SC scraps JSW Steel’s ‘illegal’ Bhushan Power and Steel deal, orders liquidation

The Supreme Court scrapped JSW Steel’s acquisition of Bhushan Power and Steel Ltd (BPSL) four years after it took place, on the grounds that the Rs 19,700-crore resolution plan was “illegal” and “in gross violation” of the Insolvency and Bankruptcy Code (IBC).

The court ordered that BPSL be liquidated, a move that will slash JSW’s output by more than a 10th.

The JSW stock tumbled as much as 7.8% intraday on the BSE, ending 5.5% down at Rs 972.15, wiping out about Rs 13,731 crore in market cap, its biggest single-day loss in nearly four weeks. JSW fell 7.7% on April 7.

The apex court said JSW’s intention was “malafide and dishonest” as it took undue advantage of pending Enforcement Directorate (ED) proceedings and did not implement its plan for two years. This delay frustrated the objective of the IBC, it said.

“JSW Steel, committee of creditors (CoC) and the resolution professional sought to sweep many seminal issues under the carpet” to cover up gross violations of the IBC, said the two-member bench led by justice Bela M Trivedi. She was accompanied by justice Satish Chandra Sharma.

The Bhushan Power unit produced about 1 mt of crude steel in the December 2024 quarter, about 14% of JSW’s total, according to Bloomberg. It reported operating earnings before interest, tax, depreciation and amortisation of Rs 540 crore, 10% of the parent’s total.The court said JSW was also “malafide and dishonest” in securing the highest score for its plan, making misrepresentations before court and then not implementing this because of ED proceedings.

CoC to Return Payments in 2 Months

While directing the NCLT to initiate the liquidation proceedings against BPSL, the court said that the payments made by JSW to the financial and the operational creditors, as also the equity contribution if any infused, will be returned by the CoC within two months, as noted by the Supreme Court in its March 6, 2020, order. The CoC, represented by senior counsel AM Singhvi, had then told the court that it will return the received money within two months in case the appeals filed by the operational creditors were allowed.

Sajjan Jindal-led JSW, India’s biggest steel maker, said it would review the order.

The Supreme Court had rejected the resolution plan approved by the National Company Law Appellate Tribunal (NCLAT) “on certain grounds”, JSW said in a press release. “We are yet to receive the formal copy of the order to understand the grounds for rejection in detail and its implications. Once we receive the order and are able to review the same along with our legal advisors, we will decide on our further course of action.”

The court was deciding a batch of appeals led by operational creditor Kalyani Transco. The Odisha government, Jaldhi Overseas, Medi Carrier, CJ Darcl Logistics and others had also filed separate appeals. Among their contentions was the argument that JSW Steel was a related party of Bhushan Power and thus barred under Section 29A of the IBC from submitting a resolution plan.

In this regard, the court cited a 2008 joint venture agreement by JSW, BPSL and Jai Balaji.

“Our said doubt is further fortified by the observations made and justification given by the NCLAT for the nondisclosure and suppression made in the resolution plan by JSW, with regard to the joint venture agreement dated 05.03.2008 entered into by and between the JSW, BPSL and Jai Balaji,” the court said.

The acquirer was accused of “enriching itself unjustly” by the court.

“Apart from the fact that there was gross noncompliance of the mandatory provisions of the IBC and the regulations, there was a dishonest and fraudulent attempt made by JSW, misusing the process of the court by not making the upfront payments as committed by it for about two and a half years and thereby enriching itself unjustly, and thereafter considering the rising prices of steel in the market, JSW sought to comply with the terms of resolution plan at a very belated stage, in collusion with the CoC and the resolution professional,” it said. “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.”

Bhushan Power owed over Rs 47,000 crore to lenders when the Reserve Bank of India (RBI) put it on a bankruptcy resolution list in 2017. The National Company Law Tribunal (NCLT) began the resolution process in July that year, based on the filing of lead lender Punjab National Bank (PNB), which initiated criminal proceedings in 2019 against former directors of the company after unearthing a Rs 3,800 crore fraud on its books. PNB and State Bank of India led the CoC. JSW acquired Bhushan Power in March 2021 after its proposal was approved by the CoC and the NCLAT.

The NCLT approved JSW Steel’s offer in 2019 while holding that the successful bidder could not be held responsible for any alleged misdeeds of the previous promoters at any stage. The NCLAT had upheld the decision in February 2020.

