Supreme Court Backs JSW Steel's ₹19,700 Crore Acquisition of Bhushan Power and Steel

Legal Victory for JSW Steel

New Delhi: The Supreme Court has confirmed JSW Steel's resolution plan worth ₹19,700 crore for the financially troubled Bhushan Power and Steel Limited (BPSL), effectively concluding a lengthy legal dispute that lasted nearly eight years.

A bench led by Chief Justice B R Gavai, along with Justices Satish Chandra Sharma and K Vinod Chandran, upheld the National Company Law Appellate Tribunal's (NCLAT) ruling from February 17, 2020.

The NCLAT had permitted JSW Steel to take over BPSL for ₹19,700 crore, granting it immunity from prosecution by the Enforcement Directorate.

CJI Gavai, who authored the 136-page judgment, stated, "We do not find any merit in the appeals. Therefore, the appeals are dismissed, and the NCLAT's judgment from February 17, 2020, is upheld."

The court had previously reserved its decision on August 11 regarding appeals from former promoters and operational creditors of BPSL who contested the JSW Steel resolution plan.

Earlier, a bench that included former Supreme Court judge Justice Bela M Trivedi had invalidated JSW Steel's resolution plan on May 2, deeming it illegal and in breach of the Insolvency and Bankruptcy Code (IBC).

This verdict criticized the actions of all major participants in the resolution process, including the resolution professional, the Committee of Creditors (CoC), and the National Company Law Tribunal (NCLT), for what it described as a "flagrant violation" of the IBC.

The CJI-led bench later allowed review petitions against the apex court's earlier ruling and opted to hear them in an open court.

On July 31, the bench retracted the May 2 ruling that had mandated the liquidation of BPSL while nullifying JSW Steel's resolution plan for the distressed company.

The bench noted that the May 2 judgment did not accurately reflect the legal context established in previous rulings.

A significant point of contention was whether the earnings before interest, tax, depreciation, and amortization (EBITDA) accrued during the resolution phase should be allocated to creditors or retained by the company.

The CoC was pursuing ₹3,569 crore in EBITDA and ₹2,500 crore in interest related to delays.

CJI Gavai remarked, "Before we conclude this matter, we must highlight the disastrous consequences that could have arisen had the arguments presented by the promoters and directors of the Corporate Debtor been accepted, or if the CoC's stance on EBITDA was upheld."

The bench indicated that the resolution applicants had submitted their bids without addressing the treatment of EBITDA in the resolution plan.

"After a prolonged delay due to various reasons, the Resolution Plan was executed. The Corporate Debtor was previously incurring significant losses but has now transformed into a profitable entity," the judgment stated.

It emphasized that JSW had made substantial investments in modernizing and expanding the corporate debtor.

"Moreover, thousands of employees have been able to sustain their livelihoods due to the Corporate Debtor operating as a going concern, thanks to the Resolution Plan implemented by JSW. Thus, the primary objective of the IBC—to ensure the Corporate Debtor continues as a viable entity—has not only been met but has also resulted in a transformation from a loss-making to a profit-making entity," it added.

The verdict posed the question: If JSW has successfully turned a loss-making entity into a profitable one, can it be penalized for that?

"If, instead of becoming profitable, the Corporate Debtor had continued to incur losses, could it then claim a refund of the amount paid? Allowing such claims to be raised at this late stage could open a Pandora's Box and undermine the IBC's intent to uphold the finality of the Resolution Plan approved by the CoC and NCLT," it cautioned.

The bench noted that this issue had already been resolved.

BPSL was among the twelve major corporate defaulters identified by the RBI in June 2017 for insolvency resolution.

With acknowledged claims exceeding ₹47,000 crore from financial creditors and over ₹600 crore from operational creditors, this case quickly escalated into one of the largest insolvency proceedings in India.

JSW Steel emerged as the top bidder in October 2018 and subsequently received approval from the CoC.

However, the resolution process faced numerous legal challenges after investigative agencies, including the CBI and ED, initiated actions against BPSL and its promoters over allegations of fraud and money laundering.

In September 2019, the NCLT conditionally approved JSW's plan, which was later modified by the NCLAT in February 2020.

Subsequent appeals led to petitions being filed in the Supreme Court.

The SRA was represented by Karanjawala and Co, including Nandini Gore and Tahira Karanjawala during the proceedings.