TITLE: Kalyani Transco v. M/s Bhushan Power and Steel Ltd. & Ors, [1] 2025 INSC 621
DATE OF JUDGMENT: 02.05.2025
BENCH: Justice Bela M. Trivedi and Justice Satish Chandra Sharma
I. INTRODUCTION
The Supreme Court of India ("Supreme Court/Apex Court") recently, in its landmark judgment in Kalyani Transco v. M/s Bhushan Power and Steel Ltd. & Ors.1, ("Kalyani Tansco") unveiled the façade around the efficacy of the insolvency framework in India exercised in the garb of 'commercial wisdom'. This case highlights the significance of the role of the Tribunals, the Committee of Creditors ("CoC") and resolution professionals and "serious" approach required in approval and implementation of a resolution plan in a Corporate Insolvency Resolution Process ("CIRP") under the Insolvency and Bankruptcy Code, 2016 ("IBC"). This judgment discusses the indispensable importance of adhering to the statutory provisions of the IBC and its Regulations, the roles of various stakeholders, and defining the jurisdictional limits of the Tribunals. The Supreme Court has made it clear that procedural and substantive compliance with the IBC is not merely directory but mandatory, and that implementation of a resolution plan cannot be done in a nonchalant way which transgresses beyond the four corners of law.
II. THE BPSL SAGA: A TROUBLED PATH TO RESOLUTION
Bhushan Power and Steel Limited ("BPSL") was one of the "dirty dozen", the 12 large accounts identified by the Reserve Bank of India in June 2017 for immediate reference under the IBC. The CIRP was initiated against BPSL by the National Company Law Tribunal ("NCLT") on July 26th, 2017, upon an application filed by Punjab National Bank.
During the CIRP, JSW Steel Limited ("JSW") emerged as the Successful Resolution Applicant, with its Resolution Plan being approved by 97.25% voting share of the CoC on October 15th and 16th, 2018. The NCLT granted its approval to the Resolution Plan on September 5th, 2019, subject to certain conditions to be met by JSW2. However, shortly after, on October 10th, 2019, the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 ("PMLA") issued a provisional attachment order and attached BPSL's assets3.
In an appeal against the NCLT's order approving the Resolution Plan, on February 17th, 2020, the National Company Law Appellate Tribunal ("NCLAT") upheld the NCLT's order, with certain modifications to the terms of the Resolution Plan4. This NCLAT judgment was challenged before the Supreme Court by various stakeholders, including operational creditors, the former promoters of BPSL, and state authorities.
III. KEY ISSUES BEFORE THE APEX COURT
The following legal infirmities cropped up before the Supreme Court for its consideration in the present case:
- Maintainability of appeals filed by different stakeholders;
- Jurisdiction of NCLT/NCLAT to review decisions of statutory authorities under PMLA;
- Extent of compliance of the mandatory provisions of the IBC and its Regulations;
- Significant delays encountered in the implementation of the Resolution Plan;
- Roles and responsibilities of the Resolution Professional and CoC.
Maintainability of Appeals:
Addressing the preliminary objections regarding the maintainability of the appeals, the Supreme Court, relied on its recent decision in Glas Trust Company LLC v. Byju Raveendran5 and, held that once CIRP is initiated against a company, the proceedings become collective proceedings in rem, where all the creditors and the former promoters would be necessary stakeholders. The Court found that a rigid approach is not required for a party to have locus to institute an appeal under the IBC and the operational creditors and the former promoters, being important stakeholders, whose appeals were dismissed by NCLAT, qualify as "persons aggrieved" under Section 62 of the IBC. The Court thus held that the appeals by these stakeholders and the former promoters are maintainable.
On the contrary, the Court questioned the maintainability of JSW's appeal before the NCLAT, which challenged the conditions imposed by the NCLT while approving JSW's own Resolution Plan. The Court observed that JSW could not be considered a "person aggrieved" since its Resolution Plan was approved, and none of the grounds stated in Section 61(3) for challenging NCLT's order were raised in its appeal.
Jurisdictional Boundaries: NCLT/NCLAT and PMLA Orders
Shedding light on the jurisdiction of NCLT/NCLAT, the Supreme Court asserted that the NCLT and NCLAT, established under Sections 408 and 410 of the Companies Act, 2013, lack the power of judicial review over decisions rendered by statutory authorities in matters of public law. The Supreme Court relied on its decision in Embassy Property Developments Private Limited v. State of Karnataka & Ors6. and reiterated that decisions by governmental or statutory authorities within the realm of public law cannot be subsumed under the ambit of "arising out of or in relation to insolvency resolution" as defined in Section 60(5)(c) of the IBC.
The Supreme Court applied these principles and held that NCLAT had exceeded its jurisdiction while declaring the attachment by the ED as illegal. The Court held that PMLA is public law, and NCLAT lacked the jurisdiction to review statutory authority decisions and consequently, these findings by the NCLAT were deemed to be without legal basis, exceeding its jurisdiction, and therefore coram non judice.
