By Shailendra Singh Advocate, Managing & Founder Partner, August Attorneys LLP
Introduction
In a groundbreaking judgment delivered on May 2, 2025, the Supreme Court of India in Kalyani Transco v. Bhushan Power and Steel Ltd & Ors (Civil Appeal No. 1808 of 2020) has significantly reshaped the corporate insolvency landscape by setting aside the resolution plan of JSW Steel Ltd (JSW) for Bhushan Power and Steel Limited (BPSL). The apex court, in a batch of appeals stemming from a common judgment by the National Company Law Appellate Tribunal (NCLAT), has quashed both the NCLAT’s order dated February 17, 2020, and the National Company Law Tribunal’s (NCLT) order dated September 5, 2019, that had approved JSW’s resolution plan.
This case, which involves one of the “dirty dozen” companies identified by the Reserve Bank of India for immediate resolution under the Insolvency and Bankruptcy Code, 2016 (IBC), offers critical insights into the mandatory provisions of the IBC and underscores the judiciary’s commitment to upholding the spirit of the legislation.
Background of the Case
BPSL was among the 12 major accounts (infamously known as the “dirty dozen”) identified by the RBI for immediate admission under the IBC, constituting about 25% of total non-performing assets in the country. The corporate insolvency resolution process (CIRP) against BPSL was triggered at the instance of Punjab National Bank, which filed a petition that was admitted on July 26, 2017.
Following this, the Interim Resolution Professional invited claims from all stakeholders. The Resolution Professional admitted claims amounting to approximately ₹47,204.51 crores from Financial Creditors and approximately ₹621.37 crores from Operational Creditors.
After multiple rounds of negotiations, JSW’s resolution plan was approved by the Committee of Creditors (CoC) and subsequently by the NCLT on September 5, 2019, subject to certain conditions. Various stakeholders, including operational creditors and erstwhile promoters, filed appeals against this approval.
Key Legal Issues Addressed
The Supreme Court’s judgment addresses several critical legal issues:
1. Maintainability of Appeals Under Section 62 of the IBC
The Court determined that the use of the phrase “any person aggrieved” in Section 62 indicates there is no rigid locus requirement to institute an appeal challenging the order of the NCLT or NCLAT. Any person aggrieved by the order may institute an appeal. Once the Corporate Insolvency Resolution Process is initiated, the proceedings become collective proceedings in rem, where all creditors and ex-directors are necessary stakeholders.
2. Compliance with Mandatory Provisions of the IBC
The Court found that the Resolution Professional had failed to confirm that the Resolution Plan of JSW met the requirements under Section 30(2), particularly regarding non-contravention of any provision of law and payment of debts to the Operational Creditors in priority. As per Regulation 38(1) of the CIRP Regulations, 2016, the amount due to Operational Creditors under a Resolution Plan must be given priority in payment over Financial Creditors. However, in JSW’s plan, this mandatory requirement was not complied with.
3. Time Limits for CIRP Under Section 12
The Court emphasized that the provision contained in Section 12(1) is mandatory in nature, as evidenced by the expression “shall be completed.” Section 12(3) further clarifies that the duration of 180 days may be extended “but not exceeding 90 days,” meaning a maximum time limit of 270 days is statutorily prescribed. The proviso to Section 12 also states that the extension “shall not be granted more than once.”
In the present case, the Resolution Plan was submitted to the NCLT much later than the prescribed timeline, and no proper extension was sought or granted.
4. Implementation of the Resolution Plan
The Court noted that after approval of a Resolution Plan, it becomes binding on all stakeholders including the successful Resolution Applicant itself. JSW, however, did not implement the plan for about two years after its approval by the NCLAT, despite there being no legal impediment. The Court observed that such flagrant violation of the terms of the Resolution Plan frustrated the very object and purpose of the IBC.
Court’s Findings and Conclusions
The Supreme Court reached the following conclusions:
- The Resolution Professional had utterly failed to discharge his statutory duties under the IBC and CIRP Regulations during the course of the entire CIR proceedings.
- The CoC had failed to exercise its commercial wisdom while approving JSW’s Resolution Plan, which was in absolute contravention of the mandatory provisions of the IBC and CIRP Regulations.
- JSW, after securing the highest score in the evaluation matrix, submitted a revised consolidated Resolution Plan but willfully contravened and failed to comply with the terms of the approved Resolution Plan for about two years, frustrating the very object and purpose of the IBC.
- The Resolution Plan of JSW did not conform to the requirements referred to in Section 30(2), being in flagrant violation of the provisions of the IBC and CIRP Regulations.
- The NCLAT’s judgment allowing JSW’s appeal and issuing directions without authority or jurisdiction was deemed perverse and coram non judice.
Court’s Order
Based on these findings, the Supreme Court:
- Quashed and set aside the judgments and orders dated September 5, 2019, and February 17, 2020, passed by the NCLT and NCLAT respectively.
- Rejected JSW’s Resolution Plan as not being in conformity with Section 30(2) read with Section 31(2).
- Directed the NCLT to initiate liquidation proceedings against BPSL under Chapter III of the IBC.
- Ordered that payments made by JSW to Financial and Operational Creditors under the guise of implementing the Resolution Plan should be dealt with as per the statement recorded in the order dated March 6, 2020.
- Left open the question of law regarding EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization).
Analysis and Implications
1. Adherence to Statutory Timelines
The judgment reinforces the mandatory nature of statutory timelines under the IBC. Resolution Professionals and CoCs must ensure that the entire CIRP is completed within the prescribed timeline of 270 days (or as extended under the amended provisions).
2. Role and Responsibilities of Resolution Professionals
The Court has emphasized the crucial role of Resolution Professionals in ensuring compliance with all mandatory provisions of the IBC and CIRP Regulations. Their failure to discharge statutory duties can vitiate the entire resolution process.
3. Commercial Wisdom of CoC
While the commercial wisdom of the CoC is generally given primacy, this judgment clarifies that such wisdom must be exercised within the framework of mandatory provisions of the IBC. The CoC cannot approve Resolution Plans that contravene express provisions of the law.
4. Implementation of Resolution Plans
The judgment underscores that Successful Resolution Applicants cannot delay the implementation of approved Resolution Plans under the guise of pendency of proceedings or other excuses. Such delays frustrate the very purpose of the IBC.
5. Priority to Operational Creditors
The Court has reaffirmed that as per Regulation 38(1) of the CIRP Regulations, 2016, Operational Creditors must be given priority in payment over Financial Creditors.
Conclusion
The Supreme Court’s judgment in Kalyani Transco v. Bhushan Power and Steel Ltd represents a significant development in India’s insolvency jurisprudence. It sends a clear message to all stakeholders in the insolvency process about the importance of strict compliance with the mandatory provisions of the IBC and its Regulations.
The case serves as a cautionary tale for Resolution Professionals, CoCs, and Resolution Applicants about the consequences of non-compliance with statutory provisions and delay in implementing approved Resolution Plans. It reinforces the IBC’s primary objectives of time-bound resolution and maximization of asset value while balancing the interests of all stakeholders.
As the law continues to evolve, this judgment will undoubtedly guide future insolvency proceedings and contribute to the development of a more robust and effective insolvency resolution framework in India.
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