Insolvency & Bankruptcy Code –Whether Needs a Rejig – Commercial Lawyers and Law Firms in India Corporate lawyers in Delhi

Insolvency & Bankruptcy Code –Whether Needs a Rejig

Purti Gupta

The Supreme Court came out with a Judgment in the matter of Kalyani Transco Vs Bhushan Power & Steel Ltd.[1] more famously known as the JSW judgment. The case of Bhushan Power & Steel Ltd. was amongst the dirty dozens, who were brought into insolvency in the first tranche with the coming into force of the Insolvency & Bankruptcy Code (Code / Insolvency Code). It is still the story of yesterday when Bhushan Power & Steel Ltd. and its promoters had not opposed the admission of the company under the Insolvency & Bankruptcy Code and the corporate insolvency resolution process was initiated on 26.7.2017. Incidentally, at that stage, Section 29A[2] was still to be introduced. At that stage most of the companies in respect of whom insolvency proceedings were initiated were of the view that the debts of the company shall be resolved through insolvency code under the umbrage of the existing management.

However, with the clouds of insolvency taking the flight of rough weather specially through Section 29 A, an opposition came into force. After a strong opposition through constitutional challenge before the Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. & Anr. Vs Union of India & Ors.[3], which also upheld the constitutional validity of Section 29A, the Resolution Plan in favour of M/s JSW Steel Ltd. was approved on 05.09.2019. The challenge to the approved Resolution Plan failed with the NCLAT confirming the approval of Resolution Plan in favour of JSW Steel Ltd. on 17.02.2020.

The erstwhile promoters and various Operational Creditors including the State Government Orissa made challenge to the resolution plan. Supreme Court decided the matter on 02.05.2025 by the now historic JSW Judgment (supra). The Judgment sets aside the Resolution Plan of Bhushan Power & Steel Ltd. as approved by the Committee of Creditors in favour of JSW Steel Ltd. and simultaneously directs liquidation of Bhushan Power & Steel Ltd. in terms of Section 33(1) of the Insolvency Code relating to liquidation in exercise of powers conferred under Article 142 of the Constitution of India.

The decision of the Supreme Court however leads us to a very famous English phrase “operation successful patient dead”. As we elaborate, while symbolically the Judgment leads to allowing the Appeals by the ex-Promoters and the Operational Creditors, however, liquidating the Company in the same breath decimates the hopes of taking back the Company and/or recovering the amounts. The period of six years and rejection of the Resolution Plan has resulted in humongously mounting the dues of the Financial Creditors and a liquidation questions the authority and recovery in pittance by the Operational Creditors. The liquidation also fades the aspiration of the erstwhile Promoters to take back the Company or to create any spanner regarding their obligations. The judgment also provides for the return of the entire amount invested by JSW Steel Ltd. as had been specifically recorded at the interim stage on 06.03.2020 and now forms a part of the final Judgment. As far as the Financial Creditors are concerned, their position may be compromised since the assets would have been substantially used and their value would have depleted over a period of time. JSW Steel Ltd. may face a hit on account of loss of interest on its investment. Well, this is the final outcome of the Judgment from the practical stand point.

However, from the jurisprudential perspective, it has created a situation where a question arises as to whether the insolvency law and its rigidities and strict interpretation on various provisions of the Code and the covenants of the Resolution Plan is defeating the objective of the Insolvency Code.

The Supreme Court in the matter of JSW Steel Ltd. followed the Judgment of Ebix Singapore Pvt. Ltd. vs Committee of Creditors Educomp Solutions Ltd. & Anr.[4], where it was held that once a Resolution Plan is approved, there is no scope for negotiation between the Committee of Creditors and the successful Resolution Applicant. The Supreme Court also followed the Judgment in the matter of State Bank of India vs Consortium of Murari Lal Jalan and Florian Fritsch & Anr.[5], famously known as the Jet Airways Judgment, wherein the concession in the mode of payment being made with the judicial intervention of the National Company Law Appellate Tribunal was considered as incorrect. It was duly noted that relaxation of strict compliance to the terms of the Plan and extension of the timelines for making the payments runs contrary to the Scheme of the enactment and the binding terms of the Resolution Plan. The Supreme Court in the Jet Airways Judgment had also directed the liquidation in exercise of its powers under Section 33(1) of the Insolvency Code.