Non-compliance with mandatory IBC provisions
The Supreme Court identified several non-compliances of the IBC and its Regulations throughout the CIRP:
- Violation of the prescribed timelines
The Court reiterated, as has been done countless number of times over the years, that time-bound completion of CIRP is a key objective of the IBC. In this case, the CIRP commenced on July 26th, 2017, but application for approval of the plan was made by the Resolution Professional to the NCLT only on February 14th, 2019, belatedly after one and a half years. No application was filed by the Resolution Professional seeking an extension beyond the initial 180-day period, as required under Section 12(2) of the IBC. The Court held that the NCLT committed a grave error of law in approving JSW's Resolution Plan, as it was in clear violation of Section 12 of the IBC. - Failures of the Resolution Professional
The Court identified multiple instances where the Resolution Professional failed to discharge his statutory duties such as:- Failure to apply for extension of time to complete CIRP under Section 12.
- Failure to check whether JSW met the "eligibility" criteria set out in Section 29A of the IBC.
- Failure to file application(s) for avoidance transactions under Chapter III of the IBC.
- Failure to confirm that the Resolution Plan adhered to the requirements specified in Section 30(2) of the IBC regarding non- contravention of any provision of law and with regard to the payment of debts to the Operational Creditors in priority.
- Lapses by the CoC
The Supreme Court noted that the CoC failed to verify the mandatory requirements stipulated in Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations"), which concern the feasibility, viability, and implementation capability of the Resolution Plan. The conflicting behaviour of the CoC was also noted by the Supreme Court as the CoC initially raised concerns regarding non-compliance by JSW in the CoC meetings but subsequently approved JSW's plan without any deliberation on these vital issues. The Supreme Court described the CoC's contradictory positions before the Court as playing "a very dubious role in the entire CIRP". - Delays and Misrepresentation by JSW
The Court observed that JSW significantly delayed the implementation of its Resolution Plan for approximately two and a half years after the NCLT's approval and two years after the NCLAT's order. The upfront payments to Financial Creditors were delayed by 540 days, and to Operational Creditors by an inordinate delay of 900 days. The Court also rejected JSW's plea that it will meet fait accompli by claiming that the plan had been fully implemented. The Court held that a situation cannot escape the clutches of law by taking the defence of fait accompli to frustrate the proceedings, especially when the CIRP was not conducted in compliance of the mandatory provisions of law.
Further, JSW failed to submit Form 'H', the compliance certificate required under Regulation 39(4) of the CIRP Regulations while seeking approval of the Resolution Plan and did not provide the mandatory disclosures pertaining to the eligibility/ineligibility criteria under Section 29A of the IBC. The Resolution Professional, in fact, turned a blind eye to these irregularities and proceeded with filing of the application for approval of the Resolution Plan.
During the implementation stage, instead of adhering to the mandatory equity contribution commitments contemplated under the Resolution Plan, JSW proceeded with issuance of compulsory convertible debentures, which was looked down upon heavily by the Supreme Court.
The Supreme Court concluded that JSW's actions are nothing short of "misuse of process of law and a fraud" against the CoC and other stakeholders. It was highlighted that a successful resolution applicant has a responsibility to implement the plan in both letter and spirit, which is not merely an empty formality or academic. - The confines of Commercial Wisdom
The Supreme Court clarified the concept of the "commercial wisdom of CoC," defining it as a considered decision made with due regard to commercial interests, the revival of the Corporate Debtor, and the maximization of asset value. However, the Court stated that this commercial wisdom must operate within the strict boundaries of mandatory statutory requirements, including:- Adherence to the time limits prescribed under Section 12 which is mandatory in nature as the expression "shall be completed" is deployed in this section.
- Compliance with the eligibility criteria for resolution applicants under Section 29A of the IBC.
- Compliance with the provisions of Section 30(2) of the IBC for the priority in payment of costs and debts.
- Compliance with the requirements stipulated in Regulation 38 of the CIRP Regulations mandating payment to the Operational Creditors to be paid in priority over the Financial Creditors.
IV. FINAL DECISION: TIMELY LIQUIDATION OVER ENDLESS RESOLUTION
The Supreme Court set aside the judgments of the NCLT and the NCLAT and rejected JSW's Resolution Plan as being in violation of the provisions of the IBC, particularly Sections 30(2) and 31(2). The Supreme Court in exercise of the powers conferred upon it under Article 142 of the Constitution of India directed the NCLT to initiate liquidation proceedings against BPSL under Chapter III of the IBC, holding that the NCLT had committed a grave error of law in approving the Resolution Plan in the first place.
Additionally, the Court ordered that the payments made by JSW to the creditors and the equity contributions must be dealt with in accordance with the CoC's statement previously recorded in order dated 06.03.2020 that the amount will be returned by the CoC within two months of the successful outcome of the appeal.
