Big order, big impact: JSW Steel’s Bhushan Power buyout cancelled by SC over IBC violations

Mumbai: The Supreme Court has rejected the resolution plan submitted by JSW Steel for Bhushan Power and Steel, terming it illegal and a "flagrant violation" of the Insolvency and Bankruptcy Code, under which the steel company was acquired. ET's Maulik Vyas and Nikita Periwal explains:

Why has the SC struck down the resolution plan?

The apex court has struck down the resolution plan mainly on two grounds: one, JSW Steel did not implement the resolution within the prescribed timeline; and two, the company funded the buyout using a mix of equity and debt, whereas it should have been only equity.


Will banks be impacted by the order?

Banks such State Bank of India and Punjab National Bank are likely to be impacted if the liquidation order is final as they will have to refund the money paid by JSW Steel at the time of the resolution. Whether or not interest charges will be levied is not known yet.

Ashish K Singh, managing partner of law firm Capstone Legal, said the lenders will have to appoint a liquidator for the liquidation process.

"Initially, the liquidator will call bidders to acquire the company as a going concern and, in case, if the lenders don't get any viable offer, then the company will be sold in pieces or on an asset-to-asset basis," Singh said. "After the liquidator is appointed, the first critical step is to ensure that the assets of the company are secured and protected from further depletion. Since this matter has multiple stakeholders, the liquidator has a mammoth task ahead."

What is the legal recourse for JSW Steel?

Ashish Pyasi, partner at law firm Aendri Legal, said JSW Steel can approach the Supreme Court to review the order. If the review petition fails, then it has the option of filing the curative petition, which will be decided by a larger bench.

"If the company is put into liquidation because the resolution plan is rejected on the ground that the same was not in compliance with the law, then the resolution applicant can participate in the liquidation process. However, if the resolution plan is not implemented, then that applicant cannot participate in the liquidation process," Pyasi said.

How did Bhushan Steel end up under the IBC?

The steelmaker was among the earliest companies to be referred to the bankruptcy courts by the Reserve Bank of India in 2017, when it owed lenders ₹47,000 crore. Among those interested in acquiring the asset were Tata Steel and Vedanta.

Why did JSW Steel acquire Bhushan Power?

The buyout of Bhushan Power helped JSW Steel foray into the iron-ore rich eastern markets of India, where Steel Authority of India and Tata Steel have traditionally commanded most of the market share. Its plant in Jharsuguda in Odisha is close to JSW Steel's captive iron ore mines in the state.

How has Bhushan Power fared?

Bhushan Power became a subsidiary of JSW Steel in October 2021, when JSW Steel increased its stake in the company to 83.28% from 49% earlier.