In a judgment that could rock the IBC system, the Supreme Court recently set aside the resolution plan of Bhushan Power and Steel Limited (BPSL) and its transfer to JSW. Now, BPSL has been posted for liquidation. Justice Bela M Trivedi and Justice Satish Chandra Sharma annulled the September 2019 resolution plan (where JSW has paid about ₹19,800 crore to meet dues of about ₹47,800 crore) as being utterly violative of the due process laid down under the IBC law — and for good reasons. But the ruling could have allowed BPSL to continue, instead of calling for its liquidation.
In the face of brazen illegalities, the court could have called for action against all guilty players — JSW, the resolution professional (RP), committee of creditors (CoC) — but left BPSL untouched as a going concern by mooting another resolution plan. Now, its workers, shareholders and buyers of steel are staring down the barrel. This, in fact, is for them a miscarriage of justice. A plea by Kalyan Transco, an operational creditor, against BPSL led to a sweeping inquiry into the entire resolution process. This opened an astonishing can of worms. The biggest of them is the fact that JSW did not disclose its JV with BPSL (page 32-34 of the order), which should have straightaway disqualified it from the resolution race. Under Section 29A of IBC, existing promoters or any related party cannot bid for the indebted unit. It is baffling and unlawful that the RP and the CoC did not press for Section 29A clearance, and that the NCLT too overlooked the same.
Looking ahead, a key question that crops up is the import of liquidation in this case. The court could have shed some light here. Liquidation in a commonly accepted sense implies BPSL being shut down and its assets disposed of lock, stock and barrel. But under Regulation 32 (e) of the Liquidation Process Regulations, 2016, the entity in question can be sold as a going concern. However, NCLT cannot really direct such a process, so such an initiative will have to come from the Centre, which can legally intervene in this case. The other possibility, which seems ambitious, is to try for a change of the order from liquidation to resolution. Seeking liquidation as a going concern would not imply overturning the judgment. In such an event, there needs to be more clarity on whether Section 32A of IBC — where all claims can be kept in abeyance through a moratorium, including those made by the Enforcement Directorate, as in this case — will apply in the case of liquidation as a going concern. If it does, the process becomes easier. The Centre and other stakeholders should explore feasible options to keep a concern going, if it has a broader economic impact. This issue came up in the case of Jet Airways’ liquidation as well.
The ruling, however, rightly lays the ground for greater scrutiny within the IBC system. The accountability of the key actors needs to be established, with punishments in place. BPSL does not show up IBC in flattering light.