Bhushan Power ruling puts bankruptcy code under cloud
The Supreme Court’s order on Bhushan Power and Steel’s (BPS) insolvency resolution has set back the country’s bankruptcy law. The country’s top court overturned JSW Steel’s bid for BPS six years after it was approved by the National Company Law Tribunal and four years after the National Company Law Appellate Tribunal gave its go-ahead. Meanwhile, its two most recent audited results show that BPS generated over Rs 20,000 crore in annual revenues, with a profit of over Rs 600 crore in 2023-24. The company has undertaken a massive capacity expansion, with plans to raise output by more than two-fifths to 5 million tonnes per annum. All of this now faces an unexpected uncertainty.
The Supreme Court has cited several reasons for rejecting the resolution plan and ordering BPS’s liquidation, with the primary being a delay in implementation. According to the court, JSW Steel did not stick to the timeline it promised, delaying the payment of about `19,000 crore to creditors by two years. The court faulted the Committee of Creditors (CoC), which it said failed in exercising its commercial wisdom. It took to task the resolution professional for failing to ensure the plan met all the conditions laid down by the Insolvency and Bankruptcy Code (IBC), especially with regards to prioritising repayment to operational creditors over financial ones.
The order upholds the primacy of the principles of natural justice over commercial pragmatism. However, therein lies a worry. The IBC was conceived as an economic law that would accord primacy to commercial considerations rather than to the principles of natural justice. The judgement raises questions on a fundamental tenet of the IBC—sanctity of the CoC’s commercial wisdom. It also casts aspersions on the jurisdiction of NCLT and NCLAT over decisions of the Enforcement Directorate. This means the IBC can no longer promise a clean slate to a company out of the resolution process. It will not only delay the processes, but may also discourage investors. As BPS’s liquidation take its own time, clouds of uncertainty loom over banks’ chances of recovering their money, employees holding on to their jobs and the company surviving as a going concern. The courts have, on occasions in the past, overlooked a few ‘lapses’ in the resolution process in the interest of reviving an insolvent corporate debtor; but not this time.