Author:Bidisha Saha
Abstract
The Supreme Court’s judgment in Kalyani Transco v. Bhushan Power & Steel Ltd. marks one of the most consequential developments in India’s insolvency jurisprudence in recent years. What began as a conventional challenge by operational creditors evolved into a larger debate on transparency, statutory discipline, and the limits of the Committee of Creditors’ discretion under the Insolvency and Bankruptcy Code, 2016 (IBC). This article examines the case through the lens of procedural justice, statutory mandates, and judicial oversight, evaluating how the Court balanced commercial considerations with legal certainty. It further explores how the decision reshapes the role of Resolution Professionals, recalibrates creditor expectations, and influences India’s insolvency ecosystem going forward.
Introduction
The Insolvency and Bankruptcy Code, 2016 revolutionized India’s corporate resolution landscape by introducing a time-bound, creditor-driven mechanism to rescue distressed companies. However, the implementation of the Code has not always followed the discipline envisioned by Parliament. The Bhushan Power & Steel Ltd. (BPSL) case exemplifies the tension between commercial goals and procedural rigor.
Once among India’s major steel manufacturers, BPSL became entangled in severe financial distress owing to persistent defaults, mismanagement, and market instability. When its insolvency process was initiated, it attracted strong interest from major corporate entities. Ultimately, JSW Steel’s resolution plan was approved. However, this approval triggered challenges from several operational creditors, including Kalyani Transco, who alleged statutory violations, procedural lapses, and discriminatory treatment.
What makes this case significant is not merely the dispute over financial distribution but the broader systemic concerns it exposed: ineffective due diligence, flawed claim verification, stretched timelines, and inconsistent treatment of stakeholders. The Supreme Court was compelled to determine whether commercial wisdom alone can sustain a resolution plan when core legal requirements are overlooked.
This article unpacks the Court’s approach and presents a holistic view of how the BPSL judgment strengthens procedural sanctity while still supporting India’s larger goal of economic revitalization
Use of Legal Jargons (Explained Simply)
The BPSL judgment frequently invokes technical legal terms. Below, each major term is explained in accessible language:
1. Corporate Insolvency Resolution Process (CIRP)
The structured legal process under the IBC through which the affairs of a financially distressed company are assessed and revived through a resolution plan.
2. Committee of Creditors (CoC)
A group of financial creditors who control the fate of the corporate debtor. They vote on resolution plans based on commercial viability.
3. Commercial Wisdom
A judicially recognized principle that courts do not question business decisions of the CoC unless there is illegality or fraud.
4. Resolution Professional (RP)
A neutral officer appointed to manage the company during CIRP. The RP ensures compliance with statutory rules and verifies eligibility of applicants.
5. Section 29A Ineligibility
A provision that disqualifies certain persons—particularly defaulting promoters—from regaining control of their companies.
6. Operational Creditors
Entities providing goods or services to the company. They often receive smaller payouts in CIRP but must be treated fairly.
7. Finality of Resolution Plan
Once the plan is approved by the CoC and the adjudicating authorities, claims cannot be reopened.
8. Liquidation
A process of selling the company’s assets when resolution fails. It is usually the last resort.
By understanding these foundational terms, one can better appreciate the complexity—and importance—of the BPSL case.
Case Analysis
Background of the Insolvency
BPSL’s insolvency was triggered under Section 7 of the IBC when financial creditors approached the NCLT after prolonged loan defaults. Once admitted into CIRP, the process attracted sizeable interest, particularly from JSW Steel, which eventually emerged as the Successful Resolution Applicant. However, the process soon became controversial.
Several operational creditors contended that the CIRP did not adhere to statutory rules. Their grievances ranged from late claim admission to arbitrary payouts. They alleged that the RP accepted JSW Steel’s Section 29A declaration without independent scrutiny, raising concerns about the integrity of the process.
The CoC’s approval of the plan was also challenged, with operational creditors arguing that commercial wisdom cannot justify violations of mandatory legal requirements.
Key Allegations Raised Before the Supreme Court
1. Violation of the 330-day limit:
The CIRP extended significantly beyond the statutory maximum due to repeated delays, some avoidable and others caused by litigation.
2. Inadequate Section 29A verification:
Petitioners argued that a mere self-declaration by JSW Steel was not sufficient.
3. Disproportionate treatment of operational creditors:
Some creditors allegedly received negligible payouts while others were excluded entirely.
4. Reopening of claims:
The RP allowed fresh claims even after plan approval, undermining finality.
5. Participation of disqualified promoters:
Individuals barred under Section 29A allegedly exerted influence during the process.
CoC and Respondents’ Stand
The CoC insisted that its commercial wisdom must remain unchallenged unless clear illegality is demonstrated. It argued that delays were litigation-induced, treatment of creditors met statutory minimums, and minor procedural issues should not derail a large-scale resolution that revived a major steel producer.
Judicial Interventions
The Supreme Court’s ruling represents a carefully calibrated balance between respecting commercial autonomy and reinforcing statutory discipline.
1. Reasserting Mandatory Compliance with IBC Structure
The Court clarified that the IBC’s timelines and procedural steps are integral to its design. Deviations cannot be normalized in the name of commercial convenience. While the Court acknowledged delays caused by litigation, it criticised systemic complacency in adhering to deadlines.