JSW had secured the highest score in the evaluation matrix in the CoC’s 18th meeting and submitted a revised plan under the garb of complying with the amendments made in Securities and Exchange Board of India (Sebi) regulations and got approval from lenders, the top court said. But JSW didn’t comply with the terms of the approved resolution plan for over two years, it said. One of the terms involved making payment to lenders within 90 days of NCLT approval, but JSW eventually did so after two years.

Justice Trivedi said nobody should be allowed to misuse the process of law or take undue advantage of the pendency of any court or tribunal proceedings. The resolution professional had failed to discharge his statutory IBC duties, the apex court noted.

She said the CoC had failed to exercise its commercial wisdom by approving the resolution plan of JSW Steel, which was in contravention of the mandatory provisions of the IBC. The lenders had also failed to protect the interest of creditors by taking contradictory stands before the court and accepting payment from JSW and supporting the latter to implement its “motivated” plan that was against the interest of the lenders, the court said.

“The judgment sends a strong message that delays, misrepresentation, and procedural violations will not be tolerated under the IBC,” corporate lawyer Saurabh Seth said. “It may lead to more cautious lender behaviour and tighter scrutiny of resolution applicants. Future resolution plans will likely require stricter timelines and legal compliance. The ruling could also trigger wider accountability for CoCs and RPs (resolution professionals).”

Legal experts said JSW Steel has limited options and could file a review petition. Lawyers involved in the case added that the CoC and the BPSL resolution professional will be filing review petitions and seeking an open-court hearing. In the meantime, all the parties will likely seek a stay on the implementation of the ruling till the review is heard, they said.

Although JSW Steel had been declared the successful resolution applicant, the deal was hampered by legal hurdles. In 2020, the ED registered a case against BPSL, its former top management and its executives for money-laundering offences on charges of defrauding banks to the tune of Rs 47,204 crore.

The money laundering proceedings against BPSL were set aside by the Delhi High Court in February. The Supreme Court had in December directed the ED to hand over BPSL’s properties worth Rs 4,025 crore to JSW Steel. The ED had provisionally attached the assets in 2019 in connection with the money-laundering probe against BPSL’s erstwhile management.

This is the second case in which the Supreme Court ordered the liquidation of a bankrupt company. The apex court had in November last year ordered the liquidation of grounded Jet Airways after a consortium of UK’s Kalrock Capital and United Arab Emirates-based entrepreneur Murari Lal Jalan failed to implement its resolution plan.

SC on CoC, RP

The CoC and JSW had told the court that the plan had been implemented in part by making payments to the financial creditors in March 2021 and in full by making payments to the operational creditors in March 2022.

The apex court said that it was “not impressed” with the submissions that though JSW initially infused only Rs 100 crore as share capital towards equity contribution commitments, subsequently pending the present appeals, the reconstituted board in its meeting held on March 26, 2021, had approved the issuance of compulsory convertible debentures to Piombino Steel (group entity of JSW that was to be merged into BPSL) having value of Rs 8,450 crore, and thus the requirement of infusion of Rs 8,550 crore was complied with.

Coming down heavily on the CoC, the court said that it had failed to protect the interest of creditors by taking contradictory stands and also accepting payments from JSW “without any demurrer, and supporting JSW to implement its ill-motivated plan against the interest of the creditors.”

The court pointed to the changing stance of the CoC.

“Though the commercial wisdom of the CoC should have been given the primacy in any adjudicatory proceedings, the changing stance of CoC from time to time during the course of proceedings right from the holding of meetings for approving the resolution plan of JSW till the final hearing of the present appeals, has led this court to believe that the CoC also has played a very dubious role in the entire CIRP.”

It said that though the CoC had raised grievances about the delaying tactics adopted by JSW in implementing the plan and also in nonpayment of the upfront amount of Rs 19,350 crore to financial creditors within 30 days of the approval of the plan, the lenders had changed their “stance all of a sudden accepting the payment without any demurrer,” even though the effective date for implementation of the plan had already expired and the same was extended.

“Such a contradictory stands taken by the CoC at various stages of proceedings clearly proves that CoC had played foul and had not exercised its commercial wisdom in the interest of the creditors,” said justice Trivedi, writing for the bench.

On the resolution professional’s conduct, the judgment said that he had “utterly failed” in discharging his duties under the IBC by failing to confirm whether JSW was an “eligible” person under Section 29A to submit the plan and if the company met the requirements with regards to the payment of debts to the operational creditors in priority. He also had failed to make any applications for avoidance of transactions in accordance with Chapter III of the IBC, it stated.