Rethinking SC’s Liquidation Order in BPSL Case: Examining Commercial Reality

[Mushabbarin and Mahabhashyam are students at West Bengal National University of Juridical Sciences.]

In its recent landmark ruling, Kalyani Transco v. M/s Bhushan Power and Steel Limited on insolvency and bankruptcy in India, the Supreme Court (SC) rejected the resolution plan of JSW, ordering the liquidation of Bhushan Power and Steel Limited (BPSL) after almost 8 years of the initiation of the corporate insolvency resolution proceedings (CIRP). The ruling is also unsettling because the plan has already been substantially implemented, and the creditors are now required to return these payments within two months, raising serious doubts regarding its feasibility at this stage. Consequently, in the interest of justice, the SC, on 26 May 2025, ordered status quo on the liquidation proceedings of BPSL, since such proceedings before the expiry of the limitation period for filing a review might jeopardize JSW’s review petition. 

The court rightly pointed out the glaring errors committed by the resolution professional (RP) and the committee of creditors (CoC) in terms of adherence to the timelines and mandatory requirements. The RP failed to file the Form H Compliance Certificate with the CoC and did not receive the Section 29A eligibility certificate under the Insolvency and Bankruptcy Code 2016 (IBC) from JSW. The RP had also filed the CoC-approved plan beyond the timeline under Section 12 without seeking an extension from the NCLT or providing an explanation for the same. The RP also failed to make any applications for avoidance of transactions as per Chapter-III of the code. 

Further, the court held that the CoC did not follow the mandatory requirements under Section 30(2) of IBC and Regulations 37 and 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016. There were also procedural lapses by the CoC in the conduct of meetings, revision of the plan, and the declaration of the bidder. Moreover, after the plan’s approval, the CoC took an inconsistent approach regarding its implementation by accepting the delayed payments without raising objections.

Despite these obvious failures, could there have been any alternative remedy to liquidation? Even though the court has correctly identified the lapses in the insolvency process and the failures on the part of the CoC and the RP, this article examines whether the court’s remedy effectively balances legal compliance with commercial repercussions. In this light, the article critically examines the court’s order of liquidation through a comparative analysis with the case of State Bank of India and Others v. The Consortium of Mr Murari Lal Jalan and Mr Florian Fritsch and Another (Jet Airways), where the court had offered a similar remedy. The article argues that the court could have rather sent the resolution plan back to the CoC for reconsideration and imposed penalties for the contraventions instead of rejecting the entire plan. 

Comparison with Jet Airways and Commercial Ramifications 

Recently, Jet Airways was sent to liquidation by the SC. The airline ran into difficulties with increasing debts, inefficient management and non-strategic decisions, leading to the initiation of the CIRP, but the flights, which were grounded in 2019, never took off after that. The airline could not be revived as the Resolution Plan was never implemented, even after multiple extensions. Owing to such non-implementation for over five years, increasing costs of the CIRP and maintenance of the corporate debtor (CD), and multiplication of the existing dues, the court found liquidation to be the viable last resort. 

On the contrary, the plan was substantially implemented in the BPSL case, even with multiple extensions. The upfront payment of INR 19,350 crores was made to the creditors in March 2022. JSW also acquired BPSL in October 2021 and invested INR 3,500-4,500 crores to maintain BPSL as a going concern. Given these gross factual differences in the Jet Airways and the BPSL cases, paralleling both in terms of the ultimate result of liquidation seems inequitable.  

Moreover, liquidation also remains questionable on the grounds of its commercial implications. The prospect of debt recovery diminishes under liquidation, which is evident from the key empirical data of insolvency cases from January to March 2025. Despite a high haircut rate of 67%, which is usually unavoidable, the recovery through CIRP was 33% and almost 163% of the liquidation value, as opposed to less than 6% through liquidation. Thus, the twin advantage of CIRP is the better debt recovery combined with the revival of the CD.