The Supreme Court also criticized the lack of judicial scrutiny by the NCLT/NCLAT in virtually justifying the non-disclosure and suppression of material facts in the Resolution Plan made by JSW. The Court found that the CoC failed to properly assess the Resolution Plan which was not in conformity of the mandatory requirements of Regulation 38 of the CIRP Regulations. This omission allowed JSW to proceed with a flawed plan. In addition, the Court noted that the CoC's inconsistent positions throughout the CIRP casts serious doubt whether it had genuinely exercised its commercial wisdom in the best interest of the creditors.
The Supreme Court also referred to its recent ruling in State Bank of India and Others v. Consortium of Murari Lal Jalan and Florian Fritsch and Another7, wherein Jet Airways was directed to undergo liquidation due to the dilatory tactics employed by the successful resolution applicant in implementing the resolution plan and criticized the NCLT and NCLAT for their casual exercise of discretion in extending the statutory timelines prescribed under the IBC.
V. CONCLUSION:
The Supreme Court's decision in Kalyani Transco highlights yet another instance where a promising resolution process ended in failure owing to irregularities and non-compliances. One of the key takeaways from this judgment is that a successful resolution applicant must display an enduring commitment for revival of the concerned corporate debtor which, the Supreme Court felt was absent in the present case. The Supreme Court's decision is a reminder that strict adherence to the statutory timelines prescribed under Section 12 of the IBC must be given high importance and it is the duty of the resolution professionals to act with diligence and timely seek extensions as required, and that any callous approach will be discouraged and will be brought down. Furthermore, all stakeholders, including the CoC, the resolution professional and Tribunals must ensure that resolution plans are not only submitted within the prescribed timelines but also comply fully with the substantive and procedural requirements of the IBC and its Regulations. The judgment is a reminder that the timelines and the requirements are not to be treated as "academic" but to be followed in letter and spirit.
This judgment is a wake-up call for the CoC and the resolution professionals to exercise vigilance and ensure strict compliance of the IBC provisions during the resolution plan approval process. It highlights the principle that neither judicial discretion nor commercial wisdom should be applied in a lackadaisical manner which resulted in a resolution applicant submitting a flawed resolution plan which was subsequently approved and implemented without any accountability. The Supreme Court has given a critical directive to all the concerned stakeholders to adhere to both the letter and the spirit of the IBC.
While reaffirming the significance of the CoC's commercial wisdom, the Court made it clear that such discretion is not absolute and must operate within the four corners of the IBC's mandate. The IBC has given wide powers to the CoC to decide on various commercial issues, including the viability of a resolution plan. These wide powers enable the most practical and efficient way of revival of a debtridden company as a going concern with minimal interference from the Courts. Having mentioned this, the pragmatic approach to revival of a company cannot encroach upon the mandatory requirements provided in the IBC. The Court's intervention in the present case, to liquidate BPSL after implementation of the Resolution Plan not only discourages the treatment of the provisions of the IBC in a nugatory manner but sets an example that any digression thereof will be met with consequences even if it would mean to quash an implemented resolution plan after a passage of significant amount of time.
Playing the devils' advocate, it is true that though CIRP is a time-bound process and must be adhered to, the commercial and practical incapacities often come in the way of a time bound resolution. It is also imperative to note that a successful resolution applicant is made to undergo strict scrutiny at all levels.
While the judgment upholds and sends out a strong message to follow the IBC in its true letter and spirit, one cannot turn away from the aftermath and the gnawing concerns emerging from this decision.
Annulling the approval of an already implemented resolution plan after almost 3 years of the payouts has logistic concerns involving reversal of payouts under the resolution plan, monies invested by JSW in the "revived" BPSL, payment of loans by JSW for such revival, etc. This will also change the landscape of the steel market and stock market given the high projections of profit by JSW after acquiring BPSL in March 2021. Several concerns remain unanswered. These issues will need be addressed and one may have to wait to see what happens in this uncharted territory.
Footnotes
1 2025 INSC 621
2 The NCLT vide the common Judgment and Order dated 05.09.2019 dismissed the Company Applications filed by the erstwhile Directors.
3 After the approval of the plan by the NCLT as aforesaid, the Directorate of Enforcement of Central Government (ED), passed an order on 10.10.2019 provisionally attaching the assets of the BPSL under Section 5 of the PMLA.
4 The NCLAT vide the impugned Judgment and Order dated 17.02.2020 approved the judgment and order dated 05.09.2020 passed by the NCLT, subject to the modifications/clarifications made by it in its impugned judgment. The NCLAT, thereby allowed the Company Appeal filed by the JSW, and dismissed the Company Appeals filed by Mr. Sanjay Singhal, Kalyani Transco, Jaldhi Overseas, Medi Carrier, CJ Darcl Logistics and State of Odisha & Others.
5 2024 SCC OnLine SC 3032
6 (2020) 13 SCC 308
7 (2024) SCC OnLine 3187
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
