The Supreme Court on Friday upheld the February 2020 order of the National Company Law Appellate Tribunal (NCLAT) approving JSW Steel’s ₹19,700-crore resolution plan for Bhushan Power and Steel (BPSL).
The top court had in May rejected JSW Steel’s plan and ordered liquidation proceedings against BPSL. A Special Bench later recalled this order in July and reheard the appeals. The case involved challenges from operational creditors, including Kalyani Transco, and objections from former promoters.
In a judgment authored by Chief Justice of India B.R. Gavai, the court held that JSW Steel, as the Successful Resolution Applicant (SRA), had achieved a turnaround and converted a “substantial” loss-making entity into a profit-earning one.
“The corporate debtor [BPSL] had been running into substantial losses which has now become a profit-making entity earning substantial profits. The SRA – JSW invested huge amounts in modernization and expansion of the entity. Not only that but thousands of employees have been earning their livelihood on account of the corporate debtor running as an ongoing concern due to the Resolution Plan being implemented by the SRA – JSW,” the court observed.
The Bench castigated the former promoters for prolonged litigation, stressing that the very purpose of the Insolvency and Bankruptcy Code (IBC) was to ensure the continuity of corporate debtors. “As such, the very purpose for which the IBC was enacted – namely, to ensure that the corporate debtor continues as a going concern – has not only been achieved, but the corporate debtor has been transformed from a loss-making to a profit-making entity. If, after the implementation of the Resolution Plan, the SRA – JSW has converted a loss-making entity into the one making profits, can it be penalised for that?” Chief Justice Gavai wrote.
The court said entertaining belated claims would “open a Pandora’s box” and undermine the finality of resolution plans. It, however, found fault with the Committee of Creditors (CoC) for shifting its stance on the distribution of Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA), but held that raising such arguments at a late stage would defeat the intent of the IBC.
Clarifying that the CoC would continue to exist until the resolution plan is implemented or the corporate debtor liquidated, the court dismissed the ex-promoters’ challenge to its role. Solicitor-General Tushar Mehta, appearing for the CoC, argued the ex-promoters had “no business” questioning the plan.
Senior advocate Neeraj Kishan Kaul, representing JSW, submitted that BPSL had achieved an annual turnover of ₹28,000 crore, with production rising from 2.5 million tonnes to 4.5 million tonnes, and that 25,000 people were employed.
On May 2, however, the Supreme Court had earlier found JSW’s resolution plan in “flagrant violation and contravention” of the IBC, citing lapses by the Resolution Professional. It had then invoked Article 142 of the Constitution to direct the National Company Law Tribunal (NCLT) to initiate liquidation proceedings.
