Author: Anchal Mattu

COURT: SUPREME COURT OF INDIA

BENCH:  HON’BLE MS. JUSTICE BELA M. TRIVEDI, HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA

DATE OF JUDGEMENT: MAY 2, 2025

RELEVANT PROVISIONS/ STAUTUES: SECTION 29A, 30, 31 33 OF INSOLVENCY BANKRUPTCY CODE, 2016

BRIEF FACTS:

Following the 2017 amendment in Banking Regulation Act, 1949, Reserve Bank of India was legally empowered to direct banks to initiate insolvency proceedings under Insolvency Bankruptcy Code, 2016 (IBC). In compliance to this, a circular was issued by RBI, wherein it identified 12 major defaulters, including Bhushan Power and Steel Limited (BPSL). 

Pursuant to this, Punjab National Bank (PNB) filed for initiation of insolvency proceedings against BPSL under section 7 of the Code. This application by PNB was admitted on 26-07-2017, thereby commencing CIRP against BPSL. In adherence to the provisions of IBC, resolution plans were invited by Resolution Professional (RP) after formation of Committee of Creditors (CoC). A resolution plan submitted by JSW Steel Limited (JSW) was approved by CoC on 14-10-2018. Subsequently, it was laid before the National Company Law Tribunal (NCLT) for approval. 

During the pendency of the approval proceedings, a FIR was registered by CBI against BPSL and Enforcement Directorate (ED) filed a money laundering case against BPSL as well as attached assets of BPSL under Prevention of Money Laundering Act, 2002 (PMLA). However, as the Code directs that during moratorium there can neither be initiated any legal proceedings nor continued any against the corporate debtor so, such proceedings and attachment were challenged by JSW and CoC both. Consequently, the attachment was stayed by NCLT. 

Finally, on 05-09-2019, the resolution plan was approved by the NCLT with conditions. Owing to such conditions, there were placed appeals before National Company Law Appellate Tribunal (NCLAT). NCLAT modified some of the conditions but upheld the plan on 17-02-2020. This approval led to a batch of appeals before the Supreme Court, which also included appeals by ED and CoC.

Out of this bunch of appeals, one was by the operational creditor, Kalyani Transco. The appellant challenged the resolution plan on a couple of substantive and jurisdictional grounds. There were a series of other proceedings arising out the same matter relating to resolution plan of JSW. Supreme court deemed it more appropriate to club all of these proceedings together with the appeal made by Kalyani Transco and conduct the hearings.

ISSUES INVOLVED:

1. Whether resolution plan complied with mandatory statutory requirements under IBC?
2. Whether the Corporate Insolvency Resolution Process (CIRP) timeline under Section 12 was violated?
3. Whether the Committee of Creditors’ commercial wisdom could be interfered with by courts or tribunals?
4. Whether the National Company Law Appellate Tribunal (NCLAT) had jurisdiction to entertain certain appeals?
5. Whether non-implementation or delay in implementation of the resolution plan could invalidate it?

ARGUMENTS:

Appellants’ Arguments

• It was argued by the learned counsel for appellants that there was an inadequate open ended clause regarding implementation of the resolution plan which, in ideal and law- abiding circumstances ought not to have been approved by the CoC, yet it was so approved.
• It was also argued resolution process under IBC is required to be time- bound and there is no such concept as ‘erstwhile CoC’ enshrined under IBC. This is what becomes the primary ground of objection for the amendments made in the resolution plan at the appellate stage.
• It was alleged that there was violation of Section 30(2) of IBC read with Regulation 38 of the IBBI (CIRP) Regulations because the payment to financial creditors was made on March 26, 2021 and the payment to operational creditors was made in March, 2022 with an unreasonable delay exceeding 900 days.
• It was further submitted that the provisional attachment by ED of the assets of the corporate debtor cannot validly justify the delay in implementation of resolution plan since no actual possession was taken by ED and such attachment was only on papers.
• It was alleged that the main delay in implementation of the plan was to be attributed to the market opportunist tendency of JSW as it waited for steel market prices to inflate and then use such rise in prices for gaining maximum profit out the plan.
• It was also contended that NCLAT erred in reversing the direction given by NCLT regarding EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation).
• It was contented by counsel for one of the appellants that the reclassification (by JSW) of a debt, which was already decided as an operational debt by an international arbitral award, as a contingent debt is arbitrary and unjust.
• Another one of the appellants submitted that as there is no bar in IBC regarding payment of pre-CIRP payments, if such payment is part of an agreement made by RP for keeping the corporate debtor as a going concern during CIRP process. It was supported the counsel of another appellant, who also rendered services during CIRP.

Respondents’ Arguments

• It was argued by the counsel for one of the respondents that as there was no liquidation so, operational creditors were not required to be paid before the financial creditors and the said regulation of IBBI came into force after the approval of resolution plan.
• The counsel for RP argued that there was no payment made for any pre-CIRP expenses and it was only a clerking error which showed the payment made to an appellant on account of pre-CIRP expenses.
• The counsel for RP also argued that the reclassification of the debt as contingent debt was due to the pendency of the proceedings relating to the international arbitration award before the Calcutta High Court.
• It was also submitted that the erstwhile promoters did not have locus under section 61, 62 of the Code.
• It was further submitted that CoC does not become functus officio post approval of the plan and sections 21, 23, and 28 of the IBC, read with Regulation 38 of the IBBI (CIRP) Regulations, support the continued existence of the CoC and the authority of the Monitoring Committee.  
• It was contended that the broad clause regarding implementation timeline was added only to ensure successful implementation and falls within commercial wisdom and was not intended as a means for judicial interference.
• It was also submitted that the arguments relating to EBITDA do not arise from any legal or regulatory mandate.
• It was also contented that the erstwhile promoters had acted in a mala fide way throughout the CIRP proceedings and as far as the delay is concerned in implementation of the plan, it was owing to some external factors which were fully out of the hand of JSW.

JUDGEMENT

The Court set aside the resolution plan on account of unnecessary delay in implementation and statutory non-compliances. It further ordered liquidation of the corporate debtor.

RATIO DECIDENDI

The SC upheld a strict implementation of the IBC provisions and opined that commercial wisdom can not sanctify a resolution plan which is violative of the Code.

ORBITER DICTA

While the binding ratio of the Court centred on mandatory statutory compliance under the IBC, the judgment also contains significant obiter dicta cautioning against commercial opportunism by resolution applicants and underscoring the need for strict adherence to the time-bound framework of the Code.

SUBSEQUENT DEVELOPMENTS

The above decision was later subjected to review. The Supreme Court subsequently recalled the liquidation order and upheld the resolution plan.