The Supreme Court in the case of JSW Steel Ltd., while following the footsteps of Jet Airways has gone on to hold that even though the Insolvency Code is silent in respect of the implementation of the Resolution Plan, the judicial intervention cannot permit the grant of “excessive leeway” to the Resolution Applicant, which violates the terms of the Resolution Plan. The Court was of the view that despite the fact that there was no legal hurdle for proceeding ahead with the Resolution Plan, the non-implementation has defeated the purposive intent of the Code. The Court has also noted that any contravention of the approved Resolution Plan leads to prosecution and punishment under Section 74(3) of the Code and has further recorded that if there is no Resolution Plan in place as per the prescribed timeline under Section 12 or if the Resolution Plan is not received or if it is rejected for non-compliance of the requirements, the Courts constituted under the Code are entitled to take action directing liquidation. The Supreme Court has thus gone on to hold that since the Resolution Plan was not duly adhered to and even otherwise its terms were in violation of Section 30(2) and contravened the provisions of the Code and CIRP regulations, the Resolution Plan was liable to be rejected. The Supreme Court has further noted that the NCLAT had erred in issuing directions, which had a direct interface with the Resolution Plan as approved and accordingly proceeded ahead with rejecting the Resolution Plan and directing liquidation. The Supreme Court has read the Code and Regulations in stricter sense and since the approved Resolution Plan had varied in respect of equity infusion and also in view of the deviation of the Resolution Plan, the Supreme Court has in effect held that the Resolution Plan is unsustainable.

The Supreme Court was of the view that since the Resolution Plan strictly provided for infusion of equity, which term was varied and also the Resolution Plan was approved beyond the maximum period of 330 days for approval of the Resolution Plan as held in the matter of Essar Steel India Ltd., Committee of Creditors Vs Satish Kumar Gupta[6], the NCLT itself at the very first instance had erred in approving the Resolution Plan being hit by Section 12 of the Insolvency Code. The Supreme Court had also re-emphasized the mandatory contents of the Resolution Plan and the Code to hold that the Resolution Plan as approved in favour of JSW Steel Ltd. was not in conformity with the provisions of the Code and Corporate Insolvency Resolution Process Regulations, 2016. The Supreme Court also noted that a Resolution Professional had also not adhered to the provisions of the Code and the stricter compliances, which were required to be so adhered as per the mandate of the Code and has thus in short uprooted the Resolution Plan.

So, in effect, the decision of the Supreme Court has made it clear that as the Code exists as on date, any variation in the Resolution Plan or any deviation from the provisions of the Code shall render the Resolution Plan going otios. The decision of the Supreme Court highlights the flaws caused by the self-contained Code and the requirement of self-modulation, which may be governed by various legal and economic factors. The Judgment while upholding the sanctity of an economic legislation and the spirit and object of the Code, indeed raises a material question that whether a rigid code should be allowed to stand or whether the ultimate objective of resolution has to be given a priority. It is undoubtedly the intent of legislation to have a resolution but the law as it stands, needs modulations as per the requirements of the day. The judicial interface to permit harmless deviations may at times do larger good.

The setting aside of the Resolution Plan has fairly large scale ramifications not only for a Resolution Applicant or for that matter, the other stakeholders but also runs contrary to providing the stable economic structure, which is the ultimate objective of the Insolvency Code as an economic legislation. There is a requirement for suitable rejig to permit the Insolvency Code to get a slightly humane touch and variations,

A stricter interpretation may frustrate the resolution and delay the underlying objective with which the Resolution Plans were brought into force.

Even if JSW Steel Ltd. may not be a huge sufferer as it is to get its amount back in its coffers, however, the rigid legal provisions and the Code is expected to generally create an apprehension amongst the successful resolution applicants for their approved Resolution Plans. We have to understand that the mathematical interpretation of law may sound good but the strict applicability of law shall not be desirable as a Resolution Plan has enormous stakeholders attached to them and liquidation, as it occurred in the case with the Resolution Plan being treated as non est, has huge consequences.

The Insolvency Code thus needs to be rejigged to provide the inbuilt modulations which may give its eco system the right to modifications and variations to be permitted so that the jurisprudence of the Insolvency Code may develop for the common good and to meet the ultimate requirement of benefitting the larger public interest.

[1] 2025 INSC 621

[2] Inserted by Act 8 of 2018 (w.e.f. 23.11.2017)

[3] 2019 (4) SCC 17

[4] (2022) 2 SCC 401

[5] 2024 SCC OnLine 3187

[6] (2020) 8 SCC 531