The Supreme Court’s BPSL Judgement: Key Lessons and the Way Forward

Executive Summary Recently, the Supreme Court ordered the liquidation of Bhushan Power and Steel Limited, raising critical questions on procedural compliance and finality under the IBC.

The judgement highlights lapses, including delays in plan implementation, non-compliance with mandatory affidavits and procedural irregularities by the CoC

While reinforcing the need for strict adherence to process and timelines, the ruling has also introduced investor uncertainty regarding finality and judicial intervention.

Concerns have been raised about the lack of clarity on refund mechanisms and whether penalties could have served as a less disruptive alternative .

A review petition is pending before the Supreme Court, with a status quo ordered, leaving open the possibility of a more balanced resolution.

The case underscores the need for heightened diligence, transparency and procedural discipline by all stakeholders in future insolvency proceedings.

. The Supreme Court of India recently ordered the liquidation of Bhushan Power and Steel Limited (BPSL) under the Insolvency and Bankruptcy Code (IBC), marking a significant development with wide-ranging implications for Corporate India. The case highlights critical issues around procedural rigour, finality in insolvency proceedings and the scope of judicial intervention. At a recent IMA India CFO Forum session, Tine Abraham, Partner, Disputes Practice and Mohammed Shameer, Partner, Disputes Practice at Trilegal, examined the judgment and discussed its potential impact on the corporate and investor community.

Setting the Context… The judgement arises from the corporate insolvency resolution process (CIRP) of BPSL, initiated in 2017 pursuant to an RBI directive aimed at resolving severely distressed assets, popularly referred to as the ‘Dirty Dozen’. Bhushan Power’s borrowings, primarily from PSU banks, led to resolution plans being submitted by JSW Steel, Tata Steel and Liberty House. Ultimately, the plan proposed by JSW Steel was approved by the National Company Law Tribunal (NCLT), albeit with certain modifications, and was subsequently challenged before the Supreme Court (SC) following appeals against the National Company Law Appellate Tribunal (NCLAT) ruling. In parallel, the Enforcement Directorate (ED) attached certain assets of Bhushan Power under the Prevention of Money Laundering Act. Notably, while the NCLT’s approval was granted in 2019, JSW Steel continued to make payments under the resolution plan until 2022, even as the appeals remained pending before the SC.

Given the extended nature of the proceedings, a few key timelines are important to note:

26 July 2017 : Bhushan Power was admitted into insolvency by the NCLT.

5 September 2019 : NCLT approved the resolution plan submitted by JSW Steel.

10 October 2019 : Following the approval of the resolution plan, the ED attached Bhushan Power’s assets.

2 May 2025 : The SC disposed of the appeals.

This chronology underscores the protracted nature of the process, spanning several critical developments between 2017 and 2025.

The Decision The SC set aside the orders of both the NCLT and the NCLAT and quashed the resolution plan submitted by JSW Steel. As a natural consequence, it ordered the liquidation of BPSL. Additionally, the Court took note of an affidavit filed by the Committee of Creditors (CoC), wherein it was submitted that should the resolution plan be set aside, all payments made by JSW Steel under the plan would be refunded. This assurance is duly recorded in the final judgement.

SC’s considerations in the Judgement In setting aside the resolution plan submitted by JSW Steel, the SC considered several key factors:

Improper use of Section 61 of the IBC - The Court examined whether JSW Steel could appeal the approval of its own resolution plan. It held that JSW, having submitted the plan, could not be regarded as an aggrieved party under Section 61 and, therefore, was not entitled to challenge the approval before the NCLAT.

Non-compliance with Section 29’s affidavit requirement - The Court found that JSW failed to submit the mandatory affidavit under Section 29A of the IBC, affirming its eligibility as a resolution applicant. Further, the insolvency Resolution Professional (RP) did not file the requisite certification confirming compliance with Section 29A. These procedural lapses contributed to the invalidation of the resolution plan.

Delays in resolution plan implementation - The Court observed major delays in implementing the approved plan. Although the effective date was set at 30 days post-NCLT approval, JSW delayed implementation by over 540 days and operational creditors were paid only after 900 days. The CoC, having become functus officio after plan approval, had no authority to extend these timelines, further undermining the process.

Violation of the IBC’s payment priority norms - The Court found non-compliance with Regulation 38 of the CIRP Regulations, which requires that operational creditors be prioritised over financial creditors. In this case, the latter were paid almost a year before the former, breaching the mandated payment hierarchy.

