Why in News?

• The Supreme Court of India has approved JSW Steel’s $2.3 billion (₹19,350 crore) acquisition of Bhushan Power and Steel (BPSL), reversing its earlier decision of liquidation.
• This judgment strengthens the Insolvency and Bankruptcy Code (IBC), 2016, by prioritising revival of distressed firms over liquidation.

What’s in Today’s Article?

• Understanding Insolvency and Bankruptcy and the IBC
• Process Followed under the IBC
• Supreme Court’s Ruling
• Background
• Importance of BPSL to JSW Steel
• Liquidation Trends and Broader Implications of Judgment
• Conclusion

Understanding Insolvency and Bankruptcy and the IBC:

• Insolvency vs Bankruptcy: While insolvency results from an inability to pay debts due to a lack of assets, bankruptcy occurs when an application is presented to an authority declaring insolvency and requesting to be declared bankrupt, which will last until discharge.
• About the IBC 2016:
  • It is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
  • It is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
  • It aims to protect the interests of small investors and make the process of doing business less cumbersome.
• Insolvency and Bankruptcy Board of India (IBBI):
  • It is the regulator for overseeing insolvency proceedings and entities like Insolvency Professional Agencies (IPA), Insolvency Professionals (IP) and Information Utilities (IU) in India.
  • It was established on 1 October 2016 and given statutory powers through the IBC 2016.
  • It functions under the Ministry of Corporate Affairs and covers Individuals, Companies, Limited Liability Partnerships and Partnership firms.

Process Followed under the IBC:

• Initiation of CIRP:
  • Corporate Debtor (CD): A company that has taken loans and defaults on repayment.
  • Who can Apply: Either the creditor or the debtor can initiate proceedings.
  • Relevant Section: Corporate Insolvency Resolution Process (CIRP) is governed by Section 6 of the IBC.
• Threshold for default:
  • Earlier limit: ₹1 lakh default.
  • Revised limit: Raised to ₹1 crore during the pandemic to reduce undue stress on companies.
• Adjudicating Authority (AA):
  • Designated authority: National Company Law Tribunal (NCLT) benches across India.
  • Role: Receives insolvency applications from creditors or debtors.
  • Timeline: Must admit or reject application within 14 days, with reasons for delay if not disposed within this period.
• Commencement of CIRP:
  • Trigger point: CIRP begins once NCLT admits the application.
  • Resolution timeline: As per amendment, the process must be completed within 330 days (including litigation period).
• Outcome of CIRP:
  • Resolution: Revival of the corporate debtor through restructuring or takeover by a Successful Resolution Applicant (SRA).
  • Liquidation: If no resolution plan is approved within the stipulated period.

Supreme Court’s Ruling:

• Revival of BPSL: JSW Steel has invested in modernisation, safeguarded thousands of jobs, and ensured that the company will continue to operate.
• IBC objective fulfilled: The court emphasised that the essence of IBC is to convert loss-making firms into profitable entities.
• On claims: Creditors’ demand for an additional ₹6,100 crore was dismissed. The Court stated that once the Committee of Creditors (CoC) approves a plan, reopening claims undermines the law.
• CCDs as equity: Compulsorily Convertible Debentures (CCDs) issued by the Successful Resolution Applicant (SRA) must be treated as equity.

Background:

• The SC had earlier ordered liquidation, citing JSW Steel’s delay in implementing the plan and failure of CoC to exercise its commercial wisdom.
• The court criticised the Resolution Professional (RP) and CoC for failing to protect creditors’ interests and supporting JSW despite violations.
• The (May 2024) order unsettled investors and cast doubts on the effectiveness of IBC reforms.

Importance of BPSL to JSW Steel:

• BPSL contributes significantly to JSW’s revenue and profitability. FY25 performance - Profit of ₹300 crore (Q1), loss of ₹93 crore (Q2), profit of ₹11 crore (Q3).
• BPSL increased capacity from 3.5 MTPA to 5 MTPA, operating advanced facilities across India.
• Analysts estimate an 8–10% revenue and EBITDA decline in FY26 if BPSL is liquidated.

Liquidation Trends and Broader Implications of Judgment:

• Rising liquidations: FY24 witnessed 2,476 cases ending in liquidation with total claims of ₹11 lakh crore. Recovery rate remained only 6.33% of admitted claims (₹69,634 crore).
• Example of Jet Airways: Earlier, Jet Airways faced liquidation due to a failed resolution plan (₹15,723 crore admitted claims).
• Liquidation of BPSL: This would have been the largest in corporate history.
• The judgment: This is expected to restore investor confidence in IBC and discourage frivolous delays.

Conclusion:

• The Supreme Court’s reversal aligns with the spirit of the IBC by prioritising corporate revival over liquidation.
• The ruling will likely strengthen creditors’ trust in resolution plans, reduce litigation uncertainties, and boost investor confidence in India’s insolvency ecosystem.
• Going ahead, stricter accountability for Resolution Professionals and CoCs is essential to prevent delays and safeguard creditors’ interests.