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Bhushan Power and Steel Insolvency case ends up in Liquidation: Part-3

  • May 6, 2025
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The Supreme Court continued to hear the other issues on merits. Both the appellants and respondents submitted their arguments.

Appellants Submissions :

The Appellants Ex-Promoters/Guarantors of the Corporate Debtor-BPSL made the following submissions:

  1. There were gross violations of mandatory provisions of IBC in the entire process of insolvency resolution proceedings at the instance of Resolution Professional, the CoC and SRA-JSW who were in collusion with each other.
  1. Regulation 38 of the CIRP Regulations, 2016 read with Section 30(2) of the Code mandate payment to the Operational Creditors to be paid in priority over the Financial Creditors, however, the Resolution Plan envisaged the Financial Creditors to be paid in priority over the Operational Creditors.
  1. The Resolution Plan was indeterminate and unpredictable. The clause which permitted the erstwhile lenders of CoC to enlarge the Effective date has been misused to the prejudice of all the stakeholders including the financial institutions, which had led to a deliberate delay of more than 540 days in partial implementation of the plan. The SRAJSW made payment to the operational creditors only in March 2022 after a period of total default of 900 days.
  1. The SRA-JSW had secured the position of the highest bidder by wrongly assuring the upfront payments and infusion of funds, parameters, which JSW had admittedly failed to comply with. There was willful breach and malafide conduct on the part of the SRA-JSW in causing great delay in the implementation of the Resolution Plan beyond the statutory time-limit, which is sufficient to set aside the Resolution Plan of defaulting SRA.
  1. The Resolution Plan contravened the settled legal position, while treating the secured statutory dues of the Operational Creditors as unsecured dues, which is also in contravention of the law laid down by this Court in the State Tax Officer vs. Rainbow Papers Limited. (2023) 9 SCC 545.
  1. However, on a demurrer, the Resolution Plan if it is sustained by this Court, the issue of Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) is required to be decided in favour of the Appellants and other stakeholders, and against JSW.
  1. Retention of EBITDA by SRA, despite not contributing in any manner to the operations of the Corporate Debtor from 26.7.2017 till the interim payment to the Financial Creditors on 26.03.2021, and also despite the delay in making payment to the other creditors of the Corporate Debtor, would be contrary to the scheme of the IBC.
  1. Granting of EBITDA to the creditors, would reduce the liability of the appellants who are the personal guarantors.
  1. There was no scope for negotiation between the CoC and the SRA-JSW after the approval of the Resolution Plan, in view of the law laid down by this Court in Ebix Singapore Pvt. Ltd. Vs. Committee of Creditors of Educomp Solutions Limited and Another5. (2022) 2 SCC 401.
  1. The re-classification of Appellant-Jaldhi Overseas claimed from “admitted operational creditor” to the “identified contingent creditor” by SRA was not permissible. The power to admit/reject the claim filed by the Creditors vests solely with the Resolution Professional and no such power is available with the SRA under the Code.
  1. The re-classification of Operational Creditors claims have resulted in inter se discrimination towards class of Creditors, not permissible under the Code.
  1. The NCLT had rightly directed the EBITDA/profit generated by the Corporate Debtor during CIRP to be distributed amongst the creditors in view of the judgment passed by the NCLAT in the matter of Standard Chartered Bank vs. Satish Kumar Gupta, Company Appeal (AT) (INS) No. 242/2019 decided on 04.07.2019. Even the CoC had filed an affidavit before the NCLAT claiming EBITDA generated during the CIRP, however the NCLAT in the impugned judgment directed the Monitoring Committee along with the Resolution Professional to go through the RFP/RFRP and distribute the EBITDA accordingly.
  1. There was no provision either in the IBC or in RFRP published by the Resolution Professional or in the Resolution Plan submitted by the SRA, which permitted the Monitoring Committee or the Financial Creditors/CoC to enter into any negotiations with the SRA post the approval of the Resolution Plan. The only provision which governed the conduct of CoC meetings under the IBC was Section 24 which included the representations on behalf of the operational creditors also. Admittedly, the Monitoring Committee did not have any representation on behalf of the Operational Creditors.
  1. The IBC does not provide for constitution of a Monitoring Committee, and the Monitoring Committee being a creature of the Resolution Plan, its powers would be limited to the extent granted under the Resolution Plan.
  1. The grounds provided under Section 61(3) of the IBC are the only grounds available to the NCLAT for setting aside the approval of the Resolution Plan, however the NCLAT has set aside the directions of NCLT qua EBITDA, which does not fall within the four corners of Section 61(3).
  1. In Swiss Ribbons (P)Ltd. Vs. Union of India (2019) 4 SCC 17, the Supreme Court had said that the Resolution Professional does not possess any adjudicatory powers under the IBC, and that his role as a facilitator of the CIRP is only administrative in nature.
  2. The Resolution Plan contravened Sections 30(2) and 30(3) of the IBC and therefore was incapable of being enforced or implemented in view of Independent Sugar Corporation Ltd. Vs. Girish Sriram Juneja and Others 2025 SCC Online SC 181.

