Supreme Court Rehears JSW-BPSL Plan; Leaves NCLT-PMLA Jurisdiction Issue Open

New Delhi – In a significant turn of events in the protracted insolvency saga of Bhushan Power and Steel Ltd (BPSL), the Supreme Court has commenced a fresh hearing of appeals concerning JSW Steel's ₹19,700 crore resolution plan. While the fate of the resolution plan hangs in the balance, a crucial jurisdictional conflict between the Insolvency and Bankruptcy Code (IBC) and the Prevention of Money Laundering Act (PMLA) has taken centre stage, with the Court choosing to leave the pivotal legal question open for now.

A bench led by Chief Justice of India BR Gavai, alongside Justices Satish Chandra Sharma and K Vinod Chandran, is hearing the matter afresh after recalling a May 5, 2023, judgment that had previously rejected the JSW plan and ordered BPSL's liquidation. During the hearing, Solicitor General (SG) Tushar Mehta, representing the Committee of Creditors (CoC), made a compelling plea to salvage a key observation from the now-recalled judgment concerning the powers of the Enforcement Directorate (ED).

The Core Jurisdictional Dilemma: IBC vs. PMLA

The central legal issue revolves around whether the National Company Law Tribunal (NCLT) and its appellate body, the NCLAT, have the authority to review or interfere with actions taken by the ED under the PMLA, especially concerning the attachment of a corporate debtor's assets.

The NCLAT had previously held that under Section 32A of the IBC, once a resolution plan is approved, the ED cannot attach the corporate debtor's assets and that criminal investigations against the corporate debtor would abate. It declared the ED's attachment of BPSL's assets "illegal or without jurisdiction."

However, the May 5 Supreme Court judgment, authored by a bench of Justices Bela M Trivedi and Satish Chandra Sharma, had sharply criticized this stance. It observed that the NCLT and NCLAT derive their powers from the Companies Act, 2013, and their jurisdiction under the IBC is circumscribed. The bench stated, "The PMLA being a Public Law, the NCLAT did not have any power or jurisdiction to review the decision of the Statutory Authority under the PMLA."

Appearing for the CoC, SG Tushar Mehta argued that while he supports the JSW resolution plan, these observations from the May 5 judgment should be sustained. He submitted that he supported the judgment to the extent that it holds that the NCLT cannot interfere with orders passed under the PMLA. However, CJI Gavai responded that the Court would leave that issue of law open, a discretionary decision the SG accepted. This move signals the Court's intention to possibly address this complex interplay between two powerful statutes in a more appropriate future case, without letting it derail the current insolvency resolution.

Arguments Unfold in Fresh Hearing

The fresh hearing has brought multiple stakeholders to the fore, each presenting a distinct perspective on the troubled resolution process.

Erstwhile Promoters' Challenge: Senior Advocate Dhruv Mehta, representing the erstwhile promoters of BPSL, launched a strong attack on the implementation of the resolution plan by JSW Steel. He contended that JSW had faltered on its commitments, infusing only ₹100 crores in equity against a promised ₹8,000 crores and making an upfront payment of just ₹540 crores to financial creditors. He also highlighted a 900-day delay in payments to operational creditors.

Mehta argued that the promoters desire a fresh Corporate Insolvency Resolution Process (CIRP) rather than liquidation. On the critical question of their right to challenge the plan, he invoked Sections 61 and 62 of the IBC, asserting that as "any person aggrieved," the promoters have the locus standi to appeal orders that directly affect them.

CoC's Stand on Commercial Wisdom and Promoters' Locus: Countering the promoters' arguments, SG Tushar Mehta vehemently defended the CoC's decision to back the JSW plan and questioned the promoters' standing to intervene. He emphasized a foundational principle of the IBC: its "creditor-driven" nature, where the "commercial wisdom of the CoC can never be interfered with."

The SG sharply criticized the promoters, stating, "Who are these people? They have defalcated the company's money to the tune of thousands of crores... They are facing severe criminal charges against them, and in which way they were entering- whether this was rightly given, whether the equity was infused- it's none of their business in law." This underscores the CoC's position that those responsible for the company's downfall should not be permitted to dictate the terms of its revival.

Plight of Other Creditors: The hearing also shed light on the grievances of other creditors. Senior Advocate Balbir Singh, appearing for a Singaporean shipping company, explained that his client, an operational creditor with an arbitral award of S$152 crores, was initially promised 50% of its claim. However, the Resolution Professional and JSW later reclassified the claim as "contingent," drastically reducing the payout to 10%. Singh argued that a Successful Resolution Applicant (SRA) cannot unilaterally alter the nature of a creditor's claim.

Additionally, ASG KM Natraj, for the State of Odisha, raised issues of pending entry tax and electricity dues. The bench, however, dismissed these appeals on procedural grounds, noting that the government had either failed to file its claim in time or had accepted a reduced amount without challenging it at the NCLAT.

Background: A Judgment Recalled

The current proceedings stem from the Supreme Court's decision to recall its own judgment from May 5, 2023. That judgment had not only rejected the JSW plan but also directed the liquidation of BPSL under Article 142 of the Constitution. It had found that JSW wilfully failed to comply with the plan's terms for two years post-approval and that the CoC had not exercised its commercial wisdom judiciously.

Following review petitions by JSW, Punjab National Bank, and other creditors, a new bench led by CJI Gavai issued notice and agreed to an open court hearing, finding prima facie that the May 5 judgment was contrary to established legal precedents.

Implications for Legal Practitioners

The BPSL case continues to be a crucible for testing the limits and interplay of India's corporate and criminal laws.

1. Jurisdictional Clarity Awaited: The Supreme Court's decision to leave the NCLT-PMLA jurisdiction question open is significant. While it avoids complicating the current resolution, it leaves a critical gap in legal certainty. Practitioners will have to continue navigating the conflicting positions of the NCLAT and the ED until the apex court provides a definitive ruling. This uncertainty affects how resolution applicants and creditors assess risks related to assets under ED investigation.

2. Locus of Erstwhile Promoters: The Court's final view on the locus of promoters to challenge a resolution plan will be closely watched. While the IBC framework is designed to be creditor-centric, the interpretation of "aggrieved person" under Section 61 remains a point of contention that could influence future insolvency litigation.

3. Sanctity of CoC's Commercial Wisdom: The case will likely reaffirm the judiciary's deference to the commercial wisdom of the CoC, but with a potential emphasis on the CoC's duty to scrutinize a resolution applicant's ability and intent to implement the plan.

As the hearing continues, the legal community awaits a judgment that could not only determine the future of a major steel asset but also refine the contours of India's evolving insolvency jurisprudence.