In a resounding victory for corporate revival and a course correction for India’s insolvency framework, the Supreme Court has upheld JSW Steel’s resolution plan for the debt-ridden Bhushan Power & Steel Ltd (BPSL), firmly establishing that a successful resolution applicant cannot be penalised for breathing new life into a loss-making entity. The verdict, which reverses the apex court’s own controversial May 2025 order, marks a pivotal moment, restoring faith in the Insolvency and Bankruptcy Code and affirming its core objective: value maximisation through resolution, not liquidation.
The ruling brings a dramatic and long-awaited end to one of the most protracted and legally convoluted insolvency battles in recent memory. At its heart, the case was a test of the “clean slate” principle, a foundational tenet of the IBC that allows new management to take over a stressed asset unencumbered by the liabilities and legal baggage of its past. The judgment provides much-needed clarity on the interplay between the IBC and other laws, particularly the Prevention of Money Laundering Act and reinforces the sanctity of the “commercial wisdom” of the Committee of Creditors.
Saga of Legal Battles and Shifting Fortunes
The JSW Steel-BPSL saga began in 2017 when BPSL was flagged as one of the 12 major corporate defaulters by the Reserve Bank of India, owing over ₹47,000 crore to lenders. After a hotly contested bidding process, JSW Steel emerged as the top bidder with a resolution plan of ₹19,700 crore, outmanoeuvring competitors like Tata Steel. The plan was overwhelmingly approved by the CoC and subsequently by NCLT in 2019 and NCLAT in 2020.
However, a series of legal challenges from the former promoters and other creditors, along with the Enforcement Directorate’s attachment of BPSL’s assets, stalled the implementation for years. Despite these hurdles, JSW Steel took control in March 2021 and, by its own account, successfully turned the company around, doubling its production capacity and converting it into a profitable enterprise.
The entire edifice of this revival was put at risk by the Supreme Court’s May 2025 judgment, which set aside JSW’s plan and ordered liquidation. That verdict, which found fault with the CoC’s conduct and procedural lapses, sent shockwaves through the financial and legal sectors. It forced banks to return the funds they had already received from JSW and created a precarious situation for the thousands of jobs at BPSL. It was seen by many as a chilling message to prospective investors: that even a court-approved and implemented turnaround could be undone on technical grounds.
Reaffirming Core Legal Principles
The recent judgment, in a special hearing, meticulously dissects the legal issues and rights of the wrongs of the previous order. The three-judge bench, led by Chief Justice B.R. Gavai correctly identified the key legal principles at stake.
1. The Sanctity of Commercial Wisdom: The Court unequivocally reaffirmed that the CoC’s “commercial wisdom” in approving a resolution plan is supreme and should not be second-guessed by judicial authorities unless there is clear evidence of malfeasance. The bench noted that invalidating a plan approved by over 97% of lenders would be “committing violence” on the provisions of the IBC. This is a critical point that restores the autonomy of the creditors and their collective decision-making.
2. Section 32A and the “Clean Slate” Doctrine: The verdict is a robust vindication of Section 32A of the IBC. Introduced in 2020, this section was designed to protect new management from being held liable for offenses committed by the previous regime, thereby giving the corporate debtor a “clean slate.” The Court recognised that the delays in this case were not attributable to JSW Steel but were caused by the ED’s asset attachments. By ruling that the new owners cannot be penalised for the actions of the old, the judgment has given teeth to this crucial provision and strengthened the confidence of future resolution applicants. It ensures that the assets of a revived company are ring-fenced from pre-CIRP criminal liabilities, provided there is a complete change in management.
3. The Primacy of Resolution over Liquidation: The ruling sends a strong signal that the IBC’s primary objective is to revive a company as a “going concern” and not to liquidate it. The Court acknowledged JSW Steel’s efforts in turning around BPSL and rightly concluded that ordering liquidation at this stage would have been a disastrous outcome for the company, its employees, and the banking system. The decision underscores that legal processes must facilitate, not frustrate, economic revival.
A Way Forward: Learning from the Experience
This landmark judgment offers an opportunity for reflection and for strengthening India’s insolvency regime. To prevent similar legal deadlocks in the future, a multi-pronged approach involving legislative, regulatory, and procedural reforms is essential.
Strategic & Regulatory Solutions
1. Proactive Legal Integration: The government and the IBBI should establish a mandatory, pre-approval legal clearance mechanism for resolution plans involving companies with ongoing criminal investigations. A dedicated joint committee of the IBBI and investigative agencies like the ED could provide a “no-objection” certificate or set clear conditions before the resolution plan is approved. This would prevent post-facto legal challenges and asset attachments that derail the CIRP.
2. Statutory “Value-Preservation” Mandate: The IBC should be amended to legally bind courts to consider the “value-preservation” and “going concern” principles as a primary factor in their judgments. This would provide a statutory framework for judicial discretion, ensuring that the legal process does not lead to the destruction of economic value.
3. Fast-Track Regulatory Framework: The IBBI could create a new regulatory “fast-track” for CIRP cases where a company is successfully revived. This would streamline the review process for such cases, rewarding successful turnarounds and providing legal certainty to resolution applicants who have delivered on their commitments.
Government-Level Reforms
1. Harmonize Central Laws: The government must undertake a comprehensive legislative review to harmonize the IBC with other central laws, including the PMLA and the Companies Act. This will eliminate jurisdictional overlaps and prevent future legal conflicts that undermine the IBC’s effectiveness.
2. Strengthen Adjudicating Authorities: To ensure timely and well-informed judgments, the government should invest in strengthening the NCLT and NCLAT with more funding, specialized manpower, and training. Appointing dedicated benches with expertise in insolvency law can help expedite complex cases and build a more predictable and trustworthy legal ecosystem.
3. Build a “Clean Slate” Awareness: A concerted effort is needed to educate all stakeholders—from investors to legal professionals—about the “clean slate” principle under Section 32A. This will attract more investors to distressed assets by assuring them that their investments are protected from the historical liabilities of the corporate debtor.
Conclusion
The Supreme Court’s final verdict in the JSW Steel-BPSL case is more than just a judgment; it is a powerful reaffirmation of the IBC’s original intent. It signals that the Indian legal system prioritises economic revival and will not allow procedural quibbles to destroy a company that has been successfully turned around. By restoring confidence in the insolvency resolution process, the ruling paves the way for a more robust and predictable investment environment, cementing the IBC’s role as a cornerstone of India’s economic progress.
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