The Supreme Court judgment cancelling the Sajjan Jindal-led JSW Steel’s acquisition of Bhushan Power & Steel (BPSL) deal is a big blow not only for the company but also a setback for the resolution of stressed assets under the Insolvency and Bankruptcy Code and the banks involved are faced with the prospect of having to make provisions for the amount that was recovered as part of the bankruptcy process.
The apex court, while scrapping the deal on Friday, ordered the banks involved to return ₹19,700 crore while JSW Steel will hand over BPSL to the banks for liquidation.
The decision will potentially shave off 10–15 per cent of JSW Steel’s production capacity and about 10 per cent of its consolidated EBITDA even as the company has an option to file a review petition.
JSW Steel had acquired BPSL as part of its aggressive expansion plan and invested ₹3,500–4,500 crore post-acquisition to expand capacity to 4.5 million tonne per annum from 2.75 mtpa . It has plans to raise it further to 10 mtpa by 2030-31.
CLSA, a global investment and broking firm, said BPSL accounts for about 11 per cent of JSW Steel’s FY25–27 EBITDA and highlighted the $800 a tonne investment made for 3.5 mtpa of capacity. Morgan Stanley called the verdict “materially negative,” citing BPSL’s key role in JSW Steel’s growth strategy.
“The lenders will have no options but to return the money and proceed with the liquidation process,” said a lawyer who has been involved in several insolvency cases.
The top court quashed the deal saying that the successful resolution applicant had deviated from the resolution plan in terms of fund raising through a mix of equity and optionally convertible debentures, while it should have been done only through equity as mandated under the IBC framework. The failure to complete the resolution plan within the prescribed timeline was also one of the reasons for cancelling the deal, nearly four years after it was completed.
Uncertainty galore
The verdict will add further uncertainty to the entire IBC process and have an impact on bidders’ interest in large stressed asset.
Anju Thomas, Associate Partner, AQUILAW said the judgment setting aside JSW Steel’s 83 per cent ownership stake acquired under the resolution plan has sent ripples of uncertainty through the insolvency landscape.
It serves as a stark reminder that even completed acquisitions remain vulnerable in the absence of strict and unequivocal adherence to the letter of the IBC, he added.
The ruling also stressed that applicants for the resolution need to inject genuine capital and cannot sidestep their obligation through complex financial structures, he said.
Shiju PV, Senior Partner, IndiaLaw LLP said the SC judgment reinforces a crucial principle under the IBC that a resolution plan must offer certainty, finality and timely value realisation for creditors.
The bidders need not be discouraged solely because there are pending criminal cases against promoters, he added.
Shubha R Yadav, Partner, RS Law Chambers said the Court held that the PMLA (Prevention of Money Laundering Act) being a public law, the NCLAT did not have any power or jurisdiction to review the decision of the Statutory Authority under the PMLA.
Besides, she said the Court has held that mandatory requirements under the Code and the Regulations for completion of the CIRP in a time bound manner and for maximisation of value of assets of the Corporate Debtor have to be taken into consideration.