Bhushan Power & Steel Judgment: A Judicial Earthquake In India's Insolvency Landscape

What began as a celebrated instance of revival—a distressed steel manufacturer rescued by a marquee corporate buyer—has ended in liquidation. And not by commercial necessity, but by judicial censure. The Supreme Court did not merely set aside the approved resolution plan; it openly questioned the sanctity of the corporate insolvency resolution process (CIRP), the role of the Committee of Creditors (CoC), the capacity of the NCLT, and the enforceability of resolution outcomes.

This article is written with the benefit of both hindsight and adjudicatory experience. It is not a conventional case comment, but a structural critique with a reform agenda. It seeks to answer two interlinked questions: (1) what went wrong in the BPSL matter; and (2) how do we prevent such failures in future?

I. The Core Issues: Why the BPSL Judgment Matters

1. Supreme Court's Stern Rebuke: Four Key Findings

The judgment delivers four sharp and consequential messages that strike at the core of the insolvency process under the IBC:

• NCLAT Transgressed the Bounds of Appellate Jurisdiction: The Court found that the NCLAT exceeded its remit under Section 61(3) by holding that resolution plans grant immunity from PMLA attachments.
• NCLT's Gatekeeping Role Was Abdicated: The Tribunal approved a resolution plan containing procedural and substantive violations, including non-compliance with Section 29A and Regulation 38 of the CIRP Regulations.
• Limits to Commercial Wisdom: While the judiciary has previously shown deference to CoC decisions, the Court in BPSL expressed "serious doubts" over the CoC's decision-making, especially where the plan ignored binding statutory provisions.
• Delays Will Be Penalised: JSW Steel's actions in deferring implementation were described as a "misuse of the legal process," leading the Court to reject the resolution altogether.

2. An Existential Moment for the IBC

The BPSL judgment does not merely flag individual lapses; it lays bare the structural fissures in India's insolvency regime. Five interlocking failures—each reinforcing the other—have come into sharp relief:

• Capacity Gaps within the CoC Itself: While the NCLT is now functioning at full strength, challenges persist within the Committee of Creditors. The CoC is composed of financial institutions with varying degrees of insolvency expertise, and their representatives may lack the training or sectoral context to critically evaluate complex resolution plans. Capacity building—through orientation modules, sector-specific guidance, and exposure to best practices—is essential if creditor decision-making is to become both commercially sound and legally compliant.
• Erosion of Gatekeeping Standards: The Resolution Professional plays a pivotal role in guiding the Committee of Creditors, compiling the Information Memorandum, and vetting resolution plans. While periodic accreditation exists, it does not necessarily translate into qualitative preparedness. Too often, RPs adopt a passive posture—deferring to the CoC even on matters where statutory compliance is squarely their remit.
• The Myth of Unfettered "Commercial Wisdom": The continued misuse of the CoC's discretion to override statutory constraints weakens creditor accountability. The myth of unfettered "commercial wisdom" has allowed creditors to invoke discretion even in the face of blatant statutory non-compliance. But commercial decision-making under the IBC is not sovereign—it must yield where the law imposes limits. The CoC, as an institutional actor under the Code, must mature—not only in financial evaluation, but in its understanding of statutory guardrails, equitable treatment, and its fiduciary responsibility to the process as a whole. Commercial wisdom, to remain credible, must be both reasoned and legally tenable.
• The Liquidation Trap: The outcome in BPSL—where liquidation was directed despite an approved resolution plan—adds to a growing perception that in high-value or complex cases, liquidation is emerging as the likely endpoint when resolution stumbles. While the Court does not characterise this as a systemic outcome, the liquidation direction in BPSL adds to a pattern where liquidation follows procedural derailments. A structured empirical study is needed to confirm whether this constitutes a broader drift, but the warning signs merit scrutiny.
• No Teeth for Enforcement: Once a resolution plan is approved, there is no statutory mechanism to ensure that it is implemented in letter and spirit—leaving space for delay, dilution, or outright evasion. A recurring pattern has emerged: even after their own appeals have been dismissed and the Adjudicating Authority's directions to implement the plan have attained finality, successful resolution applicants often adopt a wait-and-watch posture—refusing to act until every challenge, including those filed by other parties, is dismissed by the Supreme Court. This tactic undermines the binding character of judicial orders and renders the approval of a resolution plan a hollow formality unless accompanied by robust enforcement architecture.

The combined result is erosion of trust: by resolution applicants, by operational creditors, and by institutional investors who once saw the IBC as a model of certainty.

II. Systemic Failures Exposed by the Judgment

The BPSL ruling, when viewed structurally, exposes not merely procedural mishaps but institutional deficiencies. Five key systemic failures now require urgent redress:

