Supreme Court Reserves Verdict in JSW-Bhushan Power Case, Probing CoC Powers and EBITDA Claims

New Delhi - The Supreme Court of India has reserved its judgment in the high-stakes dispute concerning JSW Steel's ₹19,700 crore resolution plan for Bhushan Power and Steel Ltd (BPSL), a case poised to set critical precedents in Indian insolvency jurisprudence. A special bench comprising Chief Justice B.R. Gavai and Justices Satish Chandra Sharma and K. Vinod Chandran concluded extensive hearings involving JSW Steel, the Committee of Creditors (CoC), and the erstwhile promoters of BPSL.

The decision comes after the Court, in a rare exercise of its review power, recalled its own May 2, 2024, judgment that had directed the liquidation of BPSL. The earlier verdict had scuttled JSW's acquisition, citing "flagrant violations" of the Insolvency and Bankruptcy Code (IBC) by various stakeholders. The fresh hearing has brought to the forefront fundamental questions about the powers of the CoC post-plan approval, the rightful claimant to profits generated during the resolution process, and the finality of an approved resolution plan.

At the heart of the renewed legal battle lies a multi-billion-rupee claim and complex questions of law that could reshape the landscape for future insolvencies.

The Core Legal Conundrums

The arguments presented before the bench delved into several intricate legal issues, with the verdict expected to provide clarity on matters that have long vexed insolvency practitioners.

1. The Longevity and Authority of the Committee of Creditors (CoC)

A primary point of contention is whether the CoC retains its powers and legal existence after a resolution plan is approved by the Adjudicating Authority (NCLT) but before all appellate proceedings are exhausted.

Solicitor General Tushar Mehta, arguing for the CoC, advanced a robust defense for the committee's continued existence and authority. He contended that the CoC, once constituted under Section 21 of the IBC, remains functional until the Supreme Court delivers its final verdict. He built his argument on a combined reading of Sections 23 and 28 of the IBC.

The proviso to Section 23(1) mandates that the Resolution Professional (RP) continues to manage the corporate debtor's operations until a plan is approved or a liquidator is appointed. Section 28, in turn, requires the RP to seek the CoC's approval for key decisions. The SG argued that since the RP’s functions are contingent on CoC approval, the CoC must logically continue to exist as long as the RP is managing the company.

"The end date ( of CoC) is till yourlordship decides this appeal but till then we exist, when we exist we have the power to exercise our commercial wisdom," the Solicitor General submitted, invoking Section 14 of the General Clauses Act to argue that the power to act includes the power to do so "from time to time as occasion requires."

Conversely, Senior Advocate Dhruv Mehta, representing BPSL's former promoters, argued that the CoC becomes functus officio —its authority ceases—once the NCLT approves the resolution plan. According to this view, the CoC has no power to revisit or modify the plan, and any disputes over non-compliance should be referred back to the NCLT.

2. The ₹6,155 Crore Question: Who Owns the EBITDA?

A major flashpoint in the dispute is the CoC's claim for approximately ₹6,155 crore, comprising ₹3,569 crore in Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) generated by BPSL during the prolonged CIRP, plus ₹2,500 crore in interest for alleged implementation delays.

Senior Advocate Neeraj Kishan Kaul, representing JSW Steel, vehemently opposed this claim. He argued that JSW's bid was made on an "as is, where is" basis, meaning it accepted all potential profits and losses of the company. He stressed that neither the Request for Resolution Plan (RFRP) nor the approved plan contained any provision for sharing EBITDA with creditors.

“When I bid, I am ready to take the loss and profit… Because losses are cut down, it’s still not profit,” Kaul stated, responding to a query from the CJI about unjust enrichment. "Had the RFRP provided for it, I would have bid accordingly. I took a risk and tailored my bid accordingly... The rules of the game are being altered."

The CoC, however, maintains that this operational profit should accrue to the creditors, who have borne the financial brunt of the company's default. The outcome of this specific issue could introduce a new dynamic into how resolution plans are structured and valued, particularly in cases with lengthy resolution timelines.

3. The Blame Game: Delays and Locus Standi

The cause of the multi-year delay in implementing the plan after its initial approval remains a fiercely debated topic. JSW Steel squarely blames the Enforcement Directorate (ED) for its "persistent and stubborn" provisional attachment of BPSL's assets, which, they argue, prevented the transfer of an unencumbered company as a going concern. Kaul pointed out that the CoC itself had previously acknowledged on affidavit that ED actions were the cause of the delay.

However, the erstwhile promoters alleged that JSW deliberately delayed implementation to benefit from soaring steel prices while failing to infuse promised working capital. They defended their right to challenge the plan's implementation, citing their status as personal guarantors.

The Solicitor General sharply rebuffed the promoters' involvement, describing the case as "one of the worst cases of siphoning" he had witnessed and asserting that the promoters who "brought the company to dust" have no standing to object.

The Road to a Re-Hearing: An Extraordinary Recall

The current proceedings are a direct result of the Supreme Court's decision on July 31, 2024, to recall its May 2 judgment. The May 2 verdict, delivered by a bench including the now-retired Justice Bela M. Trivedi, had not only rejected JSW’s plan but also ordered BPSL’s liquidation under Article 142 of the Constitution. The bench had found willful non-compliance by JSW and held that the CoC had failed to exercise its commercial wisdom appropriately.

Following the verdict, JSW Steel and major lenders, including Punjab National Bank, swiftly filed review petitions. The new bench, led by CJI Gavai, found it a "fit case" to recall the judgment and hear the matter afresh, leading to the current extensive arguments and the reserved verdict.

Implications for India's Insolvency Regime

The forthcoming judgment is one of the most anticipated decisions in the IBC's history since the landmark Essar Steel case. Its ramifications will be far-reaching:

Clarity on CoC's Role: It will define the operational lifespan and powers of the CoC during the appellate stages, clarifying whether its "commercial wisdom" extends beyond NCLT approval.

Treatment of Interim Profits: The ruling on EBITDA will set a precedent for how operational profits generated during CIRP are treated, potentially impacting how bidders value assets and structure their offers.

Finality of Resolution Plans: The decision will reinforce or redefine the sanctity and finality of a resolution plan once approved, and how external factors like actions by government agencies affect its implementation.

Role of Erstwhile Promoters: The Court may provide definitive guidance on the locus standi of former promoters in challenging the implementation of a resolution plan, especially in cases involving allegations of fund siphoning.

As the legal and business communities await the Supreme Court's final word, the outcome in the JSW-BPSL saga will undoubtedly mark a pivotal moment in the evolution of India’s insolvency law.