Supreme Court Bolsters IBC: CoC Exists Until Resolution Implemented, Reversing Prior Liquidation Order in JSW-Bhushan Steel Saga

New Delhi – In a landmark judgment that provides crucial clarity on the Insolvency and Bankruptcy Code, 2016 (IBC), the Supreme Court has ruled that the Committee of Creditors (CoC) does not become functus officio upon the approval of a resolution plan. A Bench led by Chief Justice of India B.R. Gavai held that the CoC's role and existence persist until the resolution plan is fully implemented or a liquidation order is passed, thereby ensuring continuous oversight and safeguarding creditor interests.

The ruling came as the apex court upheld JSW Steel's takeover of Bhushan Power and Steel Ltd (BPSL), dramatically reversing its own earlier judgment from May 2025 that had quashed the resolution plan and ordered BPSL's liquidation. The decision puts a definitive end to one of India's most protracted and contentious insolvency cases, reinforcing the IBC's primary objective of corporate revival over liquidation.

The Core Legal Question: The Lifespan of the CoC

The central legal issue revolved around the status of the CoC after a resolution plan receives the green light from the Adjudicating Authority (the National Company Law Tribunal or NCLT). The erstwhile promoters of BPSL argued that once the NCLT approved JSW's plan, the CoC's mandate was complete, rendering it functus officio and legally incapable of further action, including participating in subsequent legal challenges.

The Supreme Court emphatically rejected this contention, warning of the "anomalous situation" it would create. The judgment, authored by CJI Gavai, observed that accepting this argument would leave creditors "high and dry" if a successful resolution applicant failed to implement the approved plan for any reason.

“It may lead to a situation wherein though the Resolution Plan is approved by the Adjudicating Authority, however it is not implemented for 'a' reason or 'b' reason thereby leaving the creditors high and dry. If the contention is accepted, the creditors would not be in a position to take any steps that are found necessary for realizing its dues from the Corporate Debtor,” the Court stated.

The Bench, also comprising Justices K. Vinod Chandran and N.V. Anjarai, found clear legislative intent supporting the CoC's continued existence. Relying on the Explanation to Clause 2 of Regulation 18 of the IBBI (CIRP) Regulations, the court noted that the CoC is expressly empowered to hold meetings until the plan is approved under Section 31(1) of the IBC or a liquidation order is passed under Section 33. This framework, the court clarified, extends to the crucial implementation phase.

Solicitor General of India Tushar Mehta, appearing for the CoC, successfully argued that Sections 21, 23, and 28 of the IBC, read with Regulation 38 of the CIRP Regulations, support the CoC’s continuing authority, often exercised through a Monitoring Committee, to supervise the plan’s execution.

A Dramatic Reversal and Reaffirmation of IBC Principles

The judgment is particularly significant as it arose from review petitions filed against a May 2, 2025, order by a different Supreme Court bench. That earlier order had invoked the extraordinary powers under Article 142 of the Constitution to direct BPSL's liquidation, citing procedural infirmities and delays in implementation by JSW Steel.

In its detailed review, the current Bench found that the previous judgment had not fully appreciated the legal position or the facts on the ground. The court highlighted that BPSL, once a heavily loss-making entity, had been transformed into a profitable enterprise under JSW's management.

“The Successful Resolution Applicant (SRA) JSW invested huge amounts in modernisation and expansion of the entity (corporate debtor). Not only that, but thousands of employees have been earning their livelihood on account of the corporate debtor running as an ongoing concern due to the resolution plan being implemented by the SRA-JSW,” the court observed. "If, after the implementation of the Resolution Plan, the SRA–JSW has converted a loss-making entity into one making profits, can it be penalised for that?”

The court also attributed the implementation delays not to JSW Steel but to external hurdles, including proceedings initiated by the Enforcement Directorate (ED) against BPSL's former management, which prevented the CoC from handing over unencumbered assets as required by the plan. The Bench further chastised the erstwhile promoters for their conduct, noting they had filed "frivolous applications" and made repeated attempts to "thwart the CIRP."

Upholding the Commercial Wisdom of Creditors

The judgment serves as a powerful reaffirmation of the principle of "commercial wisdom of the CoC." The court cautioned against judicial interference in the decisions made by the creditors, who are best positioned to evaluate the viability and feasibility of a resolution plan.

"Permitting the erstwhile promoters or the CoC to raise an argument in that regard at such a belated stage would amount to doing violence to the very intention with which the IBC was enacted," the Bench asserted.

The court reiterated established jurisprudence that the CoC's commercial decisions are non-justiciable unless they contravene the mandatory provisions of the IBC. This principle extends to decisions made during the implementation phase, such as granting extensions to the resolution applicant when faced with unforeseen obstacles.

In this context, the court also settled other contentious issues. It upheld the NCLAT's decision that the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) generated by BPSL during the CIRP belongs to the corporate debtor and is not to be distributed among creditors. It also affirmed that Compulsorily Convertible Debentures (CCDs) infused by JSW are to be treated as equity, not debt, further strengthening the financial footing of the revived company.

Implications for Insolvency Practitioners and Stakeholders

This definitive ruling from the Supreme Court has far-reaching implications for the insolvency landscape in India:

1. Empowerment of the CoC: The judgment clarifies that the CoC's role is not merely to approve a plan but to see it through to fruition. This empowers creditors to form Monitoring Committees and take necessary actions to ensure the successful implementation of the resolution.
2. Certainty for Resolution Applicants: Successful Resolution Applicants (SRAs) can now be more confident that the CoC can work with them to navigate post-approval challenges, such as litigation or regulatory hurdles, without the threat of the plan being summarily voided.
3. Strengthening the 'Revival' Objective: By overturning a liquidation order and focusing on the successful turnaround of the corporate debtor, the court has sent a clear message that revival is the soul of the IBC. Liquidation is, and must remain, the absolute last resort.
4. Finality of Approved Plans: The court warned that allowing new claims or challenges to pop up after a plan's approval would "open a pandora’s box" and create "hydra heads" of litigation, undermining the finality and sanctity crucial for the IBC's success.

By resolving these critical questions, the Supreme Court has not only brought finality to the BPSL case but has also fortified the legal architecture of the Insolvency and Bankruptcy Code, ensuring it remains an effective tool for corporate rescue and economic value preservation.