Bhushan Steel ruling misses big picture

The Supreme Court could have weighed the economic consequences of liquidation
| Photo Credit:
Akhilesh

Much has already been written about the far-reaching consequences of the Supreme Court’s recent judgment in the Bhushan Power & Steel Ltd. (BPSL) case, which marks a pivotal moment for India’s insolvency regime.

The judgment cited procedural lapses by the Resolution Professional, undisclosed amendments, and questionable decisions by the Committee of Creditors (CoC). While few would dispute that the process was flawed, the decision to impose liquidation — rather than, say, a remand or rectification — raises difficult questions about proportionality, institutional accountability, and the Court’s role in shaping commercial outcomes under the IBC.

Under the IBC, liquidation is meant to be the remedy of last resort. The IBC’s objective is the revival of distressed enterprises as going concerns, with value maximisation for creditors and preservation of employment and productive assets. Liquidation, in contrast, often yields economic destruction: assets are sold piecemeal, employees lose jobs, and creditors recover a pittance.

The facts bear this out. Per IBBI data, realisation through liquidation average less than 5 per cent of admitted claims, while resolution — despite its own imperfections — returns over six times that amount. In the case of BPSL, the originally approved resolution plan had proposed a recovery of approximately ₹19,000 crore for financial creditors.

Liquidation will now likely result in a fraction of that value. Public sector banks that had once hoped to clean up their balance sheets will instead be writing off the loan. Operational creditors will now stand behind in the liquidation waterfall under Section 53 of the IBC, and employees — who under a resolution might have retained continuity of service — now face complete displacement.

The Court’s recourse to liquidation is anchored in the reading of Section 33(1)(a) of the IBC, which permits liquidation if the corporate insolvency resolution process (CIRP) exceeds 330 days or fails to yield an approved plan.

Fall back plan

However, this interpretation overlooked viable alternatives embedded within the same statutory ecosystem. One such alternative lies in Regulation 39(1B) of the CIRP Regulations, which enables the CoC to rank multiple resolution plans — an arrangement that facilitates fallback options. Reports indicate that other bidders, including Tata Steel and Liberty House, had submitted plans in BPSL’s insolvency process. If the JSW plan was unfit for approval, the Court could have directed the National Company Law Tribunal or the CoC to evaluate the next-in-line (H2) plan, or even re-invite bids in a time-bound manner.

Judicial precedent supports such flexibility. In the Jaypee Infratech and Educomp Solutions matters, the courts allowed fresh resolution plans to be considered after protracted litigation. In (2020), the National Company Law Appellate Tribunal held that the CoC could consider revised plans even after prescribed timelines had elapsed, in order to safeguard enterprise value.

These interventions were guided not just by textual interpretation but by the economic reality that liquidation is often value-destructive and counterproductive to the IBC’s purpose.

The Court’s choice of liquidation in the BPSL case, though procedurally consistent, may have undermined the IBC’s teleological intent. The invocation of Article 142 should ideally serve as a bridge between legal correctness and commercial wisdom. It should not merely wipe out an illegal plan but seek to salvage what remains of the enterprise. A direction to consider other viable resolution plans or even to reinitiate a limited bidding process could have fulfilled the twin objectives of legality and value preservation.

The system has punished procedural misconduct — but the punishment has fallen not on the wrongdoers but on the creditors, workers, and the economic ecosystem that once surrounded the corporate debtor.

Justice may have been done in form, but in substance, the Bhushan Power judgment may stand as a cautionary tale of how doing justice without recalibrating consequences can result in loss — both legal and economic.

The writer is an advocate before the Delhi High Court

Published on May 23, 2025