Explained| Why Supreme Court Set Aside JSW's Resolution Plan For Bhushan Steel & Power Ltd

The Supreme Court in its recent decision to set aside the Resolution Plan submitted by JSW Steel for Bhushan Steel and Power Ltd, flagged the various procedural non-compliances done by the Resolution Professional and lack of commercial wisdom exercised by the Committee of Creditors (Coc)

Holding that the Resolution Plan of JSW was illegal and contrary to the provisions of the Insolvency and Bankruptcy Code(IBC), a bench comprising Justice Bela M Trivedi and Justice Satish Chandra Sharma stated that the Committee of Creditors(Coc) should not have accepted it. The bench also faulted the National Company Law Tribunal for approving the Resolution Plan. 

The CIRP proceedings were triggered against BPSL at the instance of Punjab National Bank in 2017. JSW Steel's resolution plan for acquiring Bhushan Power & Steel Ltd (BPSL) involved a total payment of ₹19,700 crore. This comprised ₹19,350 crore allocated to financial creditors and ₹350 crore to operational creditors, against their claims of ₹733 crore. 

The NCLT has approved the resolution plan proposed by the Succesful Resolution Applicant (SRA)-JSW on 5.09.3019; however, certain modifications were made and the Tribunal imposed certain conditions upon the SRA. These conditions were then challenged by SRA in an appeal before NCLAT. Appeals were also filed by creditors/ erstwhile directors, including 'Mr. Sanjay Singhal,' 'Kalyani Transco,' 'Jaldhi Overseas,' 'Medi Carrier,' 'CJ Darcl Logistics' and 'State of Odisha & Others.'

The impugned order dated 17.02.2020 approved the judgment and order dated 05.09.2020 passed by the NCLT, subject to the modifications/clarifications made by it in its impugned judgment. The NCLAT thus allowed the appeal by JSW and dismissed other company appeals. It made changes to the earlier conditions set by the NCLT order. 

The NCLAT order was then challenged before the present bench through a batch of appeals filed by promoters of the corporate debtor and its creditors. The bench set aside the Resolution Plan by JSW mainly on the following five aspects: 

(1) Non-Compliance With Time Lines Prescribed Under S. 12 IBC 2016 

The Court noted that since the CIRP was initiated on 26.07.2017, the applicability of S.12 IBC will be considered as it stood before the 2019 Amendment. Thus, the Court referred to the decision in Arcelormittal India Private Limited vs. Satish Kumar Gupta and Others which held S. 12 (1) to be of mandatory nature. 

S. 12 reads : (1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.

(2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of sixty-six per cent. of the voting shares.

Proviso (1) reads : Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once. 

The Court observed that "it is explicitly made clear that the provision contained in Section 12(1) is mandatory in nature as the expression “shall be completed” is used. Sub-section (3) further makes it clear that the duration of 180 days may be extended further “but not exceeding 90 days”, meaning thereby a maximum of 270 days' time limit is statutorily laid down. The proviso to Section 12 also further clarifies that the extension of period of CIRP under the said Section shall not be granted more than once. Therefore, there remains no shadow of doubt that prior to insertion of two provisos by way of amendment in Section 12 which came into force w.e.f 16.08.2018, the entire CIRP proceedings had to be completed within maximum period of 270 days from the date of admission of the Application to initiate such process."

Applying the above to the facts of the case, the Court noted that the date 26.07.2017 was the date of admission of the Application to initiate the CIRP against the Corporate Debtor BPSL. The appointment of Mr. Khandelwal as the Resolution Professional was confirmed by the CoC in its first meeting held on 01.09.2017. However, the company application was submitted by the RP only on 14.2.2019, which is almost after one and a half years. 

It further observed that RP had not filed any extension application as mandated under S.12(2). The RP had also not complied with Regulation 39(4) Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. 

As per Regulation 39(4), the RP is required to submit the Resolution Plan approved by the CoC to the Adjudicating Authority at least 15 days before the maximum period for completion of CIRP under Section 12. In factual terms, the Court observed : 

"It appears that though the e-voting process was conducted on 15.10.2018-16.10.2018, the so-called approved Plan was placed before the NCLT for its approval under Section 31 only on 14.02.2019. There is no justification whatsoever submitted by the Resolution Professional as to why the said Application for approval of the Plan was filed after almost four months. Such an Application filed by the Resolution Professional being ex-facie in contravention of Section 12 read with Regulation 39(4) of the Regulations 2016, should not even have been entertained by the NCLT." 

