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NCLAT is not a mere rubber stamp for CoC decisions

Published: Jun 20, 2025

By Pankaj Bajpai

The CIRP proceedings were triggered by the Kalyani Transco (Operational creditor) against the Bhushan Power and Steel Limited (BPSL - Corporate debtor) in 2017. JSW Steel's resolution plan for acquiring BPSL involved a total payment of Rs.19,700 crore. This comprised Rs.19,350 crore allocated to financial creditors and Rs.350 crore to operational creditors, against their claims of Rs.733 crore. Even though the NCLT has approved the resolution plan proposed by the Successful Resolution Applicant ("JSW/SRA") - JSW on September 05, 3019, it made certain modifications and imposed certain conditions upon the SRA. These conditions were then challenged by SRA in an appeal before NCLAT. Appeals were also filed by creditors/ erstwhile directors, including 'Sanjay Singhal', 'Kalyani Transco', 'Jaldhi Overseas', 'Medi Carrier', 'CJ Darcl Logistics', and 'State of Odisha & Others'. The NCLAT approved the order the judgment and order passed by the NCLT, subject to the modifications/clarifications. The NCLAT thus allowed the appeal by JSW and dismissed other company appeals. It made changes to the earlier conditions set by the NCLT order. Hence, present appeal before the Supreme Court had been filed by promoters of the corporate debtor and its creditors.

After hearing detailed arguments of the concerned parties, the Hon'ble Supreme Court has rejected the Resolution Plan submitted by JSW and ordered for liquidation of Bhushan Power and Steel Ltd. ("BPSL/Corporate Debtor/CD") for, interalia, the following reasons:

i) The Hon'ble Supreme Court held that NCLT and NCLAT which are creatures of the Companies Act, 2013 and not under IBC, their jurisdiction and powers are prescribed under Section 31, 60 and 61 of IBC, as applicable. However, these powers do not empower them to judicially review the decisions taken by the Govt. of India or statutory authorities in relation to the matters which are in the realm of public law. The NCLAT in its impugned order could not have held that the Enforcement Directorate (ED) / investigating agencies do not have the powers to attach the assets of the CD once the Resolution Plan stood approved and that the criminal investigation against the CD would stand abated. The NCLT also declared that attachment of the assets of CD by ED was illegal and without jurisdiction. The Hon'ble Supreme Court was also perturbed by the fact that NCLAT gave the aforesaid finding despite the fact that investigation by ED was the subject matter of challenge before it on account of filing of SLP by the COC and the same was stayed by the Hon'ble Supreme Court vide order dated 18.12.2019. Therefore, when the said issue was pending before the Hon'ble Supreme Court, NCLAT should not have decided the said issue.

ii) The Hon'ble Supreme Court also noted that Equity Commitment as per Clause 2.3 and 3.1 of the Resolution Plan was not fulfilled within the timeframe. The Supreme Court was not impressed with the submission that though JSW initially infused only Rs.100 Crores as share capital towards Equity contribution commitments, subsequently pending the present Appeals, the reconstituted Board in its meeting held on 26.03.2021 has approved the issuance of Compulsory Convertible Debentures to Piombino Steel Limited (group entity of SRA-JSW which was to be merged into BPSL) having value of Rs.8,450 Crores, and thus requirement of infusion of Rs.8,550 Crores was complied with. The Hon'ble Supreme Court also held that though the aforesaid clauses permitted extension of 'Effective Date', the Effective Date was surreptitiously extended by some lenders which had no authority to do so and thus, equity infusion made pursuant to such extended Effective Date cannot be upheld by the court.

iii) The Hon'ble Supreme Court also held that approval of the Resolution Plan by NCLT under Section 31 of IBC on 14.02.2019 was clearly after the expiry of 270 days from the date of initiation of CIRP. The Hon'ble Supreme Court observed that since the CIRP of the CD was commenced on 26.07.2017, Section 12 as it stood prior to its amendment on 16.08.2019, is to be considered. Section 12 prior to its amendment did not have second and third proviso and, therefore, the timeline for completion of entire insolvency resolution process being 180 days along with one extension of 90 days, should have been completed in 270 days. The Hon'ble Supreme Court held that NCLT overlooked this aspect. The RP apparently justified the delay in filing the Section 31 application for approval of the Resolution Plan on the ground that one Appeal being No. 198/2018 filed by Tata Steel, one of the prospective Resolution Applicants was pending before NCLAT and NCLAT has reserved the judgement on 28.12.2018 and pronounced the judgement on 04.02.2019. However, the Hon'ble Supreme Court noted that order dated 12.07.2018 passed by NCLAT in Tata Steel appeal, permitted COC to examine and approve the Resolution Plan, RP was permitted to place the same before NCLT for appropriate orders and NCLT was also permitted to pass orders thereon. So, the Hon'ble Supreme Court held that there was no impediment against COC and RP from approving the Resolution Plan and file the same for approval within the statutory timeline of 270 days which was however not done. The Hon'ble Supreme Court observed that even NCLT has also failed to verify as to whether the application for approval of the Resolution Plan was within the timeline prescribed under Section 12 of IBC or not and thus, NCLT had committed error in approving the same vide its order dated 05.09.2019.

