SC flags RP's failures in Bhushan Power and Steel's insolvency plan

Supreme Court cites non-compliance by resolution professional in Bhushan Power case, declaring JSW Steel's plan illegal and urging greater due diligence under IBC

The Supreme Court citing lapses on the part of the resolution professional of Bhushan Power and Steel Ltd (BPSL) and the non-disclosure of key information could reshape due diligence in bankruptcy recovery, according to legal experts.

 

The apex court last week, while ordering BPSL’s liquidation, ruled that the resolution plan for the firm, which had been acquired by JSW Steel, was “illegal” owing to the failure of resolution professional (RP) Mahender Kumar Khandelwal to submit mandatory compliance certificates, including Form H, a crucial requirement under the Corporate Insolvency Resolution Process (CIRP).

 

The court said the omission wasn’t procedural but a material lapse that undermined the legality of the resolution plan, which was approved in 2021.

 

An email sent to Khandelwal on Saturday seeking comments did not elicit any response.

 

In a separate order in June last year, the whole-time member of Insolvency and Bankruptcy Board of India (IBBI) had referred the matter to the board for a fresh investigation of the activities of Khandelwal on a substantial increase in insurance premium and issues on importing graphite from China when he was managing the firm as RP.

 

The firm was sent to insolvency court after it defaulted on loans worth ₹47,200 crore.

 

The court said JSW Steel had not disclosed a joint venture with an entity linked to BPSL’s former promoters, a fact that the RP did not highlight. The court said Khandelwal failed in his statutory duties under Section 25 of the Insolvency and Bankruptcy Code (IBC), and also verifying the eligibility of the resolution applicant under Section 29A.

 

Section 29A disqualifies former promoters and the related parties of the corporate debtor, as well as certain other individuals, from participating in the revival of a distressed company.

 

“It is pertinent to note that in the 14th Meeting of the committee of creditors (CoC), it was specifically brought to the notice of the CoC by the legal counsel of the Resolution Professional that the resolution plan of the JSW was subject to the compliance of Section 29A. However, in the later meetings there was no clarity made as to whether the JSW had subsequently complied with the said requirement or not. Even if it is believed that JSW had filed an affidavit with regard to its eligibility to submit the Resolution Plan, there is nothing on record to show as to whether such affidavit was verified by the resolution professional as he was obliged to do so,” the court said in its order. 

 

The court said not giving material facts, whether missed or ignored, could compromise the insolvency process.

 

The RP’s inaction, it noted, misled the CoC and the National Company Law Tribunal (NCLT), affecting the interests of creditors.

 

Legal experts say the ruling opens the door to disciplinary action by the Insolvency and Bankruptcy Board of India and sets a precedent for heightened accountability from RPs.

 

“This judgment is a wakeup call for stakeholders and should prompt lawmakers to build greater process finality into the IBC framework,” said Ketan Dalal, founder of advisory firm Katalyst Advisors. “Timelines must be more realistic and sharply compressed at every stage.” 

Mounting Trouble

 

* SC said the resolution plan was illegal due to failure of resolution professional Mahender Kumar Khandelwal

 

* JSW Steel had not disclosed a JV with an entity linked to BPSL’s former promoters, which went unflagged by RP

 

* SC said the RP failed in his statutory duties under Section 25 of IBC, including verifying eligibility of the resolution applicant under Section 29A