Supreme Court Preserves the IBC Framework, Issues Landmark Ruling in Bhushan Steel Case

The SC Judgment lays down several significant findings:

Continuance of the Committee of Creditors (CoC):
The CoC remains in existence not merely until the approval of a resolution plan, but until the plan’s successful implementation and until all proceedings challenging the plan have attained finality. Accordingly, the CoC’s decision to extend the implementation timeline for BPSL’s resolution plan could not be invalidated on the ground that the CoC had become functus officio.
Plan Flexibility and Determinacy:
A clause in a resolution plan permitting extension of the implementation period does not render the plan indeterminate, nor does it amount to a provision for withdrawal or modification. The appellants could not assail the plan’s approval on this basis.
Delay in Implementation — Not Attributable to JSW or CoC:
The delay in implementing the resolution plan stemmed from external factors, including attachment of BPSL’s assets by the Enforcement Directorate and the National Company Law Tribunal’s (“NCLT”) direction to distribute EBITDA to creditors. Despite these hurdles, JSW fully implemented the plan in March 2021. The SC held that neither JSW nor the CoC could be faulted, given their sustained efforts to operationalize the plan promptly.
Priority Payments to Financial Creditors:
Payments made by JSW to financial creditors ahead of operational creditors did not contravene the law applicable at the time of the NCLT’s approval. Under the then-prevailing regulations, operational creditors were to be paid amounts “due to them” in priority; as their admitted dues were nil, JSW was free to make any ex gratia payments to them after paying financial creditors. The Court, however, left open the question of whether current regulations—requiring priority payment of amounts “payable under a resolution plan”—permit ex gratia payments after payment to financial creditors.
Nature of CCDs and Equity Infusion:
The SC reaffirmed that Compulsorily Convertible Debentures (“CCDs”) are, in law, equity instruments. Consequently, JSW’s infusion of the resolution amount in the form of CCDs constituted a valid equity infusion and satisfied its upfront equity commitment.
Treatment of CIRP-Period EBITDA:
In the absence of any express provision in the Request for Resolution Plan (RFRP), the EBITDA generated during the corporate insolvency resolution process cannot be distributed to lenders. Moreover, the CoC cannot belatedly assert a claim to such EBITDA after having taken a contrary position earlier, as doing so would revive settled claims and undermine the IBC’s objectives and jurisprudence.In conclusion, the SC cautioned that invalidating resolution plans after their implementation—particularly where a company such as BPSL has been revived, modernized, and rendered profitable—would defeat the IBC’s core purpose of rescuing distressed companies and preserving employment. Accepting the appellants’ contentions, the Court noted, would effectively unravel the IBC’s foundational goals.

The SC Judgment not only grants relief to JSW but also safeguards the integrity of the IBC framework, which had been imperiled by the earlier ruling. By reaffirming the finality of implemented resolution plans and the primacy of CoC commercial wisdom, the judgment restores confidence among creditors, investors, and prospective resolution applicants, ensuring that the gains of a major economic reform are not inadvertently undone.