iv) The Hon'ble Supreme Court further held that there was no provision either in the IBC or in RFRP published by RP for the Resolution Plan submitted by JSW which permitted / authorised the Monitoring Committee or financial creditors or COC to enter into negotiations with JSW post approval of the Resolution Plan. However, negotiations had taken place between the Core Committee comprising of Small Group of Lenders and the Resolution Applicant JSW only, pursuant to which the Consolidated Resolution Plan was submitted by JSW on 03.10.2018 and number of objections were raised by the representatives of the Financial Creditors/the Operational Creditors as regards the manner in which the proceedings were being conducted, permitting JSW only to submit and amend the plan submitted earlier. However, none of these objections were heeded to.

v) The Hon'ble Supreme Court noted that initially COC was raising allegation against JSW on account of lack of implementation of the Resolution Plan and seeking compensation for not paying the upfront amount, however, surprisingly, the COC, all of a sudden, changed its stand and accepted Rs. 19,350.00 crore at the very belated stage without any objection which raises doubt on commercial wisdom of COC. The Hon'ble Supreme Court held that the commercial wisdom denotes a well-considered decision by COC after taking into consideration the mandatory requirement of the Code and regulations etc. with the object of maximisation of valuation of the assets of the CD in a time bound manner. The Hon'ble Supreme Court further held that there was no provision either in the IBC or in RFRP published by RP for the Resolution Plan submitted by JSW which permitted / authorised the Monitoring Committee or financial creditors or COC to enter into negotiations with JSW post approval of the Resolution Plan. The court was thus of the opinion that COC has played a very dubious role in the entire CIRP.

vi) Even after passing of the Impugned Order by NCLAT approving the Resolution Plan, the Resolution Plan was not implemented by JSW under the guise of pendency of present appeals though there was no stay granted by the Hon'ble Supreme Court against implementation of the Resolution Plan. The counsel for COC had recorded his statement in the order dated 06.03.2020 that in case the COC receives the money, the said money will be returned to JSW within two months if the present appeal succeed. Despite the recording of such statement of counsel of COC, the Resolution Plan was not implemented forthwith and it took about 2 years after passing of the Impugned Order by NCLAT, when the Resolution Plan was implemented. The upfront payment and equity commitment given by JSW was the main criteria on which JSW scored the highest in evaluation matrix determined by the COC, however, JSW did not honour such commitment within the timeframe and complied with these conditions after much delay. The court held that merely because IBC is silent with regard to implementation of phases of the Resolution Plan by successful Resolution Applicant, neither the Tribunal nor the IBC should give excessive leeway to a successful Resolution Applicant to act in flagrant violation of the terms of the Resolution Plan.

vii) There are violations of mandatory provisions of the IBC both at pre-approval and post-approval stages of Resolution Plan of JSW. Compliance certificate as per form H of the CIRP Regulations 2016 seeking approval of the plan as per section 31(1) r/w section 30(6) was not submitted by the resolution professional along with the company application seeking approval of resolution plan of JSW. Resolution Professional failed to confirm that the Resolution Plan of JSW complies with the requirements under Section 30(2) with regard to non-contravention of any provision of law and the payment of debts to the Operational Creditors in priority. The Supreme Court noted that in the Resolution Plan, the dues of Financial Creditors were given priority over the dues of the Operational Creditors.

Analysis of the decision:

The decision of the Apex Court in setting aside the findings of the NCLAT as it has given a leeway to SRA, is justified as the NCLAT is not a mere rubber stamp for CoC decisions. It has a duty to conduct a limited judicial review of the resolution plan to ensure it complies with the IBC and protects the interests of all stakeholders. Since the CoC is responsible for making decisions about the resolution plan, and their decisions should be based on sound commercial judgment, in case the CoC's decisions are flawed or lack a reasonable basis, the NCLAT should not approve the plan.

