The SC’s JSW-Bhushan ruling will hit both the IBC and investor confidence

Last week, India’s Supreme Court decided to annul JSW Steel’s ₹19,700-crore acquisition of Bhushan Power & Steel Ltd (BPSL) and ordered its liquidation, causing a storm in the country. This raises four issues: a) The apex court’s invocation of Article 142 of the Constitution, which suggests plausible misuse of judicial power; b) the credibility of the Insolvency and Bankruptcy Code (IBC) and National Company Law Appellate Tribunal (NCLAT); c) the long time gap between the takeover and court judgment; and d) India’s global economic credibility.

Informed by expert advice and historical precedents, we should express deep concern over the possibility of this ruling’s overreach, given how it could destabilize the IBC—a framework designed to ease exit barriers, facilitate business shutdowns and enhance India’s ease of doing business.

Also Read: Mint Quick Edit | JSW-Bhushan case: Close insolvency process gaps

Further, Article 142, which is meant to ensure “complete justice,” is a constitutional safety valve, not a tool to override statutory frameworks like the IBC. The court applied a strict interpretation of law. Also, for a consummated takeover, the court’s ruling appears to disregard the principle articulated in the case of Delhi State Electricity Board vs BSES Yamuna Power Ltd (2007), which cautioned, “You cannot unscramble a scrambled omelette” by reversing integrated deals after adverse findings. 

Though this phrase appears in the 2007 judgment, not in the instant case of BPSL’s acquisition by JSW Steel, it is relevant: undoing a finalized transaction risks economic disruption. By invoking Article 142, likened by Vice-President Jagdeep Dhankhar to a “nuclear missile,” the court has created a precedent that undermines the IBC’s finality.

As M.S. Sahoo, former chairperson of the Insolvency and Bankruptcy Board of India (IBBI), has stated, “The Supreme Court could have rescued BPSL using Article 142, not liquidated it,” suggesting that the court could have revised the plan and penalized violators to preserve jobs and investments (Business Standard, 2 May 2025). This statement underscores that Article 142 could have balanced legal compliance with economic pragmatism, as seen in Shivshakti Sugars Ltd vs Shree Renuka Sugars (2017). In this case, the Supreme Court had looked at the totality of the matter and decided on economic principles.

Also Read: Do creditor committees in insolvency cases need an oversight body?

The IBC, enacted in 2016, aimed to streamline corporate insolvency, ensuring time-bound resolutions within 270 days to maximize asset value and ease exit barriers for distressed firms. However, the BPSL case, spanning eight years from the Reserve Bank of India’s referral in 2017 to liquidation in 2025, exemplifies persistent delays.

The appeals that led to the ruling were filed by operational creditors. Mint reported that Kalyani Transco and other creditors had sought higher recoveries. They contested the ₹350 crore allocated against their claims of ₹733 crore, and also JSW’s use of optionally convertible debentures (OCDs).

In Kalyani Transco vs Bhushan Power and Steel Ltd (2025 INSC 621), the Supreme Court declared JSW’s resolution plan—approved by the National Company Law Tribunal (NCLT) in September 2019 and confirmed by the National Company Law Appellate Tribunal (NCLAT) in February 2020—“illegal” for using OCDs alongside equity. The court held that this violated Section 30(2) of the IBC. It also pointed to procedural lapses by JSW Steel in the resolution plan’s implementation (2019–2021). Using its power under Article 142, it ordered liquidation, nullifying a deal which was already in operation for four years.

Also Read: Complete justice: Article 142 should be invoked only in truly rare cases

The outcome? Liquidation will reportedly result in a ₹15,000-crore loss for JSW and a 10-15% production drop, news that has already caused the company’s share price to fall. BPSL’s creditors, led by State Bank of India, will have to refund ₹19,350 crore, which they received under the IBC process. This was a 60% haircut of their claims totalling ₹47,158 crore, but refunding it could leave them with provisioning problems, while liquidation could mean an even lower recovery rate. 

Meanwhile, workers will face job losses and foreign investors involved in the resolution, reportedly including Ares SSG Capital, confront trust erosion.

The economic consequences of this judgment appear dire. It raises questions on the IBC resolution process under a three-tiered structure comprising a committee of creditors, the NCLT and the NCLAT. The IBC’s top tier, the NCLAT, is headed by a retired Supreme Court judge so that matters are resolved judiciously.

Critically, BPSL’s liquidation will lock up its 4.5 million tonne capacity for a long period, straining India’s market supply of domestic steel. With NCLT and NCLAT decisions deemed faulty by the country’s top court, litigation risks associated with IBC proceedings will be seen to have risen. This could complicate future resolutions under the code. ‘Econocrats’ have warned that such retrospective rulings could deter investors, echoing as it does the 2012 Vodafone tax saga.

Globally, this ruling signals unpredictability in the context of final judicial outcomes in India. A stark reversal such as this could potentially weaken the credibility of business asset re-allocation processes in India among international investors who need the assurance of legal certainty. This would not be good for the country’s appeal as an investment destination.

Also Read: A judiciary that refrains from judicial overreach can better serve the cause of justice

The ruling’s spillover effects—undermining of the IBC’s credibility, increased resolution costs and its chilling effect on the market for distressed assets—could be wider than they may seem at first glance. Hence, broadly speaking, it would serve the country well if the apex court adopts a better balance in its use of Article 142, with the economic impact of judgments taken into account. We also need IBC reforms to enforce timelines and clarify funding norms, plus government action to restore investor confidence so that India’s appeal as an investment hub does not diminish.

Akanksha Mathur of CUTS contributed to this article.

The author is secretary general, CUTS International.