Well Judged
SC right in withdrawing own order on Bhushan Steel. But GOI must finetune aspects of insolvency law
SC's recall of its order from May that reversed JSW Steel's $2.3bn acquisition of the bankrupt Bhushan Power & Steel Ltd in 2021, is wholly welcome. The May order had considered two technical grounds: one, the eight-year timeline and two, fact that JSW completed the takeover with a mix of equity and optionally convertible debentures, when it should have used equity alone. SC had also found adjudicatory bodies NCLT and NCLAT lacked jurisdiction and set aside their approvals – IBC's Section 32A that says that on approval of a plan, new investors would not inherit criminal liabilities of previous promoters & directors was a key sticking point. But SC's position was that such immunity could not override statutes like PMLA. SC's focus was entirely on statutory compliance of the takeover process.
As TOI and our columnists wrote, SC's reversing the revival of a mismanaged corporate entity was a big blow to India's insolvency framework. Not only would it hurt JSW lenders and workers, but it would also affect investor sentiment and prospects of finding buyers for other insolvent companies. Investors would run scared. On Thursday, SC said the May order had not correctly considered precedents. IBC, introduced in 2016, is one of India's most significant reforms – enacted to revive distressed assets, protect employment and maximise stakeholder value. SC reversing its own order is an opportunity to also finetune jurisdictions and boundaries. As the case proceeds, GOI should also explore legislative or institutional redress for a clarity of roles for NCLT and NCLAT, especially in light of SC's questions on application of Section 32A. Finality of insolvency proceedings is IBC's fundamental base.
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This piece appeared as an editorial opinion in the print edition of The Times of India.
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