Steely resolve

Last week, in an unusual but welcome act of self-correction, a three-judge review Bench led by Chief Justice B.R. Gavai reversed a previous order of the Court in the Bhushan Steel insolvency case. 

On 2 May, a two-judge bench of Justices Bela M. Trivedi (since retired) and S.C. Sharma had ordered the liquidation of Bhushan Steel despite the completion of its acquisition by JSW for ₹19,700 crore in 2021. The takeover had taken place under the process mandated under the Insolvency and Bankruptcy Code, 2016 (IBC). JSW’s share price had dropped steeply following the 2 May Order, considering Bhushan Steel was slated to contribute more than 10 percent to JSW’s EBITDA for FY 25-27. 

In July, we published a commentary by commercial lawyer Srinivas Kotni, where he argued that the Order undermined years of painstaking resolution efforts and investments by JSW. He noted that the Court’s “unwinding of the entire resolution based on technicalities” had sent “an alarming signal to stakeholders.” 

Kotni stands vindicated now. “The Court has sent a strong signal to investors that commercial certainty and the sanctity of the resolution process will be upheld,” he told me, “Justice demands a contextual lens, especially when thousands of crores of investments, hundreds of jobs and economic revival is at stake.” 

In its reversal, the three-judge Bench reaffirmed that the IBC seeks to revive viable companies rather than consigning them to liquidation, which was always meant to be the last resort. As one commentator put it, liquidation often results in “economic destruction: assets are sold piecemeal, employees lose jobs, creditors recover a pittance.” 

The review Bench accepted the argument—made by JSW and the Committee of Creditors—that the setbacks in implementing the Resolution Plan were due to attachments by the Enforcement Directorate, regulatory hurdles and obstruction by the former promoters. The 2 May Order had come down hard on JSW and the CoC for procedural irregularities and delay, but the review Bench acknowledged that JSW could not be punished for factors it had no control over. 

One commentator described the 2 May verdict as a case of  “clever lawyering” hurting investor confidence. Another observer noted that the two-judge Bench’s single-minded emphasis on the 330-day outer limit for resolution had ignored the complexity of resolving large entities with multiple stakeholders. 

Last week’s ruling, however, reaffirmed that the CoC’s commercial judgement must prevail unless it is marred by illegality or bad faith. It noted that courts must refrain from micromanaging business decisions once the creditors have taken a considered call.

The three-judge Bench also censured the conduct of the former promoters, noting that their litigation strategy was aimed solely at stalling the resolution process. It reaffirmed the narrowing of the ‘person aggrieved’ test by denying them the locus to challenge key parts of the process once proceedings under the IBC were under way. Once the Resolution Professional is in charge, the Court said, renegotiating valuation is off the table. 

By restoring the February 2020 order of the National Company Law Appellate Tribunal, the Court made it clear that the procedure under the IBC cannot be reduced to a mechanical checklist—it is a living framework that demands both speed and sensitivity to economic realities. 

While the business and insolvency community has welcomed the reversal, one wonders whether it could create a faultline in future litigation under the IBC. In the present case, JSW had taken a year-and-a-half to meet a 30-day implementation timeline. By accepting the steel giant’s justification for delay, has the Court opened the door for leniency towards resolution applicants, especially when the financial stakes are high? The Court’s recent penchant for revisiting its own decisions has raised questions about its commitment to the finality principle, but there’s also a view that such reversals are inevitable in a polyvocal court. 

In this case, however, the three-judge Bench’s candid acknowledgement that the two-judge Bench made flawed assumptions and overlooked material facts bolsters the Court’s authority. This particular U-turn feels justified, for it puts fidelity to statutory purpose ahead of loophole-based lawyering.

This article was first featured in SCO’s Weekly newsletter. Sign up now!

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