JSW BPSL Saga, Supreme Court’s Verdict Raises Questions on Finality, Predictability of the Insolvency Process
Why in News?
The Supreme Court of India recently passed a significant judgment in the case involving JSW Steel’s acquisition of Bhushan Power and Steel Limited (BPSL) under the Insolvency and Bankruptcy Code (IBC). This judgment, while appearing to settle certain legal issues, has raised systemic and foundational concerns regarding the IBC’s architecture, finality of resolution, and the sanctity of concluded transactions. 
Introduction
India’s Insolvency and Bankruptcy Code (IBC), introduced in 2016, was designed as a revolutionary economic reform to streamline the process of insolvency and ensure time-bound resolution of distressed assets. One of the notable successes under this regime was JSW Steel’s acquisition of Bhushan Power and Steel Limited (BPSL) for ₹19,700 crore, marking a massive corporate rescue.
However, a recent Supreme Court judgment overturning key decisions of the National Company Law Appellate Tribunal (NCLAT) has introduced legal uncertainties. This judgment could potentially undermine the finality and predictability of the IBC resolution framework. The court’s invocation of Article 142 of the Constitution — enabling it to pass orders for “complete justice” — has also sparked debates about its implications on the sanctity of commercial deals concluded under the IBC.
Key Issues Highlighted
1. Background of the JSW-BPSL Acquisition
JSW Steel acquired Bhushan Power and Steel through the IBC resolution process in 2019 by paying ₹19,700 crore. The acquisition had been approved by the Committee of Creditors (CoC) and received necessary statutory and regulatory clearances.
However, the Enforcement Directorate (ED) had attached BPSL’s assets citing investigations into alleged financial irregularities. This led to a legal tussle over whether the acquired company’s assets could remain attached, or whether JSW Steel’s clean title under the IBC process would prevail.
2. Supreme Court’s Intervention
The recent Supreme Court judgment reversed NCLAT’s order and directed the liquidation of BPSL, despite the resolution process having been completed and JSW having taken over operations. The court relied on Article 142, which empowers it to pass any order for “complete justice” between parties, and held that the process had legal infirmities.
This discretionary use of Article 142, particularly in a commercial insolvency matter already closed under the IBC, has raised fundamental concerns. Critics argue that the court overlooked well-established principles of finality and contractual sanctity, which are cornerstones of the IBC process.
3. Concerns Over Delays and Technical Challenges
The Supreme Court’s judgment addressed complaints about procedural delays by the Resolution Professional (RP), as well as allegations of unfair advantage and suspicious transactions. It raised questions on whether the RP’s examination of JSW’s eligibility under Section 29A of the IBC was proper.
Such challenges are not new to IBC cases, where technical errors and perceived biases in the conduct of RPs have often been raised by aggrieved parties. However, the solution to these issues, many argue, should lie within the appellate structure of the IBC and not through extraordinary constitutional remedies like Article 142.
Five Key Observations/Takeaways
1. Reopening Concluded Resolutions Weakens Investor Confidence
The Supreme Court’s order, which effectively reopens a closed resolution plan, sends a message that finality under the IBC is not guaranteed. This could deter potential resolution applicants, who may now fear that their approved plans might be questioned or reversed even years later.
2. Use of Article 142 in Commercial Matters Sets Precedent
While Article 142 is a powerful tool for the judiciary to do justice, its application in finalized commercial transactions could open the floodgates for retrospective challenges. This may blur the lines between legal finality and judicial equity, particularly in a regime that requires time-bound certainty.
3. Revival of Pre-IBC Practices Could Derail Progress
The very objective of introducing the IBC was to move away from the inefficient and indefinite procedures under previous laws like the Sick Industrial Companies Act (SICA). This judgment risks a return to that era, where outcomes were prolonged and arbitrary.
4. Impact on Lending Institutions and Recovery Climate
Banks and lenders — who received over ₹19,000 crore from JSW’s resolution plan — might now be required to refund the amount if the company is reinstated as a non-performing asset. This reversal could create significant accounting and financial chaos, leading to losses and commercial disruption.
5. Questioning JSW’s Eligibility Post-Facto Raises Alarm
JSW was cleared by the CoC and statutory authorities before it took over BPSL. Raising doubts on its eligibility after the transaction closed undermines both the role of the CoC and the checks and balances within the IBC process.
Challenges and the Way Forward
Legal Uncertainty and Investor Deterrence
The most serious consequence of this ruling is the legal uncertainty it introduces. Investors, especially in distressed assets, seek assurance that once a plan is approved and implemented, it will not be undone. This judgment may discourage future bids, especially for large assets involving complex financial arrangements.
Undermining the IBC’s Design
If courts regularly invoke Article 142 or similar extraordinary powers to intervene in finalized IBC resolutions, it undermines the Code’s self-contained and time-sensitive framework. It could return India to a situation where insolvency proceedings take years and remain stuck in litigation.
Reconsideration by the Legislature
Given the Supreme Court’s verdict, there is now a case for legislative review. Parliament may need to clarify the scope and finality of IBC resolution plans, perhaps introducing express provisions that bar post-resolution challenges unless clear fraud is established.
Need for Institutional Strengthening
This saga also underscores the need for better performance standards and accountability mechanisms for Resolution Professionals and CoCs. Strengthening these institutions could help prevent disputes that reach the Supreme Court in the first place.
Conclusion
The JSW-BPSL case may have begun as a success story of India’s insolvency reforms, but it now threatens to become a cautionary tale. The Supreme Court’s judgment, while legally grounded in constitutional authority, appears to have bypassed the commercial logic and finality principles that the IBC was built upon.
If such verdicts become the norm, India risks returning to an era of economic unpredictability, where corporate deals are at the mercy of prolonged litigation and judicial discretion. The IBC’s promise of speedy, structured, and final resolutions could be lost — unless the judiciary, legislature, and regulators work together to protect its core architecture.
Q&A Section: Key Clarifications
1. What was the Supreme Court’s main decision in the JSW-BPSL case?
The Supreme Court overturned the NCLAT’s order approving JSW Steel’s acquisition of BPSL and directed its liquidation, invoking Article 142 of the Constitution. This effectively nullified the completed resolution process under the IBC.
2. Why is this decision considered controversial?
Because it reopens a finalized resolution plan, introducing legal uncertainty. It also invokes Article 142 — typically used for justice in exceptional circumstances — to override a structured economic process like the IBC.
3. What are the implications for banks and lenders?
Banks may be forced to refund over ₹19,000 crore received from JSW if the resolution is reversed. This could affect their balance sheets, cause commercial disruption, and discourage future participation in insolvency processes.
4. How does this ruling affect investor sentiment?
The judgment weakens confidence among domestic and foreign investors. They may now see India’s insolvency process as unpredictable and vulnerable to judicial overrides, thereby raising the perceived risk of doing business.
5. What can be done to prevent similar situations in the future?
There is a need for legislative clarity to protect the finality of IBC resolutions. Additionally, reforms must ensure better regulation of resolution professionals, more robust CoC processes, and minimal judicial intervention in commercial decisions already vetted and approved under the IBC.
