Centre Mulls Response After Supreme Court Rejects JSW Steel’s INR 19,350 Crore BPSL Resolution Plan

The Indian government has indicated it will thoroughly scrutinize the Supreme Court's recent decision to nullify the INR 19,350 crore resolution plan for Bhushan Power & Steel Ltd (BPSL) that was submitted by JSW Steel. Department of Financial Services (DFS) Secretary M. Nagaraju said in Mumbai that talks have been held with the concerned lenders and legal advisers, and that the matter is under active consideration. A final decision, involving possible legal remedies, will be made soon.

This development follows the court's order on Friday that pointed to significant delays in working out the resolution plan and in JSW's failure to meet upfront payment obligations, in all respects, it seemed, to get the company rehabilitated within the stipulated timeline. In other instances where the NCLT has intervened, it has recommended working out differences between creditors and debtors rather than completely rewiring a resolution scheme that had already been approved.

Major State Lenders Impacted by Reversal

The directive from the Supreme Court has immediate and significant financial ramifications for major state-run banks such as the State Bank of India (SBI) and Punjab National Bank (PNB), both of which were leading creditors to BPSL. According to the directive, financial creditors must return to BPSL sums of money that they received from JSW Steel, including any payments that might have been made in the form of post-resolution equity.

JSW Steel and the creditor banks can challenge the apex court's judgment by filing a review petition. But legal experts say the usual scenario of reversing an order that had earlier set a resolution plan in motion was not expected. Indeed, in this case, the apex court did not just stay the order earlier passed by the NCLAT but set it aside as well.

Legal Uncertainty May Deter Future Bidders

The order of liquidation, coming close to four years after the corporate insolvency resolution process was completed, has drawn a good bit of criticism from both legal and financial observers. They say that delay after the appearance of a promise of a time-bound and efficient resolution framework injects ambiguity into what is supposed to be a clear, efficient, and fast resolution to a corporate insolvency. That, they say, could make future resolution applicants more hesitant to make aggressive bids for distressed assets through insolvency courts.

Nagaraju recognized that several legal avenues are still open and told stakeholders to expect a carefully calculated strategy to be unveiled as soon as internal consultations are wrapped up. For now, though, the decision has intensified the conversation about how consistent our judges can be and how safe we should feel in the IBC regime.

Concerns Over Future of Debt Recovery Through IBC

Since the Insolvency and Bankruptcy Code was instituted in December 2016, banks have managed to recover better than 31 percent of admitted claims. More often than not, they have realized over 160 percent of the liquidation value. They would have realized even more had the JSW-BPSL case not threatened to disrupt this trend.

Experts caution that unless corrective measures are put in place, creditor confidence in the IBC process could decrease, which might lead to fewer aggressive resolution efforts. If the attention keeps coming, the flow of capital and interest in reviving financially stressed firms through well-structured processes might also decrease, reversing the substantial progress made in India's insolvency framework.