Supreme Court’s Judgment in Bhushan Power and Steel Ltd.: a wake up call for the Resolution Professionals and Committee of Creditors

Team Resolution | resolution@vinodkothari.com

The Supreme Court judgement in the matter of Kalyani Transco v. Bhushan Power and Steel Ltd., set aside the resolution plan for Bhushan Power and Steel Ltd., and directed liquidation, after almost 6 years the resolution plan was approved by National Company Law Tribunal, citing  significant gaps in the conduct of corporate insolvency resolution processes – for instance,  lapses in meeting statutory timelines, deficiencies in eligibility verification under section 29A,  irregularities in plan implementation, judicial overreach by National Company Law Appellate Tribunal, among others. 

In this write up, we have made an attempt to discuss significant points of law as discussed by SC in this ruling and also provide our humble comments on the same. Needless to say, many of the concerns highlighted by the SC in this judgment would act as a binding code of conduct for all resolution professionals, CoCs, and even judicial institutions. 

1. Strict adherence to the timeline u/s 12 of the Code

The time-bound nature of the CIRP is a foundational pillar of the Code. Section 12 of the Code stipulates a strict limit of 330 days for the completion of CIRP, including any extensions and time taken in legal proceedings. Any resolution plan received beyond this statutory limit, without a valid extension granted under the Code, is legally unsustainable. RPs and CoC must ensure that the process is conducted strictly within the timelines so prescribed, or extension is sought as per the provisions of the Code, failing which the CD will be pushed into the liquidation process.

2. Verification of Eligibility Under Section 29A – A Mandatory Duty of the RP

Section 29A of the Code lays down the ineligibility criteria for resolution applicants. Section 30 (1) requires the resolution applicants to submit an affidavit confirming their eligibility and Section 30 (4) casts an obligation on the resolution professional to verify the eligibility of the RA and to confirm that the plan does not contravene any of the provisions of the law, before placing it before the CoC for their approval. Also, at the time of submission of approved plan before the Hon’ble Adjudicating authority, to provide a compliance certificate thereby certifying that the plan complies with all the provisions of the Code and IRPCP Regulations.

SC observed that “. . . the eligibility/ineligibility of the Resolution Applicant to submit the Resolution Plan goes to the root of the matter, it was incumbent on the part of the Resolution Professional to verify and certify that the contents of the mandatory affidavit, filed by the Resolution Applicant . . .”

Thus, it is the  duty of the RP to undertake a thorough scrutiny of the eligibility of resolution applicants prior to presenting the resolution plan before the CoC. Failure to discharge this duty may result in the risk of an ineligible applicant being granted access to the CIRP, thereby hampering the sanctity of the process and violating the law. The RP must not simply rely on the affidavit submitted by the resolution applicant  but he must exercise due diligence in verifying   the compliance with the statutory mandate.

3. Compliance with Section 30(2) is obligatory to safeguard the rights of Operational Creditors

Section 30(2) of the Code mandates that a resolution plan must provide for the payment of debts of operational creditors in a manner no less than the amount they would receive in liquidation, and such payment must be made in priority to financial creditors. The non-compliance with this requirement renders the resolution plan illegal and unfit for approval. Both RP and CoC must ensure that the resolution plan submitted strictly complies with the stipulations of Section 30(2), and any deviation must be adequately justified within the parameters permitted by law.

4. Resolution Plan must be unconditional and enforceable

SC has also held that once a resolution plan is submitted and approved, it must be unconditional, legally binding, and ready to be enforced without delay. A resolution plan that depends on approvals, changes in law, or future exemptions should be considered as defective. In fact, SC has criticized the submission of such conditional plans, stating that – “it is quite clear that merely because the Code is silent with regard to the phase of implementation of the Resolution Plan by the Successful Resolution Applicant, neither the Tribunal nor the Courts should give excessive leeway to the Successful Resolution Applicant to act in flagrant violation of the terms of the Resolution Plan or in a lackadaisical manner.”