• Gatekeeping Breakdown at the NCLT Level: The Tribunal's failure to detect and address ineligibility, procedural flaws, and regulatory non-compliance underscores a collapse of the first line of defence. The Code presumes domain understanding, but speaking from experience, the bench often learns by immersion. This is untenable for a framework as technically layered as the IBC. What is needed is structural reform—dedicated insolvency benches equipped with Members drawn from both legal and financial disciplines, and a system of continuing education through shared experiences at colloquia that build institutional memory. There is little to be gained by working in silos.
• Overreach of Commercial Wisdom: The continued misuse of the CoC's discretion to override statutory constraints weakens creditor accountability. Without clear doctrinal boundaries, commercial wisdom risks becoming a tool for expediency rather than compliance. The CoC, as an institutional actor under the IBC, must mature—not only in financial evaluation, but in its understanding of statutory guardrails, equitable treatment, and its fiduciary responsibility and discipline to the process as a whole.
• Absence of Effective Implementation Mechanisms: The IBC lacks a statutory architecture to ensure time-bound implementation of approved resolution plans. Without institutional oversight or meaningful penalties, delays go unchecked and creditor recoveries remain notional.
• Judicial Overreach in the Appellate Hierarchy: The NCLAT's pronouncement extending immunity to corporate debtors from PMLA proceedings, without statutory basis, reflects a troubling trend of appellate overreach. The Supreme Court's correction of this error must lead to a reassessment of appellate discipline and doctrinal restraint. That said, one might also reflect on whether the Supreme Court's own decision to order liquidation—rather than remand the matter—signals a shift from review to active intervention. Together, these choices underscore a deeper institutional tension: between judicial finality, statutory fidelity, and the IBC's revivalist ethos.
• Risk of Resolution-to-Liquidation Drift: Where plans fail due to procedural infirmities or implementation sabotage, liquidation has begun to emerge as the de facto fallback—even in cases of strategic or nationally important assets. In BPSL, the failure was not commercial but procedural—arising from regulatory violations, delayed implementation, and an appeal that ought not to have been entertained at all, given the statutory limits under Section 61(3). This breakdown was avoidable, yet it led to liquidation of a major industrial asset. Without remedial alternatives, the IBC may lose its rehabilitative edge.

These failures are not abstract—they are playing out in real proceedings, with real consequences. The next section outlines a 10-point reform agenda to restore institutional credibility and functional coherence to the Code.

III. The Way Forward: A 10-Point Reform Agenda

To restore coherence and credibility to India's insolvency framework post-BPSL, a concerted reform agenda is needed. The following ten measures are proposed:

1. Recalibrate the “Creditor in Control” Model: Amend the IBC to lay down express statutory limitations on the Committee of Creditors' discretion, especially in cases of procedural or legal non-compliance. The prevailing doctrine of “commercial wisdom” must evolve into a framework of “legally tenable commercial judgment”, where creditor autonomy operates within clear and enforceable statutory boundaries.
2. Reform the RP Function through Institutional Reorientation: What is needed is a shift in institutional culture: RPs must act as proactive custodians of process integrity, not just facilitators of creditor consensus. Structured continuing education, sector-specific orientation, and sharper enforcement of duty standards are essential to recalibrate this role.
3. Mandate Independent Resolution Audits: Require third-party audits of resolution plans for compliance with Sections 29A, 30(2), and Regulation 38, before NCLT approval.
4. Introduce Pre-Packaged Insolvency for Complex Cases: Codify a pre-pack mechanism with adequate safeguards to address cases where CIRP timelines and complexity are mismatched.
5. Create a Liquidation Avoidance Framework: Grant policy leeway for revival of companies in strategic sectors (e.g., steel, infrastructure) to prevent premature liquidation.
6. Establish NCLT-Led Implementation Committees: Empower the Adjudicating Authority to monitor implementation of approved plans, including timelines and funding commitments. Delays invite abuse, as seen in BPSL, where the resolution applicant misused the process.
7. Fast-Track Appeals in Resolution Plan Cases: Introduce a streamlined appellate mechanism within the NCLAT for resolution plan-related appeals. Such matters, once approved by the Adjudicating Authority, should be fast-tracked with defined timelines, limited adjournments, and focused review parameters. This will ensure that approved plans are not derailed or indefinitely stalled in appellate scrutiny, preserving both bidder confidence and process sanctity.
8. Enhance RP and CoC Accountability: Impose statutory penalties for non-compliance or misrepresentation in the conduct of CIRP or vetting of plans.
9. IBBI Oversight of CoC Decision-Making: Empower the regulator to issue binding and enforceable guidelines to ensure transparency, fairness, and legality in CoC deliberations. Existing guidance is often reduced to a mechanical exercise—treated as a checklist rather than a substantive framework—with little institutional seriousness accorded to its intent.
10. Legislative Review of the IBC's Core Architecture: Re-examine the "creditor-in-control" model in light of recurring failures and assess whether a hybrid oversight structure is warranted.

Epilogue: Saving the IBC from Itself

The BPSL judgment is not merely about the failure of one resolution plan. It is a signal flare for India's insolvency ecosystem. The IBC, once lauded as a landmark reform, now stands at a critical inflection point. Without course correction, the promise of revival may yield to the inertia of liquidation, and the certainty once offered to creditors and investors may be lost to unpredictability.

The Supreme Court has sounded the alarm. It is now for Parliament, regulators, and adjudicators to respond with clarity, capacity, and courage. Reform cannot be reactive or symbolic. It must be structural, institutional, and deeply intentional.

The IBC is too important to be left vulnerable to systemic erosion. Let BPSL not be remembered as the beginning of the Code's decline. Let it instead be remembered as the moment we decided to save it from itself.

Rajasekhar V.K., Former Member (Judicial), National Company Law Tribunal. He continues to engage with insolvency and institutional reforms through writing, research, and advisory work  too. Views are personal