Supreme Court orders status quo on Bhushan Power liquidation, allows JSW Steel to file review

The Supreme Court on Monday ordered a status quo on the liquidation proceedings of Bhushan Power and Steel Ltd (BPSL), granting relief to JSW Steel Ltd and allowing the company to file a review petition against the court’s 2 May verdict that had quashed its ₹19,300 crore resolution plan.

Following the Supreme Court’s status quo order, the National Company Law Tribunal (NCLT) will most likely have to defer its hearing on BPSL's liquidation until JSW Steel's review petition is decided.

A bench comprising Justices B.V. Nagarathna and Satish Chandra Sharma has directed JSW Steel to file its review petition within the prescribed limitation period, which is 30 days.  

“Without expressing any opinion at this juncture, we find that the interest of justice will be served if status quo is maintained in the proceedings pending before the NCLT,” Justice Nagarathna said. “We clarify that this order of status quo will operate until the consideration of the review petition.”

The court’s Monday decision came in response to a plea filed by JSW Steel seeking a stay on the liquidation process initiated by Bhushan Power and Steel’s former promoter Sanjay Singhal.

Singhal had approached the NCLT urging immediate commencement of liquidation proceedings following the Supreme Court’s 2 May judgment cancelling JSW Steel’s resolution plan and directing BPSL’s liquidation. 

JSW Steel, in its application, had requested the Supreme Court to defer the liquidation process for 60 days to give it time to file a review petition. 

The top court's interim relief now enables the steelmaker to approach the court with a review plea without parallel liquidation proceedings continuing before the NCLT.

The Supreme Court indicated that the matter will likely be heard after the court's summer vacation, and after JSW Steel files its review petition challenging the court’s earlier judgment.

Also read | JSW Steel’s playbook: A resurgence overseas, lower costs in India

“The Supreme Court stay offers temporary relief not just to JSW Steel, which has operationally integrated BPSL, but also to the larger insolvency ecosystem,” said Ajay Razvi, managing partner at Accord Juris, a law firm.

“Investors, lenders, and acquirers were apprehensive about retrospective scrutiny of previously concluded deals, potentially undermining commercial confidence. By halting liquidation, the court has acknowledged the far-reaching impact of its earlier ruling and signaled a willingness to consider its implications more deeply.”

A strategic case

The Supreme Court’s 2 May ruling was a major setback for JSW Steel, which acquired BPSL through the corporate insolvency resolution process more than five years ago and has since made substantial investments in the company. 

The apex court had set aside the resolution plan on grounds of non-compliance with key provisions of the Insolvency and Bankruptcy Code, particularly the failure to adhere strictly to the plan’s approved timeline. 

The court's ruling was not only a setback for JSW Steel but also came as a shock to India's corporate ecosystem, with companies and law firms scrambling to understand the implications for insolvency proceedings.

For JSW Steel, its review petition is significant not just from a legal standpoint but also due to the financial and strategic importance of Bhushan Power and Steel to its domestic operations. 

As of 31 March 2024, JSW Steel carried net assets worth ₹14,091 crore related to BPSL on its consolidated balance sheet. BPSL’s Odisha-based plant has a capacity of 4.5 million tonnes per annum (MTPA), forming a key part of JSW Steel’s total domestic capacity of 34.2 MTPA—the highest in India.

Appearing for JSW Steel before the Supreme Court on Monday, senior advocate Neeraj Kishan Kaul questioned the locus standi of Singhal, pointing out that he is under investigation by the Enforcement Directorate for alleged malpractices.

Solicitor General of India, Tushar Mehta, appearing for BPSL’s committee of creditors, also questioned Singhal’s locus standi in the case. “They are already under a chargesheet. Having left the company years ago, they are now pressuring the NCLT. You are the creator of the problem,” Mehta said.

Senior advocate Dhruv Mehta, appearing for Singhal, opposed JSW Steel’s plea, arguing that the steelmaker’s petition against the NCLT order was not maintainable since the appellate remedy had not been availed. 

He added that the Supreme Court had in its 2 May judgment acknowledged Singhal’s locus standi and highlighted several faults of BPSL’s committee of creditors.

“We are evaluating our legal strategy in light of today’s Supreme Court order halting the liquidation proceedings,” said Soayib Qureshi, counsel for Singhal. “We remain confident about pursuing the liquidation process, as JSW will find it difficult to establish solid grounds in its review petition to challenge a strong judgment…”

Also read | JSW Steel: Compensation from creditors enough to cover for Bhushan Power assets

A web of complications

Solicitor General Tushar Mehta suggested deferring the NCLT proceedings until 10 June, emphasizing the need to avoid further complications. 

“This was a resolution plan implemented five years back. We have taken the money. Now, to reverse everything… they have taken money from other banks. Some of them are foreign banks. It will be difficult for them to deal with foreign banks. So some way will have to be found out,” Mehta said.

Bhushan Power and Steel was among the first 12 large defaulters identified by the Reserve Bank of India in 2017 for resolution under the Insolvency and Bankruptcy Code, with total dues of over ₹47,200 crore. At the time of its insolvency admission, the company owed more than ₹45,000 crore. 

JSW Steel’s ₹19,300 crore resolution plan was the highest bid received and was approved by the NCLT in September 2019, and later upheld by the National Company Law Appellate Tribunal (NCLAT) in February 2020.

Despite ongoing litigation, including legal challenges mounted by Sanjay Singhal, JSW Steel went ahead with the resolution plan, making substantial payments and taking operational control of the BPSL plant in Odisha.

In a post-earnings call last week, JSW Steel’s joint managing director Jayant Acharya said the company had “implemented the resolution plan of BPSL in compliance with the law and taken steps to successfully revive the company to its present state today”. 

He added that JSW Steel expected its compensation rights to be upheld following the Supreme Court 2 May decision. 

JSW Steel has also issued demand notices to a group of banks, seeking refunds of the funds disbursed as part of the now-invalidated resolution plan.