SC Orders Liquidation of Bhushan Power & Steel

The Supreme Court of India declared the 2021 resolution plan for Bhushan Power and Steel Ltd (BPSL) illegal. The court cited serious lapses by Resolution Professional (RP) Mahender Kumar Khandelwal, including failure to:

• Submit Form H (compliance certificate under CIRP norms)
• Verify eligibility of the successful bidder, JSW Steel, under Section 29A of the Insolvency and Bankruptcy Code (IBC)
• Disclose a joint venture between JSW Steel and an entity linked to BPSL’s former promoters

Legal Basis for Liquidation

• Section 25 of IBC: Obligates RPs to ensure due diligence and verify applicant eligibility.
• Section 29A: Disqualifies resolution applicants connected to the corporate debtor’s former promoters or other ineligible parties.
• The CoC was not given verified assurance on JSW’s eligibility post-initial discussions.

Material Lapses Identified

• Non-disclosure of critical facts by JSW and the RP misled both the Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT).
• The SC termed the omissions “not procedural but material”, directly undermining the legality of the plan.

Previous Investigations

• In 2023, the IBBI had referred Khandelwal’s conduct for deeper scrutiny regarding:
  • Substantial increase in insurance costs
  • Import irregularities, including graphite from China

Implications for IBC Framework

• The ruling underscores greater accountability for resolution professionals.
• Legal experts say the verdict will:
  • Raise the bar for due diligence in insolvency cases
  • Encourage process transparency and compliance
  • Empower IBBI to initiate disciplinary action against erring professionals

Background

• BPSL was admitted to insolvency in 2017 after defaulting on ₹47,200 crore of debt.
• JSW Steel’s plan had been approved in 2021, but the current order invalidates that resolution path.

BS