Corporate Insolvency Resolution Process Under IBC: Supreme Court's Ruling on JSW's Resolution Plan

Introduction

The Supreme Court of India recently delivered a significant judgment in the case of Kalyani Transco vs. M/s. Bhushan Power and Steel Limited & Ors., addressing critical issues surrounding the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court quashed the Resolution Plan submitted by JSW Steel Ltd. (JSW), emphasizing the necessity for compliance with statutory provisions and the importance of protecting the interests of operational creditors.

Case Background

The case arose from a series of appeals challenging the judgment and order dated February 17, 2020, passed by the National Company Law Appellate Tribunal (NCLAT). The appeals were filed by various parties, including Kalyani Transco, an operational creditor of Bhushan Power and Steel Limited (BPSL), and other operational creditors, against the approval of JSW's Resolution Plan by the NCLT.

The CIRP against BPSL was initiated following a petition filed by Punjab National Bank, and the process was marked by significant financial claims from both operational and financial creditors. The NCLT had approved JSW's Resolution Plan, which was subsequently challenged by various stakeholders, including operational creditors who argued that their interests were not adequately protected.

What The Lower Authorities Held

The NCLT approved JSW's Resolution Plan on September 5, 2019, subject to certain conditions. However, the NCLAT, in its judgment, modified some of these conditions while allowing JSW's appeal and dismissing the appeals filed by operational creditors and other stakeholders. The NCLAT's decision was based on its interpretation of the IBC and the procedural aspects of the CIRP.

The Court's Reasoning

The Supreme Court, while examining the appeals, highlighted several critical issues regarding the compliance of the Resolution Plan with the IBC. The Court noted that the Resolution Professional had failed to ensure adherence to mandatory provisions, particularly those concerning the prioritization of operational creditors in payment. The Court emphasized that the IBC mandates that operational creditors must be paid in priority over financial creditors, a requirement that was not met in JSW's Resolution Plan.

The Court also scrutinized the role of the Resolution Professional, stating that it is not merely administrative but also involves ensuring compliance with statutory requirements. The failure to submit a compliance certificate confirming the eligibility of the Resolution Applicant under Section 29A of the IBC raised serious doubts about the legitimacy of the Resolution Plan.

Furthermore, the Court addressed the issue of timelines in the CIRP, asserting that the process must be completed within the statutory time limits set by the IBC. The Court found that the Resolution Professional had not sought an extension of the CIRP period as required, leading to a violation of the mandatory provisions of the IBC.

Statutory Interpretation

The Supreme Court's ruling involved a detailed interpretation of various provisions of the IBC, particularly Sections 30 and 31, which govern the approval of Resolution Plans. The Court reiterated that the NCLT can only approve plans that comply with the requirements set forth in the IBC, and any non-compliance renders the plan invalid.

The Court also examined the implications of Section 32A of the IBC, which provides immunity to the corporate debtor from criminal proceedings once a Resolution Plan is approved. The NCLAT had erroneously extended this immunity to the assets of the corporate debtor, which the Supreme Court found to be beyond its jurisdiction.

Why This Judgment Matters

This judgment is significant for several reasons. Firstly, it reinforces the importance of compliance with the IBC's provisions during the CIRP, particularly concerning the rights of operational creditors. The Court's emphasis on the role of the Resolution Professional serves as a reminder of the responsibilities that come with this position.

Secondly, the ruling clarifies the limits of judicial review concerning decisions made by statutory authorities under the PMLA, establishing that such matters fall outside the purview of the NCLT and NCLAT.

Finally, the judgment underscores the necessity for timely implementation of Resolution Plans, highlighting that delays can lead to severe consequences, including liquidation of the corporate debtor. This serves as a crucial reminder for stakeholders involved in the insolvency process to adhere strictly to timelines and statutory requirements.

Final Outcome

The Supreme Court quashed the judgments and orders of the NCLT and NCLAT, rejecting JSW's Resolution Plan and directing the initiation of liquidation proceedings against BPSL. The Court's decision emphasizes the need for strict compliance with the IBC and the protection of creditors' rights.

Case Details

• Case Title: Kalyani Transco vs. M/s. Bhushan Power and Steel Limited & Ors.
• Citation: 2025 INSC 621
• Court: IN THE SUPREME COURT OF INDIA
• Bench: Justice Bela M. Trivedi, Justice Satish Chandra Sharma
• Date of Judgment: 2025-05-02