order to understand the grounds for rejection in detail and its implications," the company said in a filing to the BSE.
BPSL was admitted for corporate insolvency resolution in 2017. At the time, the company owed over $5.58 billion (at current exchange rate) to financial creditors.
Its financial woes were further exacerbated by a high-profile investigation by the Enforcement Directorate (ED) into alleged loan diversion of $478 million by its former promoters.
In October 2019, the ED provisionally attached BPSL’s assets under the Prevention of Money Laundering Act (PMLA), citing them as proceeds of crime.
JSW Steel had emerged as the successful resolution applicant in 2019, offering over $2.26 billion to financial creditors. The plan was approved by the National Company Law Tribunal (NCLT) in September 2019 and subsequently upheld by the National Company Law Appellate Tribunal (NCLAT), despite ongoing legal challenges, including objections raised by the ED.
With the scrapping of the acquisition, JSW Steel Limited is set to lose the 3.5 million mt per year capacity of BPSL and its current expansion to 5 million mt per year will be aborted.