Supreme Court’s Bhushan Power and Steel Judgment: Statutory Finality v/s Article 142

[Aryan is a student at Dr Ram Manohar Lohiya National Law University.]

A judgment too far, then too soon? In May 2025, the Supreme Court (SC) of India dealt a seismic blow to India’s insolvency regime. It delivered a 105-page judgement in Kalyani Transco v. M/S Bhushan Power and Steel (Bhushan Power) for quashing the INR 19,700 crore resolution plan of JSW Steel for Bhushan Power and Steel Limited (BPSL) and directed liquidation of the company, i.e., reversing one of the most successful insolvency deals in India's history. However, within weeks, it has ordered status quo on the liquidation proceedings and is reconsidering the fallouts. While the court found “illegalities at every stage”, from the resolution professional’s failure to verify JSW’s eligibility under Section 29A of the Insolvency and Bankruptcy Code 2016 (IBC) to the opaque use of optionally convertible debentures that diluted creditor rights, its remedy has raised deep concerns. Invoking its “special powers” under Article 142 of the Constitution of India, the court unwound a deal that had been implemented and upheld by lower tribunals for years. 

Statutory Finality in Insolvency

Under the IBC’s carefully designed scheme, once the National Company Law Tribunal (NCLT) approves a resolution plan under Section 31, that plan becomes final and binding on the corporate debtor, its creditors, and even the successful resolution applicant itself. The SC has reaffirmed that an approved plan is “binding everyone under the sun”, extinguishing old claims and giving the successful bidder a “clean slate”. Any breach of the terms of an approved plan is treated as a punishable offence under Section 74(3) of the IBC. In Bhushan Power, the court accordingly held that JSW could not properly file an appeal under Section 61 (which permits only limited grounds) when none of the statutory grounds existed. In short, both statute and precedent treat an approved plan as sacrosanct unless fraud or legal infirmity is proven.

The code also provides a built-in fallback that if no plan is submitted in time or a plan is rejected under Section 31, the NCLT must proceed to liquidation under Section 33(1). Thus, under the normal scheme, the only way to trigger liquidation is via Section 33 after strict procedural criteria. By design, once a plan is approved and any appeals are exhausted, all parties move on based on that outcome.

The Court’s Rationale and Resolution Plan Flaws

Against this background of finality, the SC’s Bhushan Power judgment is striking. The court found multiple and serious lapses in the insolvency proceedings. For example, the resolution professional failed to obtain the mandatory Form H to verify JSW’s disqualification status under Section 29A. JSW Steel’s plan itself was structured in ways that undermined creditor interests. It pushed most payments into optionally convertible debentures, diluting financial creditors, and allotted only a token amount to operational creditors, contravening the debt-priority rules in Section 30(2). Worse, JSW concealed a prior joint-venture agreement linking it to BPSL, an omission that could have made it ineligible under Section 29A. Therefore, the SC concluded that the approved plan “did not confirm the requirements referred to in sub-section (2) of Section 30” and was thus “liable to be rejected” by the NCLT at the outset. It quashed both the NCLT and National Company Law Appellate Tribunal orders approving the plan and held the JSW plan “stands rejected, being not in conformity with” the mandatory provisions of Sections 30 and 31. In view of Section 33(1), the court then ordered the NCLT to liquidate BPSL, explicitly invoking Article 142 to reach that result.

The bench described the process as having “frustrated the very object and purpose” of the IBC. It underscored that JSW had been given “the highest score” by the committee of creditors and then allowed to implement its plan for repayment and restarting mill operations years before these faults were exposed. JSW’s lapse in prompt payment was also noted: it delayed the bulk of the upfront payment by nearly two years, benefiting from a favorable steel price cycle while creditors waited. Taken together, the court deemed that the process had been vitiated at every turn by procedural violation and (implicit) unfair dealing.

Article 142 and Judicial Finality

Nevertheless, it is the remedy the SC chose that has drawn sharp criticism from insolvency specialists. Rather than correcting specific defects while keeping the company as a going concern, the court invoked Article 142 to extinguish the plan altogether and send BPSL into liquidation. In doing so, it effectively rewound the clock by five years of transactions. As one commentator noted, this extraordinary use of Article 142, likened by India’s Vice-President to a “nuclear missile”, creates a precedent that “undermines the IBC’s finality.” By ordering liquidation, the court ignored reliance by new stakeholders (employees, suppliers, and even foreign investors) who had engaged with BPSL on the faith of the plan, thereby “returning all parties to their pre-insolvency position”.