Respondents submissions:

The Respondents made the following submissions:

  1. The comprehensive resolution process of BPSL has  resulted in a payment of Rs.19,350 crores to Financial Creditors, along with payment to Operational Creditors of 50% recovery of their admitted claims (capped at Rs.350 crores) by March, 2022.
  1. The members forming part of the erstwhile CoC had vide its letter dated 05.03.2021 extended the Effective Date to on or before 31.03.2021 with 97.25% majority in terms of and in accordance with the provisions of approved Resolution Plan.
  1. The SRA-JSW had brought in the entire Equity commitment of Rs.8550 crores which is split as (a) Rs. 100 crore of Equity shares and (b) Rs.8,450 crore of Compulsorily Convertible Debentures, which would be converted to Equity shares. The CCDs are regarded as Equity instruments as held by this Court in Narender Kumar Maheshwari vs. Union of India8. 1990 Supp. SCC 440.  
  1. The Ex-promoters had filed the Appeals as an attempt to derail the successful resolution of the Corporate Debtor BPSL.
  1. The issues regarding the implementation of the Resolution Plan are beyond the scope of the Appeals filed under Section 62 of the IBC.
  1. The Resolution Plan or the RFRP of BPSL did not contemplate distribution of EBITDA/operating profit of BPSL generated during the CIRP period to either the creditors or SRA – JSW. Such amounts were to continue to remain with BPSL as it was sought to be taken over as a going concern.
  1. This Court while interpreting the RFRP of SRA in the case of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and Others (2020) 8 SCC 531, has held that the EBITDA generated during the CIRP period would not go the creditors.
  1. There was no delay in implementing the Resolution Plan as the plan has been implemented by the Effective Date, as defined under the Resolution Plan.
  1. The Code or its Regulations do not require the implementation of Resolution Plan to be carried within the specific timeline, and the same is the subject matter of the agreed position in a Resolution Plan. In paragraph 4(iii) of Part A, the Effective Date has been defined to mean the date of implementation of the Resolution Plan, which shall not exceed 30 days from the NCLT approval date or such extended period which may be permitted by 66% majority of lenders forming part of the erstwhile CoC.
  1. So far as payment to the operational creditors is concerned, the position under Regulation 38(1) has changed since the amendment w.e.f. 27.11.2019, which provided for the amount payable to an operational creditor to be paid in priority to the Financial Creditor. The said amendment having come into force post approval of the Resolution Plan vide the NCLT judgment on 05.09.2019, the same cannot be applied to the present case.
  1. As held in Ghanashyam Mishra and Sons (P) Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd 10 (2021) 9 SCC 657 and in case of Ruchi Soya Industries Ltd. vs. Union of India (2022) 6 SCC 343 once the Resolution Plan is approved by the NCLT, the plan stands frozen and all such claims which are not a part of Resolution Plan as on that date stand extinguished.
  1. So far as the Appellant Jaldhi Overseas is concerned, the Appellant has been rightly categorized as an Operational Creditor with a contingent claim, on the basis of the balance sheets of the Corporate Debtor and Section 49 of the Arbitration and Conciliation Act, 1996. The sub classification of Operational Creditors into the contingent Operational Creditors and the Crystalized Operational Creditors under the Resolution Plan is permissible under the law.
  1. The erstwhile Promoters who had ceased to have any relationship with Corporate Debtor once the CIRP had commenced, could not be said to have been prejudiced with respect to the implementation of Resolution Plan.
  1. The issues raised by the erstwhile Promoters with respect to implementation of the Resolution Plan are nothing but a malafide attempt to scuttle a successfully implemented Resolution Plan. The issues raised by them did not fall within the ambit of Section 62 of IBC.
  1. Though CoC as a juristic body had become functus officio after approval of Resolution Plan by the NCLAT, in the facts of the case, the lenders of BPSL forming part of CoC were specifically empowered in terms of the Resolution Plan read with the impugned judgment of NCLAT to convene and take decisions that were necessary for successful implementation of the Resolution Plan.
  1. The lenders of BPSL forming part of the CoC in their commercial wisdom had taken steps to ensure implementation of Resolution Plan to the benefit of all stakeholders of the Corporate Debtor. Though there was a delay of about two years in the implementation of the Resolution Plan, the lenders of BPSL forming part of CoC have taken commercial call in prioritizing the implementation of the Resolution Plan.
  1. As per the understanding of the lenders of BPSL, at the time of plan implementation, the SRA infused only Rs. 100 crores as share capital towards Equity contribution, and the delay of remaining Rs. 8,450 Crores by way of convertible debentures was due to the uncertainty created because of the attachment of assets of BPSL by the ED. The refund obligation before this Court succeed as recorded vide the 06.03.2021 order, and subsequently in the Escrow Agreement entered into with the SRA dated 19.03.2021.
  1. During the meeting held on 26.03.2021 by the Reconstituted Board which was attended by the Steering Committee, the issuance of Compulsory Convertible Debentures to Piombino Steel Limited (group entity of SRA which was to be merged into BPSL as a part of the Resolution Plan) having a value Rs. 8,450 Crores was approved. Such issuance of CCD’s cannot be said to be a departure from the requirement under the Resolution Plan of infusion of Rs. 8,550 Crores as Equity.
  1. The Resolution Plan having been implemented during the pendency of these Appeals, the Court may not interfere with the impugned judgment and order passed by the NCLAT, more particularly when no question of law had arisen out of the impugned judgment of NCLAT, as contemplated in Section 62 of IBC.

 

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