Changing stance of the CoC - The SC scrutinised the conduct of the CoC, comprising largely of PSU banks, and found lapses in the exercise of its commercial wisdom. Initially supportive of JSW Steel, the CoC later reversed its position, citing delays in plan implementation while simultaneously seeking to facilitate its completion through measures like escrow arrangements. Moreover, procedural lapses were noted, including private discussions between certain lenders and JSW Steel and the allowance for JSW alone to submit an amended resolution plan. The Court emphasised that while the commercial wisdom of the CoC is to be respected, it must be exercised within a fair and transparent framework, signalling a shift in how courts may now scrutinise CoC decisions under the IBC.

Implications for Corporates The judgement reaffirms the primacy of strict procedural compliance in insolvency proceedings and sets higher standards for all stakeholders. However, the judgement has both, pros and cons. The pros include:

Due diligence and transparent disclosures - Resolution applicants must exercise rigorous legal and financial due diligence, ensuring full disclosure of all agreements and eligibility declarations under the IBC. Timelines must be strictly adhered to at every stage, from expression of interest to final plan submission. Procedural lapses or non-disclosures can raise eligibility concerns and result in plan rejection. Further, resolution plans must be implemented promptly without conditionalities or delays.

Role of CoCs and RPs - RPs must verify the eligibility of applicants and ensure statutory compliance, while CoCs must critically assess the viability and legality of resolution plans. Equal treatment of applicants is essential; selective negotiations are permissible only on a transparent and justifiable basis, typically post-identification of the highest bidder. The judgement signals a stricter judicial scrutiny of CoC conduct, reinforcing the need for active oversight and procedural discipline.

Prompt implementation of approved plans - Approved plans must be implemented without delay. Deviations or protracted timelines disrupt the resolution process and may trigger liquidation. Clear schedules and accountability mechanisms are now critical to preserve the integrity of CIRP outcomes.

Greater accountability for Successful Resolution Applicants (SRAs) - SRAs are expected to fully comply with their commitments and avoid renegotiations post-approval. Non-compliance could result in cancellation of the resolution plan and liquidation. The judgement sets a precedent for SRAs to act in good faith and fulfil all obligations without exception.

The cons of the judgement include the following:

Erosion of finality - The judgement raises concerns about the finality of the insolvency resolution process. It suggests that finality is achieved only upon the SC’s adjudication, including appeals, reviews or curative petitions. Such uncertainty undermines investor confidence, as stakeholders now face prolonged timelines before closure is assured. Although the Court limits intervention to ‘egregious flaws’, the subjectivity of what constitutes such flaws could lead to inconsistent interpretations, impacting business continuity and value maximisation. It is also unlikely that legislative amendments could retrospectively alter outcomes, as most amendments under the IBC have been prospective in nature.

Dilution of CoC primacy - The judgement also brings the scope of the CoC commercial wisdom under scrutiny. While it introduces welcome rigour and fairness, it leaves open questions about the extent of judicial oversight over CoC decisions, challenging the earlier understanding that such decisions were largely immune from judicial interference, and creating uncertainty for participants in the insolvency process.

Observations on fairness and conduct - Although no mala fide intent was formally established, the SC noted concerns around fairness. It criticised JSW Steel for submitting a resolution plan and then litigating against its implementation and observed the CoC’s inconsistent stance throughout the process. While direct evidence was not examined, this highlights judicial discomfort with the integrity of the proceedings.

Lack of clarity on clawback mechanism - The ruling is silent on the mechanics of refunding payments made under a now-invalidated resolution plan. While the CoC’s undertaking to refund JSW Steel is noted, practical issues remain unresolved, including how payments already made to operational creditors will be recovered, how capital expenditure incurred by the resolution applicant during implementation will be treated and how expenses such as machinery repairs or upgrades, will be disentangled for refund purposes.

Were Penalties an Alternative? A key criticism of the judgement is whether the SC could have opted for a less disruptive remedy, such as directing the Insolvency and Bankruptcy Board of India (IBBI) to investigate the procedural lapses by the RP, the CoC and the successful resolution applicant and impose significant penalties. This could have addressed the infractions without invalidating the resolution plan, preserving a process already substantially implemented and which benefited PSU banks. Practitioners argue that penalties would have balanced accountability with the need to maintain investor confidence and market stability. While this alternative is under debate, it remains to be seen whether the review court will consider it or uphold the judgment in its current form.

The Review Petition and its Possible Outcomes In response to the concerns raised by the judgement, a review petition has been filed before the SC, which has ordered a status quo, effectively staying the liquidation of BPSL that had been directed earlier. While the judgement introduces greater procedural rigour, it also creates significant uncertainties, particularly around the finality of insolvency proceedings and the unwinding of an already implemented resolution plan. The SC’s willingness to entertain the review petition and stay the liquidation (an uncommon step) signals the seriousness of these concerns. Although predicting the outcome is difficult, the Court, empowered to do complete justice under the Constitution, may choose to uphold procedural principles while crafting an exception to preserve the commercial realities of a resolution plan already in effect.