5. Maintaining sanctity and integrity of the CIRP – a shared responsibility of RP, COC and Courts

The Hon’ble Supreme Court emphasized that the CIRP must be conducted with utmost fairness, transparency, and adherence to statutory provisions. The RP is a fiduciary and custodian of the CIRP, and not a mere facilitator. Any deviation, negligence, or omission by the RP may result in severe legal consequences, including personal liability and disqualification.

Further, the CoC, while being vested with commercial wisdom, must exercise such discretion within the confines of the Code and the attendant regulations. Procedural irregularities, deliberate or otherwise, cannot be shielded under the guise of commercial wisdom.  

With respect to NCLT, SC clarifies the expectation in para 68 of the judgment, indicating that NCLT should have satisfied itself  regarding the eligibility of the Resolution Applicant under the provisions of the Code, ensure that the Resolution Professional has adhered to the prescribed timelines in the submission of the application, and examine whether the resolution plan contains adequate provisions for its effective implementation in accordance with the statutory framework.

SC, in fact remarked that, “Any action taken or any deal/any settlement entered into by and between the parties in respect of the subject matter of the proceedings, have to pass the test of judicial scrutiny and would always be subject to the final outcome and adjudication of the proceedings.” In the humble view of the authors, this sounds contradictory to the earlier rulings of SC (e.g.. in K. Sashidhar v. Indian Overseas Bank & Ors. [(2019) 12 SCC 150] and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors. [(2020) 8 SCC 531]), wherein it was held that the role of the Adjudicating Authority and the Appellate Authority under the IBC is limited and does not extend to sitting in appeal over the commercial wisdom of the CoC.

Thus, both RP and CoC bear the collective responsibility of ensuring that the CIRP does not become a mere formality, but a robust, lawful, and value-maximizing process for the benefit of all stakeholders

6. Filing application for avoidance transactions

Supreme Court, particularly in para 64 of the present judgement, also highlighted the statutory duty of the RP to file Applications for avoidance of transactions in accordance with Chapter-III of the Code.

It is to be noted that in terms of the provisions of section 43, 45 and 50 the RP (and liquidator, if the CD slips into liquidation) is duty-bound to scrutinize transactions that may be preferential, undervalued, fraudulent or extortionate, and to bring such matters to the adjudicating authority by way of avoidance applications.

Lapses in identifying avoidance transactions not only prejudice the interests of creditors but also frustrate the object of maximising value through the CIRP. The RP, as an officer of the process, must act proactively to ensure that the corporate debtor is not stripped of value through questionable transactions prior to insolvency.

7. Clarification of the meaning of ‘Person Aggrieved’ under IBC

Section 62 of the Code contemplates that ‘Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order.’

In its interpretation of this provision, the Hon’ble Supreme Court, relying on its earlier judgement in the matter of Glas Trust Company LLC v. Byju Raveendran and Others, clarified that the expression “any person aggrieved” is not confined solely to those who were parties to the proceedings before the NCLT/NCLAT, as the case may be. Once the CIRP is initiated, the proceeding becomes a collective proceedings in rem, where all the creditors, ex-promoters, ex- directors of the CD also become stakeholders. Thus, the expression ‘any person’ encompasses anyone who has suffered a direct legal injury or whose legal rights or interests have been adversely affected by the impugned order. The Court has further clarified that to establish locus standi under this provision, the person must demonstrate a tangible prejudice or legal injury arising from the order in question, and not mere dissatisfaction or hypothetical concern. In so far as the same is established, the appeal u/s 62 may be validly invoked by such affected persons, irrespective of the person not being party to the appeal/application.

8. Limited grounds for filing appeal before NCLAT under section 61 

Section 61(3) of the Code stipulates specific and limited grounds upon which an appeal may be preferred before the NCLAT  against an order of the NCLT. In the context of an appeal against an order approving a resolution plan, the appeal shall lie only if it is demonstrated that the approved resolution plan is in contravention of the provisions of law or has not followed the due process prescribed under the Code and related regulations.