As recently it is held by the NCLAT, New Delhi in case of Findoc Finvest Private Limited Registered Office vs Surendera Raj Gang [Company Appeal (AT) (Insolvency) No.249 of 2025 dated March 18, 2025], that Regulation 39A(1) of the Corporate Insolvency Resolution Process (CIRP) Regulations, 2016 is an enabling Regulation and does not cast any obligation to permit modification of a Resolution Plan. Thus, after submission of the final revised Resolution Plan and its approval, the Resolution Applicant cannot be permitted to modify it.

However, as far as the observation of the Apex Court that the PMLA being a Public Law, NCLAT has any power or jurisdiction to review the decision of the Statutory Authority under PMLA, appears to be blurred. IBC has specific object, which is to consolidate and amend laws relating to reorganisation and insolvency resolution in a time-bound manner for maximization of value of assets and to promote entrepreneurship, availability of credit and balance the interest of all stakeholders including alteration in the order of priority of payment of Government dues.

Thus, in essence, the Hon'ble Supreme Court has unsettled the position with respect to attachment of assets by ED which was being considered as settled pursuant to decision in the WP No. 9943/2023 titled Shiv Charan Vs Adjudicating Authority under PMLA by the Hon'ble High Court of Bombay in which it was held that NCLT will be well within its jurisdiction in declaring that CD would stand discharged from offences alleged to have been committed prior to CIRP and that the attached properties shall be free of attachment from the time of approval of the Resolution Plan eligible for benefit under Section 32A of IBC.

Passing of this order by the Hon'ble Supreme Court and consequent liquidation of BPSL has created shock waves and ripples not only in the Indian financial space but also overseas, as it has put the authenticity and finality of the entire CIRP process in doubts. Any proposed Resolution Applicant would now hesitate to submit the Resolution Plan if it is not sure that the Resolution Plan considered by the COC in its commercial wisdom and approved by NCLT, would be upheld by the higher courts. Any Resolution Applicant would apprehend that the Resolution Plan can be set aside, despite complete revival of the CD, on account of certain technicalities, that too after many years from the effective date of implementation of the Resolution Plan. This judgement will not only impact BPSL but also other approved resolution plans presently under implementation where on account of certain reasons, timelines for implementation of the Resolution Plan could not be met. Thus, in our opinion, resolution of the CDs in coming future would be going to be tough and difficult.

Besides, while there is no doubt that there have been various deficiencies in the entire CIRP as noted by the Hon'ble Supreme Court in the aforesaid judgement, however, this has also to be kept in mind that this was one of the very few cases identified by the Govt. of India in early 2016 for resolution under the aegis of IBC. At that time, IBC was at very nascent stage and was evolving by each passing day. Neither the RP nor the Banks forming part of COC nor the Tribunals or courts were aware of nitty-gritties of the procedural formalities which were to be complied with within the strictest timeline prescribed under the IBC, which in itself was a humongous task in view of the legal system of our country. The situation got further complicated on account of sheer volume of outstanding dues payable by the CD, the size of business operations of the CD, lodging of claims by various financial creditors, operational creditors, statutory authorities, employees etc. etc. So, any flip in the procedural aspects could have been viewed leniently and condoned under Article 142 of the Constitution of India.

At times, when the financial creditors were actively taking the IBC route for resolution of their stressed loan accounts, the decision of the Hon'ble Supreme Court has brought them to a crossroad where they may think adopting measures other than resolution under the IBC, which will be a severe setback to the Government intent to streamline resolution of stressed assets. A similar situation was also created when the judgment in the matter of States Tax Officer vs Rainbow Papers Ltd. = 2022-TIOLCORP-23-SC-IBC was passed by the Hon'ble Supreme Court giving priority to the crown debt as against the debt of the financial creditors, an even review thereof was dismissed. The uncertainty created by the said judgement was later on settled by the Hon'ble Supreme Court in Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd. & Ors (2023 INSC 625) = 2023-TIOLCORP-13-SC-IBC by holding that the decision of States Tax Officer vs Rainbow Papers Ltd. has to be confined to the facts of that case alone.

Now, in the present case as well, either this judgment is required to be reviewed or some other mechanism be brought in place so as to ensure that the trust of the financial creditors in the IBC is not eroded and is re-established. Since the judgment of the Apex Court has wider ramifications, as BSPL has been put to liquidation four years after its corporate insolvency process was over, the prospective resolution applicants may shy away from going aggressive in picking up stressed assets from the insolvency court, fearing uncertainty.