Invoking Article 142 “to deliver complete justice” is constitutionally permissible but traditionally reserved for cases where no remedy is available in law. Critics ask whether this was such a case. MS Sahoo, former IBBI chair, observed that the SC could have “rescued BPSL using Article 142, not liquidated it”. It could have imposed penalties on wrongdoers or balanced compliance with economic pragmatism, as it did in Shivshakti Sugars v. Renuka Sugars. However, the court treated procedural lapses as a fatal flaw that could be cured only by scrapping a completed deal. This has led to a sense of “déjà vu” and unease as, after all, precedents like Electrosteel Steels had stressed that an approved plan is “not just binding but sacrosanct” and can only be challenged through the mechanism provided under the IBC.

Viewed holistically, while the judgment is unquestionably detailed in exposing infirmities, its reliance on Article 142 to override Section 31’s finality has unsettled many. The court’s laser-focus on technical compliance exposed a divide between commercial pragmatism and rule-bound formalities. One opinion remarked that “if every blemish can reopen a consummated deal, very few will dare to pick up the scalpel” in future distressed sales.

Fallout and Reforms: Creditors, Workforce and Market Impact

The practical consequences of unwinding a long-settled transaction are profound. Banks and creditors, who already took hefty haircuts and believed the deal was closed, now face billions in uncertainty. The CUTS analysis projects roughly a INR 15,000 crore loss for JSW and a 10–15% plunge in its stock price once liquidation proceeds since piecemeal sale of steel plant assets typically yields far less than the going-concern value. 

For the market writ large, the message may be chilling. Many of these funds (Ares SSG Capital, etc.) co-invested in BPSL debt with an eye on stable outcomes. The perception of heightened litigation risk looms. Indeed, this precedent will “weaken the credibility of business asset re-allocation” for international investors. Moreover, “foreign funds … now face an uncertain claw-back”, harming India’s ease of doing business. Domestically, banks that were on the cusp of some recovery may now be forced to take deeper provisioning hits.

Employees and local communities also feel the strain. BPSL was operating as a 4.5 million tonne capacity plant; its liquidation will leave thousands of workers in limbo. The judgment “overlooks [the] stakeholders’ reliance interests” from employees to vendors who engaged with the company on the assumption it would survive. CUTS puts it bluntly as “workers will face job losses and foreign investors … confront trust erosion”, even as India’s domestic steel supply tightens with BPSL’s removal from the market. Each aborted resolution not only destroys jobs and credit, “locking up plant, labour and credit”, but also drags GDP growth lower. What was intended as a rescue mechanism has, paradoxically, deepened the distress.

The judgment has thus reopened debates about the IBC’s purpose. On one hand, strict compliance cannot be ignored as planning flaws and procedural lapses can undermine fairness. On the other, the IBC’s core goal is to maximize value for all stakeholders by rescuing viable business or exiting nonviable ones, quickly and surely. Critics point out that the court’s action leans heavily towards the former, with scant attention to the latter. After all, BPSL was described as a “successfully revived” enterprise under JSW’s stewardship, earning profits and servicing debts for years. The court itself warned against undue delay: the IBC promised 270-day resolutions, but the Bhushan case dragged on for eight years, including appeals. Every additional court hearing eroded the company’s value; yet the ultimate remedy forced a complete undoing of transactions that had been settled long ago. The ruling risks proving “the best is the enemy of the good” by insisting on retroactive perfection at the cost of a functioning business.

This calls for urgent reforms. PolicyCircle suggests legislative clarity that approved plans be deemed final, barring proven fraud, so that post-approval litigation can focus only on exceptional misconduct. Accordingly, if Article 142 is to be used, it must be calibrated to preserve the company’s going concern by keeping the plan intact while penalizing officials who ignored the rules. Some commentators point to US bankruptcy’s “equitable mootness” doctrine as a model, which moots appeals that would wreak havoc on third-party reliance. Had such an approach been applied, the SC could have held wrongdoers to account and safeguarded BPSL’s operational revival. 

A complementary solution is to create a dedicated Insolvency Integrity Commission: a single expert body to pre‑certify compliance checkpoints (e.g., Form H verification, creditor‑priority tests) and thereafter serve as the exclusive forum for investigating and sanctioning any post‑approval misconduct ensuring both finality and accountability in one seamless process.

Conclusion

The Bhushan Power case will be studied as a cautionary tale. On one side, it underscores that insolvency laws are not toy models to be treated lightly; procedural rules serve the code’s integrity. On the other, it delivers a jolt by showing that even long-implemented deals can be unwound for technical lapses, a double-edged signal to investors and professionals alike.

This episode forces a difficult reckoning between the code’s letter and its larger purpose. The ongoing review invites the legal and business community to ponder how best to balance strict compliance with the IBC’s goal of industry revival – a question that will only grow more urgent as India grapples with its vast stressed assets in the years ahead.