The Court also referred to the decision in ESSAR Steel India Ltd.Committee of Creditors Vs. Satish Kumar Gupta(2019) which held that only in exceptional circumstances can the deviation be made from the outer limit within which resolution of the stressed assets of the corporate debtor must take place beyond which the corporate debtor is to be driven into liquidation”. 

Since the CIRP was initiated on 26.7.2017, and the Plan was only filed with the NCLT under S.31 for approval on 14.2.2019, the Court concluded that "even the maximum period of 330 days including the time taken in legal proceedings had expired much prior to filing of the said Application under Section 31 on 14.02.019." 

Thus, it was held that : "In that view of the matter, we have no hesitation in holding that the Application submitted by the Resolution Professional seeking approval of the Resolution Plan of JSW under Section 31 being hit by Section 12 of IBC, the NCLT had committed grave error of law in approving the said plan vide its order dated 05.09.2019." 

(2) Non-Filling Of Applications For Avoidance Transactions

The Court held that the RP also had failed to make any Applications for avoidance of transactions in accordance with Chapter-III of the Code.

"When the RBI had issued directions to the Indian Banks to mandatorily initiate CIRP against infamously known as “dirty dozen” companies, and when BPSL was one of them, it was obligatory on the part of the Resolution Professional to discharge his statutory duty cast upon him to file Applications for avoidance of transactions in accordance with Chapter-III of IBC." 

Notably, under the IBC 2016, 'avoidance transactions' are specific transactions conducted by a corporate debtor prior to insolvency proceedings that are deemed detrimental to the interests of creditors. These include (1) Preferential transactions, (2) Undervalued transactions, (3) Extortionate Credit transactions, and (4) Fraudulent transactions. The concept of 'Avoidance Transactions' can be understood here. 

(3) Other Non-Compliances By The RP 

The RP, as observed by the Court had also failed to (1) certify whether the applicant -JSW was an eligible person under S. 29A. Notably, S.29A lays down qualifications for a person to be an eligible plan applicant; (2) confirm whether the plan is not in contravention of any laws and clarity on priority payment to operational creditiors as per S. 30(2). The said provision lays down details on aspects which the RP shall check with the proposed plan's terms; 

(3) The plan also, contrary to Sub-regulation (1) of Regulation 38, gives priority to payment of dues of financial creditors over operational creditors. As per Sub-regulation (1) of Regulation 38 as it stood prior to its amendment in November 2019, the amount due to the Operational Creditors under a Resolution Plan had to be given priority in payment over the Financial Creditors.

(4) Coc had Not Applied Its Commercial Wisdom On The Feasibility Of The Plan; Took Contradictory Stands In Litigation

The Court held that the Coc has failed in ensuring that the RP complied with all the relevant statutory provisions and the Plan was feasible as per the IBC Act and 2016 Regulations. 

The bench held : "The position of law, propounded by this Court is that commercial wisdom of CoC means a considered decision taken by the CoC with reference to the commercial interest, the interest of revival of Corporate Debtor and maximization of value of its assets. This wisdom is not a matter of rhetoric but is denoting a well-considered decision by the CoC as the protagonist of CIRP. The CoC therefore has to take into consideration the mandatory requirements of the Code as well as the Regulations framed by the Board, and to see that the Insolvency Resolution of the Corporate Debtor is completed in a time bound manner and for maximization of value of assets of the Corporate Debtor."

"The mandatory requirements under the Code are, the compliance of the time limit specified in Section 12, the compliance of Section 29A to see whether the Resolution Applicant is an eligible applicant to submit the plan, the compliance of sub-section (2) of Section 30 of IBC etc. The mandatory requirements stated in Regulation 38 of the Regulations, 2016 are that the Resolution Plan must demonstrate that it addresses the cause of default, that it is feasible and viable, it has the provisions for its effective implementation and the Resolution Applicant has the capability to implement the Resolution Plan in a time bound manner. If the Resolution Plan does not comply with such mandatory requirements and such plan is approved by the CoC, it could not be said that the CoC had exercised its commercial wisdom while approving such Resolution Plan."

The Court also frowned upon the possible collusion between the applicant, CoC and the RP, considering that CoC changed its stance in the present proceedings before the Court and accepted Rs. 19,350 Crores at a very belated stage. Before this, the CoC was highly critical of the applicant not implementing the resolution plan, as was evident by its affidavits submitted before the present Court. 

