Supreme Court's Decision on Bhushan Power and Steel Ltd (BPSL)
The Supreme Court's decision to liquidate BPSL has significant implications for India's financial and corporate sectors. This ruling overturns JSW Steel's takeover of BPSL, raising questions about the Insolvency and Bankruptcy Code (IBC) and the bodies enforcing it.
A Landmark Reversal
The Supreme Court found the resolution plan for BPSL, approved by the committee of creditors (CoC) and cleared by insolvency and appellate tribunals (NCLT and NCLAT), flawed due to procedural lapses. This led to the return of payments made by JSW Steel and the decision to liquidate BPSL, risking significant losses for creditors.
Implications for IBC
The 2016 introduction of the IBC was a major financial reform intended to unlock capital, improve credit discipline, and enhance resource allocation. However, the court's ruling casts doubt on its effectiveness, creating uncertainty for creditors and investors.
Institutional Failures Exposed
The verdict criticizes NCLT, NCLAT, and CoC for approving a flawed plan, highlighting weak oversight by the Insolvency and Bankruptcy Board of India (IBBI).
The Case for Reform
- Strengthening NCLT and NCLAT is crucial due to understaffing and lack of expertise.
- IBBI needs stronger enforcement powers and clearer guidelines to monitor resolution professionals.
- The CoC's role needs clarification to limit judicial review to procedural lapses and not commercial judgments.
Economic Consequences
Banks and JSW Steel face financial repercussions. The ruling might lead to higher risk premiums or deter bidders from distressed assets, affecting bad loan resolutions and hindering India's economic goals.
Legal Issues
Retrospective undoing of an acquisition raises concerns about judicial intervention limits. A statute could prevent such reversals and protect the resolution process.
A Cautionary Tale
The ruling exposes flaws in the IBC's framework, emphasizing the need for institutional and judicial reforms to restore confidence and realize the IBC's potential for creditors, investors, and the economy.