2. Commercial Wisdom Is Not Absolute
Though courts typically refrain from interfering in commercial decisions, the judgment draws a clear line:
Commercial wisdom cannot validate a process that violates statutory mandates.
The Court cited earlier decisions such as Essar Steel and K. Sashidhar to affirm that while financial decision-making lies with the CoC, legal compliance is non-negotiable.
3. Reinforcing Section 29A Due Diligence
The Court held that self-certification is insufficient. The RP must independently verify:
NPA history
related party transactions
involvement in previous defaults
interconnected companies
This intervention strengthens the role of RPs as legal guardians of the process rather than passive administrators.
4. Protecting Finality of Resolution Plans
The Court categorically held that once a plan is approved, late claims cannot be entertained. This clarifies a long-standing ambiguity and prevents indefinite uncertainty.
5. Addressing Operational Creditor Rights
While operational creditors may receive lower payouts, the Court insisted that fairness and non-arbitrariness are essential. It reaffirmed that statutory priorities must be respected but discrimination cannot be tolerated.
6. Avoiding Liquidation Despite Lapses
The Court recognized the economic implications of liquidation, particularly job loss, asset value erosion, and destabilization of the steel sector. Hence, instead of invalidating the entire resolution plan, the Court allowed it to stand but issued systemic corrective directions.
This pragmatic approach preserves economic stability while strengthening legal safeguards.
Impacts of the Judgment
1. Strengthened Accountability for Resolution Professionals
The judgment conveys a clear warning:
RPs must exercise rigorous independent verification, not rely on cursory declarations.
This reduces the possibility of ineligible promoters reentering through loopholes.
2. Stricter Adherence to Timelines
While the Court did not invalidate the plan for exceeding the 330-day limit, it signaled intolerance for casual extensions. This will encourage:
faster hearings
better CIRP planning
greater respect for statutory timelines
3. Rebalancing the Power of Commercial Wisdom
The judgment does not dilute the CoC’s authority but establishes that:
CoC decisions cannot override statutory requirements
fairness toward operational creditors is mandatory
procedural lapses invite judicial scrutiny
This offers comfort to operational creditors, often seen as the weakest stakeholders.
4. Ensuring Finality and Investor Confidence
By prohibiting late claims, the Court protects the sanctity of resolution plans. Investors prefer predictable systems. The judgment enhances confidence by ensuring:
no post-approval surprises
stable financial modelling
reduced litigation risk
5. A Blueprint for Systemic Reform
The judgment acts as a corrective for the insolvency ecosystem. It compels stakeholders—RPs, CoCs, adjudicating bodies—to approach CIRP with greater diligence.
This enhances:
transparency
value maximization
fairness
long-term sustainability
6. Improved Protection for Operational Creditors
The Court’s emphasis on non-discriminatory treatment strengthens the position of operational creditors, who often struggle to secure adequate compensation.
7. A Balanced Approach to Economic Revival
Instead of ordering liquidation, the Court accommodated economic considerations. This reflects a mature jurisprudence where legal rigidity does not override national economic interests.
Conclusion
The Kalyani Transco v. Bhushan Power & Steel Ltd. judgment is far more than a dispute over creditor payouts—it is a landmark reaffirmation of the foundational principles of the IBC. The Supreme Court’s approach reinforces that commercial wisdom cannot mask procedural failures or statutory violations. By insisting on rigorous Section 29A verification, protecting the finality of resolution plans, and clarifying the limits of judicial intervention, the Court has strengthened the backbone of India’s corporate resolution system.
At the same time, the decision is pragmatic. By refusing to derail a major resolution that had already revived economic value and saved numerous jobs, the Court acknowledged the delicate balance between legal purity and economic stability. The ruling therefore not only resolves the specific dispute but also provides a structured roadmap for future CIRPs.
In essence, the judgment restores faith in the IBC framework by promoting transparency, discipline, and fairness—principles that are vital for the Code’s future and for India’s broader economic aspirations.
Frequently Asked Questions (FAQs)
1. Why is the BPSL case considered a landmark in IBC jurisprudence?
Because it clarified the boundaries of commercial wisdom, reinforced mandatory due diligence standards, and restored procedural sanctity without undermining economic revival.
2. Can courts question decisions of the Committee of Creditors?
Yes, but only when there is illegality, arbitrariness, or violation of statutory provisions. They cannot question pure business decisions.
3. What happens if a resolution plan exceeds the 330-day timeline?
While the 330-day limit is mandatory, courts may allow exceptions for unavoidable reasons such as litigation. However, casual extensions will no longer be tolerated.
4. Is self-certification enough to prove Section 29A eligibility?
No. The RP must perform independent verification to ensure disqualified persons do not regain control.
5. Can new claims be added after a resolution plan is approved?
No. The Supreme Court has made it clear that finality is essential for investor confidence and financial stability.
6. Does the judgment improve the position of operational creditors?
Yes. It emphasizes fairness and non-arbitrariness, compelling CoCs to treat operational creditors more consistently.
7. Did the Supreme Court order liquidation in this case?
No. Despite identifying significant lapses, the Court allowed the plan to stand to protect economic value and employment.
8. What long-term impact will this judgment have?
It strengthens procedural accountability, enhances confidence in the IBC framework, and signals stricter scrutiny of future CIRPs.