The bench explained: " Pertinently, the CoC in the reply to the Application filed by the Respondent JSW before this Court seeking clarification of the order dated 06.03.2020, had raised serious grievances on affidavit against the SRA - JSW for not implementing the Resolution Plan as approved by the CoC and further approved by NCLT......." 

"The CoC had pointed out the defaults of JSW in not implementing the Plan and submitted that the CIRP proceedings were languishing for more than 35 months because of the non-implementation of the Resolution Plan at the instance of JSW. In spite of such allegations made and grievances raised by the CoC on affidavit before this Court, surprisingly, the CoC for the reasons best known to it, all of a sudden changed its stance, and accepted Rs. 19,350 Crores at a very belated stage, offered by JSW, without any demurrer."

The Court ceeded to the submissions made on behalf of Ex-Promoters that not only did JSW misuse court proceedings, delayed the implementation of the plan, it only agreed to comply with the terms of the plan when it saw a rise in the process for steel in the market. It was thus held that "The changing stance of Coc in the present proceedings also smacks of its bona fides and raises serious doubts about the exercise of its so called commercial wisdom."

(5) JSW Purposefully Delayed The Implementation Of The Resolution Plan 

The Court took a stern view of 'delay tactics' adopted by JSW. It stated that though the said plan was approved from the NCLT by the Resolution Professional without confirming the compliance of Section 30(2) and the Regulations 38 and 39, JSW instead of complying with the terms and clauses of the approved Resolution Plan filed the Company Appeal before the NCLAT, just to delay the implementation of the Plan.

The Court noted that even after the passing of the impugned NCLAT order, which allowed the resolution plan of the SRA, the applicant deliberately delayed the implementation of the plan by using the pendency of the present appeals as an excuse. The Court expressly clarified that such a delay was being done in the absence of any stay granted on the implementation of the Plan.

" Even after the impugned judgment was passed by the NCLAT, allowing the said untenable Appeal of JSW and dismissing the other Appeals of the Operational Creditors and the Ex-Promoters, the Resolution Plan was not implemented by JSW under the guise of pendency of the present Appeals, though there was no stay granted by this Court against the implementation of the Resolution Plan."

The SRA, as per the Court also filed interim applications during the present proceedings just to further delay the implementation of the plan. The Court, expressed dissatisfaction at the whole scenario and observed that such delay tactics were done with a malafide. It expressed : 

"Thus, all throughout the proceedings, the plan was not implemented by JSW without any cogent reason or justification for about two and a half years after the approval granted by the NCLT and for about two years after the impugned order was passed by the NCLAT, leaving the creditors in lurch and leaving them high and dry."

"In our opinion, nobody should be permitted to misuse the Process of law nor should be permitted to take undue advantage of the pendency of any proceedings in any Court or Tribunal. Instituting vexatious and frivolous litigations in the NCLT or NCLAT and delaying the implementation of Resolution Plan under the garb of pendency of proceedings, has clearly proved the mala fide and dishonest intention on the part of JSW, in firstly securing highest score making misrepresentation before CoC and then not implementing the same under the garb of pendency of proceedings, though the Resolution Plan was supposed to be an unconditional one. Such acts of misuse and abuse of process of law cannot be vindicated by this Court, which otherwise would tantamount to ratifying and pardoning the illegal acts committed by JSW and thereby giving them a clean chit. 

The bench also referred to the decision in State Bank of India and Others Vs. Consortium of Murari Lal Jalan and Florian Fritsch and Another and reiterated that "it is quite clear that merely because the Code is silent with regard to the phase of implementation of the Resolution Plan by the Successful Resolution Applicant, neither the Tribunal nor the Courts should give excessive leeway to the Successful Resolution Applicant to act in flagrant violation of the terms of the Resolution Plan or in a lackadaisical manner."

The Court also observed that the conduct of JSW was malafide and dishonest.

"Instituting vexatious and frivolous litigations in the NCLT or NCLAT and delaying the implementation of Resolution Plan under the garb of pendency of proceedings, has clearly proved the mala fide and dishonest intention on the part of JSW, in firstly securing highest score making misrepresentation before CoC and then not implementing the same under the garb of pendency of proceedings, though the ResolutionPlan was supposed to be an unconditional one."

Case Details : Kalyani Transco vs M/s Bhushan Steel and Power Ltd and connected appeals | C.A. No. 1808/2020

Citation : 2025 LiveLaw (SC) 524

Click here to read the judgment