In the fallout of the Supreme Court's Bhushan Steel ruling, a quiet anxiety has gripped resolution applicants, creditors, and legal counsel alike. If an approved resolution plan can be quashed years later even post-CoC greenlight, NCLT nod, and partial implementation, what legal avenues truly remain open to stakeholders caught in the aftermath?
This isn't just about JSW or BPSL. It's about every player downstream in the insolvency ecosystem suddenly finding themselves upstream without a paddle.
The Aftershock: Who's Left Exposed?
The Supreme Court's decision rejecting JSW's resolution plan and directing liquidation initiates a chain reaction. It means:
- Secured financial creditors may need to restate their claims for liquidation distribution.
- Operational creditors who received partial dues may now be seen as "preferential recipients" and face clawback claims.
- Employees, vendors, and third-party contractors must now re-litigate or re-validate dues.
- Guarantors (personal and corporate) may once again be on the hook for unsatisfied claims.
- Resolution applicants may face breach suits if they acted in bad faith or selectively complied.
Can the Resolution Applicant Be Sued for Default?
Potentially. Under Section 74 of the IBC, willful non-compliance of resolution plans could invite penalties and prosecution. However, judicial standards for "willfulness" remain uneven.
While the BPSL case involved two years of JSW not honouring its payment commitments, proving intent and mala fides will require forensic analysis of board decisions, cash flow priorities, and correspondence trails.
Affected creditors may pursue breach of contract, misrepresentation, or even unjust enrichment claims. But recovery is a long haul unless the RA has tangible assets or reputation at stake.
Clawback Risk: Is That Money Yours to Keep?
This is the most nerve-wracking outcome for stakeholders who received partial or full payments under the now-quashed plan.
Section 66 (fraudulent trading) and Section 45 (preferential transactions) may be triggered, especially if the resolution applicant was in breach and knowingly made selective payments.
Vendors, contractors, and operational creditors must be prepared with documentation to show good faith, value exchange, and absence of collusion. If not, they risk having payments reversed.
Litigation strategy here hinges on proactive defensive filings, not passive hope.
NCLT: The Arena of Second Chances or Second Shocks?
Post-collapse, the NCLT resumes control of the CIRP process. However, we must bear in mind that
- Fresh expressions of interest (EOIs) may be invited, but investor appetite will be chilled.
- Existing CoC members may be restructured or weakened due to claim uncertainty.
- If liquidation becomes inevitable, disputes around asset valuation and distribution will queue up.
Firms representing financial creditors need to swiftly re-file claim proofs, preserve their ranking, and engage in new CoC formations. Those representing vendors or operational creditors should immediately seek interim relief or protective orders against clawbacks.
The Role of RP: From Passive Facilitator to Accountability Magnet
In Bhushan Steel, the SC rebuked the RP for failing to uphold statutory duties. This sets a precedent that RPs aren't mere neutral channels. RPs can be scrutinised for plan quality, creditor protection, and compliance monitoring.
Expect to see more litigation against RPs, especially in cases of procedural lapses or over-acceptance of shaky resolution plans.
For lawyers advising RPs, this means elevating internal checklists, conflict of interest declarations, and communication audit trails.
The Bigger Picture: What This Means for the Indian Insolvency Framework
While the Supreme Court may have intended to signal accountability and revive fidelity to the IBC's letter and spirit, the practical effect could be:
- Increased litigation timelines post-resolution
- Shrinking pool of serious resolution applicants
- Elevated legal fees in plan monitoring and compliance
- Heightened role of transactional due diligence even after plan approval
As legal counsel, our job now is not only to draft better plans but to future-proof them. The focus will be on anticipating failure modes, embedding contingency protocols, and designing exits that don't bleed clients dry.
As Indian insolvency law enters this next phase of rigor, creditors, applicants, and counsel must prepare for a long game. And that long game is litigation: layered, messy, and fiercely strategic.
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.
