Shares of JSW Steel Ltd fell over 5.6% to ₹971.40 on Thursday after the Supreme Court of India struck down its ₹20,000 crore resolution plan for Bhushan Power and Steel Ltd (BPSL), terming it “illegal” and directing liquidation of the bankrupt company. The verdict has come as a major setback for JSW and the financial creditors involved in the case.
Why did the Supreme Court reject the plan?
The top court cited two key reasons for invalidating the resolution:
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Mode of Payment: The court noted that JSW’s proposal to complete the acquisition using a mix of equity and optionally convertible debentures was in violation of the IBC, which mandates that the resolution must be executed strictly via equity.
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Delay in Implementation: JSW failed to implement the resolution plan within the stipulated time frame as prescribed under the Insolvency and Bankruptcy Code (IBC), leading to a breach of procedural compliance.
Background of the Case
JSW had offered a total of ₹19,350 crore to financial creditors, implying a haircut of nearly 60%. It also proposed to pay ₹350 crore to operational creditors, whose total admitted claims stood at ₹733 crore.
However, complications arose due to investigations against BPSL’s former promoters, who were accused of diverting ₹4,025 crore in bank loans. The Enforcement Directorate (ED), in October 2019, attached BPSL assets worth ₹4,025 crore under the Prevention of Money Laundering Act, citing them as proceeds of crime.
Although JSW’s resolution plan was previously cleared by both the NCLT and NCLAT, the ED challenged the plan, arguing that JSW was a “related party” and could not claim immunity under Section 32A of the IBC. The Supreme Court ultimately sided with the ED, ordering liquidation.
What now?
With the Supreme Court ordering liquidation, the chances of financial recovery for lenders have diminished significantly. The decision also raises concerns for other IBC bidders on procedural compliance and potential delays.
This judgment sets a strong precedent around how courts view timeliness and structure of payment under resolution plans, and could impact investor confidence in distressed asset acquisitions.
