The Supreme Court upheld the objectives of the Insolvency and Bankruptcy Code (IBC) including resolution and going concern in Bhushan Power & Steel Limited.
The Court confirmed JSW Steel’s resolution plan for Bhushan Power & Steel Limited (BPSL) remains in effect ensuring continued employment for the thousands of workers whose jobs were protected by the plan. It examined the undefined term “person aggrieved” in Section 62 considering the IBC’s objectives and earlier precedents. The Court recognised that guarantors and former board members may have vital interests affected by a resolution plan and relied on Vijay Kumar Jain to observe that such individuals can be considered persons aggrieved. Rather than dismissing the promoters’ appeals on locus grounds the Court decided them on the merits taking into account the promoters’ conduct during the Committee of Creditors (CIRC). This decision recognised a sufficient legal basis for the promoters to be heard about the plan’s consequences.
In the recent landmark judgement the Supreme Court held that the former promoters were capable of being “persons aggrieved” and their appeals were entertained on the merits rather than being dismissed for lack of locus. The Court also clarified that the Committee of Creditors (CoC) under the IBC does not become functus officio upon the approval of a resolution plan by the Adjudicating Authority. Instead the CoC continues to have a role until the resolution plan is fully implemented or an order of liquidation is passed.
The Supreme Court identified multiple causes for the delay including the pendency of appeals, interim stays, a provisional attachment by the Enforcement Directorate, uncertainty regarding Section 32A and negotiations between the CoC and the SRA to secure the handover of unencumbered assets. It noted that the CoC had expressly resolved to extend the implementation deadline and that parties jointly sought judicial clarity before implementation. The Court also compared the facts to cases where inordinate delays were attributable to the SRA. It found that the present delays were largely caused by external impediments and legitimate concerns not market opportunism alone. Therefore, it held that the delay did not justify setting aside the resolution plan. Implementation under the circumstances was justified and not solely attributable to the SRA. The Court also found that the clause permitting the CoC to extend the implementation period by the specified majority was legally permissible and did not render the plan indeterminate.
The Court examined the sequence of amendments to Regulation 38 and the timing of plan approval. It noted that the plan and addendum were formulated in the context of the law as it stood at the time. The CoC-approved plan has treated amounts to OCs as nil but offered ex-gratia payments.
The Court held that the amendment in November 2019 was post-NCLT approval date. It also held that the payments to OCs in the present case were ex-gratia and not amounts ‘due’ under the plan, thus not falling foul of the priority provision as it applied at the time. The Court further held that the payments as made did not contravene the IBC/IBBI Regulations in effect when the plan was approved; they were lawful ex-gratia disbursements.
The RFRP and the plan were silent on EBITDA distribution. Since the CoC had previously held that EBITDA need not be distributed (consistent with the Essar judgement) the Court determined that reopening the issue post-approval would violate the finality that the IBC seeks to secure. The Court also disapproved a late reversal of position by the CoC and reaffirmed that claims not provided in the RfRP/plan remain frozen. Finally, the Court held that EBITDA was not distributable to creditors in the absence of RfRP/plan provision; reopening the issue after approval/implementation was therefore impermissible.
In the appeal, the SRA – JSW failed to provide the promised cash equity of Rs. 8,550 crore instead relying predominantly on CCDs. The Court held that CCDs, given their mandatory conversion into equity, should be treated as equity instruments thereby satisfying the Plan’s requirements in line with the CoC’s commercial wisdom. Consequently, the SRA – JSW reclassified Jaldhi Overseas Pte. Limited as a contingent creditor. The Court found this classification appropriate particularly given that foreign arbitral awards do not automatically become enforceable in India.
Initially Jaldhi Overseas Pte. Limited presented international arbitral awards in its favour and sought priority treatment as an operational creditor. However, after shifting its stance the SRA – JSW reclassified Jaldhi as a contingent creditor. The Court found this classification appropriate given that foreign arbitral awards do not automatically become enforceable in India. Operational creditors Medi Carrier Private Limited and CJ Darcl Logistics Limited contended that pre-CIRP payments promised as incentives were improperly adjusted post-CIRP via a corrigendum citing an accounting error. The Court noted that there was no CoC-approved agreement authorising such adjustments and these payments were found to be incidental errors rather than bona fide pre-CIRP commitments. The Court emphasised that the IBC’s primary objective is to expedite the resolution process and ensure the corporate debtor remains a going concern.