Placing reliance on its own judgment in K. Shashidhar Vs. Indian Overseas Bank and Others, Hon’ble Supreme Court held that the jurisdiction of the NCLAT in such matters is confined to the grounds explicitly mentioned under Section 61(3) of the Code. The NCLAT is not empowered to entertain or adjudicate upon issues or grant reliefs in respect of matters which were neither raised before the NCLT nor form a part of the order under challenge. 

9. Jurisdictional  limitation of NCLAT vis-a-vis PMLA

The Hon’ble Supreme Court has clarified the limits of the NCLAT’s jurisdiction in matters concerning statutes such as the Prevention of Money Laundering Act, 2002 (PMLA). 

The Apex Court has clarified that NCLT and NCLAT are constituted under Section 408 and 410 of the Companies Act, 2013 and not under the IBC, and the  jurisdiction and powers of the NCLT and NCLAT are well prescribed under Section 31 and Section 60 so far as NCLT is concerned, and under Section 61 of IBC so far as the NCLAT is concerned. Neither the NCLT nor the NCLAT is vested with the authority to exercise judicial review of the matters falling outside the purview of the IBC, or falling within the purview of public law.

Consequently, the Court cautioned that any such interference would amount to judicial overreach and would be ultra vires the statutory mandate of the NCLAT. Accordingly, both the NCLT and NCLAT are required to act strictly within the limits of their jurisdiction under the IBC and abstain from adjudicating upon issues that lie beyond their conferred competence.

Conclusion

By directing the liquidation of the CD in this unique case, despite the prior approvals granted by the CoC, NCLT, and NCLAT, the Apex Court has underscored that the IBC is not a mere procedural statute but a code of strict compliance. The decision sets a binding precedent that reinforces the need for time-bound, transparent, and law-abiding resolution efforts as the pillars of India’s insolvency jurisprudence. Accordingly, all Resolution Professionals and members of the Committee of Creditors should  treat this judgment as a guiding principle to reassess their roles, responsibilities, and procedural adherence. It is imperative that they implement robust internal checks, maintain procedural sanctity, and act in accordance with the letter and spirit of the Code to ensure equitable, legally sound, and stakeholder-centric outcomes in all resolution processes henceforth.However, at the same time, it is important to note that, while the ruling reaffirms that foundational legal safeguards under the IBC cannot be bypassed, however, it leaves behind quite a significant question – where does the road end? For instance, on one hand, there are cases like in K. Sashidhar (Supra),Essar Steel India Ltd. (Supra),  where Hon’ble SC had held the commercial wisdom of COC to be paramount and and not subject to judicial review, so long as the requirements of Section 30(2) are satisfied, however, in the instant case, the Court critiques extension of time for implementation of resolution plan which was given by COC pursuant to enabling provisions in the resolution plan itself. Understandably, the concerns raised in this judgment are pursuant to the stipulations in the Code, however, the judgment can also be seen as leading to uncertainty, when the implementation of the Code itself is fraught with delays, insufficient institutional infrastructure, etc. Such uncertainty may not go well with the investors who would remain in constant fear that, even if their plans have been upheld and sanctioned by the decision-making body of CoC, and then even by Tribunals, it might still remain open for judicial scrutiny, at any stage whatsoever, and on the appeal of “any person aggrieved”. Further, because of the lapses in the process, the judgment calls for liquidation of the CD. It is a known fact that liquidation can never preserve value – note that, with latest amendments in Liquidation Regulations, a going concern sale in liquidation is no more possible. Therefore, the question still remains, as to whether the outcome as in this case would serve the interest of all stakeholders (including the workmen, employees of CD) and whether it would lead to “maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders”   – which are hailed as the hard core objectives of IBC.

Read more:

Summary of Important Supreme Court Judgements on IBC

Classification of lease transactions under IBC: Financial vs. Operational debt
Comments on the IBBI Discussion Paper on ‘Streamlining Processes under the Code: Reforms for Enhanced Efficiency and Outcomes’