Additionally, as highlighted above, hefty payments were made to creditors, the acquisition was completed, and BPSL now accounts for more than 13% of JSW’s steel production. With JSW aiming to reach 50 million tonnes of domestic manufacturing capacity by 2030-31, BPSL’s capacity was predicted to soar to 10 million tonnes from the initial 2.75 million tonnes before the acquisition. Thus, liquidation comes as a major hit to JSW, whose efforts in reviving BPSL have gone down the drain, as well as to the creditors, who are now required to return the upfront payment that was received 3 years ago. 

What can be inferred from this case is that the courts can order liquidation if the mandatory requirements are violated, irrespective of the stage of implementation of the approved plan. This might practically result in the deterrence of the resolution applicants in the future, particularly strategic investors in cases involving high debts.

Suggestions 

It is argued that the SC could have explored other possible remedies, such as sending the resolution plan back to CoC to remedy the non-compliances and imposing penalties on responsible entities. These have been adopted in several cases by the SC. 

In the case of Essar Steel India Limited v. Satish Kumar Gupta and Others, the court upheld the power of NCLT to send back the resolution plan to the CoC for reconsideration based on the limited grounds of judicial review as to whether the CoC has kept the CD as a going concern, maximized the value of its assets and accounted for the interests of all stakeholders. Again, in Jaypee Kesington Boulevard Apartments Welfare Association and Others v. NBCC (India) Limited and Others, the court held that the Adjudicating Authority or the Appellate Authority, within its limited jurisdiction, could remand the resolution plan back to the CoC for resubmission after correcting the shortcomings in the plan, as per the specified parameters under the code.

This approach upholds the paramountcy of the CoC’s commercial wisdom. Thus, any judicial intervention by the NCLT has to be within the 4 corners of Section 30(2) read with Regulation 38, and an appeal can be made only on the grounds mentioned under Section 61. Beyond this, “the correctness or otherwise of the commercial wisdom exercised by the CoC” cannot be examined.

The court, however, in this case, has examined the commercial wisdom of the CoC not only on these limited grounds but also through an examination of the CoC’s inconsistent conduct. This comes dangerously close to assessing the commercial substance of the CoC’s decisions, which has been traditionally considered beyond the scope of judicial scrutiny. Thus, the court could have instead ordered the CoC to reconsider the plans within the limited grounds permissible to ensure compliance with the mandatory provisions.

As for other violations, the Court could have imposed penalties on the RP and the CoC separately rather than nullifying the entire CIRP. Under Section 218 of the IBC, the Insolvency and Bankruptcy Board of India (IBBI) can investigate the complaints received under Section 217 and constitute a disciplinary committee to impose penalties post-investigation on insolvency professionals. The IBBI penalized an RP for his failure to ensure the completion of CIRP within 180 days, leading to the liquidation of the CD. Moreover, in 2019 and 2022, the IBBI suspended the registration of Mr. Mahender Kumar Khandelwal, the RP in the BPSL case, for 2 years and also imposed huge monetary penalties for irregularities in the CIRP of BPSL. The SC could have ordered IBBI to further investigate the violations by Mr Khandelwal, which were highlighted in the judgement. 

Moreover, punishments can be imposed on any person by Special Courts under Section 235A for the contravention of any provision of the IBC or the regulations, where no penalty has been specifically provided. 

Thus, the SC could have instead invoked the same Article 142, as it did for ordering liquidation, for sending back the plan to the CoC and imposing penalties on the RP and the CoC, given the peculiar circumstances. 

Conclusion

BPSL, once a thriving company, became financially distressed due to inefficient management. It is now being maintained as a going concern by JSW, and with efficient management, it could have been fully revived in the near future. Particularly, with the manufacturing industry’s growth and the increasing demand for steel, ordering BPSL’s liquidation does not appear commercially sound. The order of liquidation in this case goes against the very objectives of IBC, viz the revival of the CD and the maximization of the value of the assets, as the implementation of the resolution plan and the efforts of revival of BPSL have reached an advanced stage. Though the SC has rightly emphasized on the adherence to the timelines, procedure and mandatory requirements, the practicality of the strict implementation of the same vis-à-vis the objectives of IBC should be appreciated.