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Bhushan Power and Steel Insolvency case ends up in Liquidation: Part-4

  • May 7, 2025
  • 251 Views

Having regard to the elaborate submissions made by the learned Senior Advocates appearing for the parties, having thoroughly gone through the voluminous record relied upon by them, as also having regard to the various judicial pronouncements made by Supreme Court on the interpretation of various provisions of IBC, the Supreme Court made the following observations:

Non-Compliance of mandatory provisions and misuse of process of law

  1. The instant set of Appeals, the respondents-JSW, CoC and Resolution Professional have sought to sweep many seminal issues under the carpet to cover up gross violations of the provisions of the IBC and of the Regulations 2016, at every stage of the CIR proceedings initiated against the CD-BPSL. We therefore have examined the non-compliance rather violations of mandatory provisions of the IBC at their instance at the pre-approval and post-approval stages of Resolution Plan of JSW.
  1. The Supreme Court took note about the submissions made by the Learned Advocates appearing for the Respondents JSW, CoC and for the Resolution Professional that Resolution Plan in question has been implemented in part by making payments to the Financial Creditors in March, 2021 and in full by making payments to the Operational Creditors in March, 2022. According to them, 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. ‘We are not impressed with the said submissions’.
  1. As part of the Resolution Plan, the Resolution Applicant proposed to infuse equity into the Company, for an amount aggregating INR 8550 Crores which shall be infused by the Resolution Applicant upfront on the Effective ; but at the stage of implementation , the Resolution Plan was re-planed to implement through the SPV, which will merge with BPSL.  
  1. Except bare submissions made by the learned advocates during the course of hearing, there is no material or affidavit placed on record by the Respondent JSW to show that the Equity Commitment as contemplated in the aforestated clauses, which was condition precedent, was fulfilled by it. There is also no material placed on record by it to show that the Effective date as contemplated in its Resolution Plan was extended after the order of NCLT or NCLAT as per Clause 3.1 of the Resolution Plan. There is nothing on record to show as to how, when and by whom the Effective date as contemplated in the Resolution Plan was extended. If the Effective date was surreptitiously extended by some lenders, claiming to be part of CoC which had become functus officio and which had no authority to do so, any payment made or Equity infused by JSW under the garb of such decision, cannot be vindicated by the Court. When the SRA-JSW, CoC and Resolution Professional are being represented by very eminent Advocates, non-production of such relevant material with regard to infusion of Equity and extension of Effective date, to substantiate their submissions, cannot be without any purpose. It therefore raises serious doubts about the legality of such actions and genuineness of the so-called compliance of Resolution Plan, pending these Appeals.
  2. Even it is assumed for the sake of arguments that pending the present Appeals, the terms of the Resolution Plan have been complied with, it may be noted that no party can be permitted to deliberately create a situation where the proceedings in the Court would be frustrated or the Court’s decision would become irrelevant or ineffective. A situation of fait accompli cannot be permitted to be created in the Court to frustrate the proceedings, more particularly when the CIR proceedings had ex facie stood vitiated on account of non-compliance of the mandatory provisions of law and on account of the misuse of the process of law by the parties Any action taken or any deal/any settlement entered into by and between the parties in respect of the subject matter of the proceedings, have to pass the test of judicial scrutiny and would always be subject to the final outcome and adjudication of the proceedings.

Adherence to time-lines prescribed is crucial in CIR Proceedings

  1. It has been reiterated time and again by this Court that one of the main objects for enacting the IBC is to complete the entire CIR Proceedings in a time bound manner, and that is the reason, a time-line is set out in the Code and its Resolutions for every stage of the proceedings. As well settled, time is a crucial factor of the scheme under IBC. To allow the proceedings to lapse into indefinite delay will frustrate the very object of the Code.
  1. The last two provisos that is the second and third provisos to Section 12 have been inserted by the Act 26 of 2019, which came into force with effect from 16.08.2019. Therefore, prior to 16.08.2019, there was only one proviso to Section 12. In the instant case, since the CIRP had commenced on 26.07.2017, when the Company Petition filed by the Punjab National Bank for initiating the insolvency proceedings was admitted by the NCLT, we will have to consider the position of Section 12 as it stood prior to its amendment on 16.08.2019.
  1. Supreme Court in Arcelormittal India Private Limited vs. Satish Kumar Gupta and Others1 (2019) 2 SCC 12, had an occasion to deal with Section 12 as it stood prior to the said amendment, which came into force with effect from 16.08.2019. It has been held as under: – ‘What is important to note is that a consequence is provided, in the event that the said period ends either without receipt of a resolution plan or after rejection of a resolution plan under Section 31. This consequence is provided by Section 33, which makes it clear that when either of these two contingencies occurs, the corporate debtor is required to be liquidated in the manner laid down in Chapter III. Section 12, construed in the light of the object sought to be achieved by the Code, and in the light of the consequence provided by Section 33, therefore, makes it clear that the periods previously mentioned are mandatory and cannot be extended’. ‘ In fact, even the literal language of Section 12(1) makes it clear that the provision must read as being mandatory. The expression “shall be completed” is used. Further, sub-section (3) makes it clear that the duration of 180 days may be extended further “but not exceeding 90 days”, making it clear that a maximum of 270 days is laid down statutorily. Also, the proviso to Section 12 makes it clear that the extension “shall not be granted more than once”.
  1. Therefore, there remains no shadow of doubt that prior to insertion of two provisos by way of amendment in Section 12 which came into force w.e.f 16.08.2018, the entire CIRP proceedings had to be completed within maximum period of 270 days from the date of admission of the Application to initiate such process.
  1. As per sub-section (2) of Section 12 the Resolution Professional was required to file an application to the Adjudicating Authority i.e. NCLT to extend the period of the corporate insolvency resolution process beyond 180 days, if he was instructed to do so by a resolution passed at a meeting of CoC by a vote of 66% of voting shares. Meaning thereby it was incumbent on the part of the Resolution Professional to bring to the notice of the CoC about the expiry of 180 days and seek instructions in that regard from the CoC. However, no such application, appears to have been filed by the Resolution Professional nor any order extending the said time limit appears to have been passed by the NCLT.
  1. It is also pertinent to note that there is a model time-line prescribed for the completion of CIRP proceedings in Regulation 40A of the Regulations, 2016. As per Regulation 39(4) also the Resolution Professional is required to submit the Resolution Plan approved by the CoC to the Adjudicating Authority at least 15 days before the maximum period for completion of CIRP under Section 12. However, no such application was filed by the Resolution Professional as contemplated in sub-section (2) of Section 12 seeking extension of time before the expiry of 180 days nor he had submitted the Resolution Plan approved by the CoC before the maximum period for completion of CIRP prescribed under Section 12, as contemplated in Regulation 39(4) of the Regulations.
  1. The Resolution Professional had filed the Company Application No. 254 of 2019 on 14.02.2019 seeking approval of the NCLT under Section 31, stating inter alia that the Consolidated Resolution Plan along with the Addendum Letter was approved by the CoC in its 19th Meeting, and thereafter the members of CoC had approved the same by requisite majority, following the evoting process. It appears that the 19th Meeting of CoC was held on 10.10.2018 and the e-voting had taken place on 15.10.2018, 5.00 p.m. and 16.10.2018, 5.00 p.m. on the Central Depository Services (India Limited). As stated in the said Application by the Resolution Professional, he had received a post facto approval from the Indian Bank for the Consolidated Resolution Plan vide its e-mail dated 16.10.2018, and he had placed the result of voting in the sealed cover before the Appellate Authority i.e. NCLAT vide the affidavit dated 21.10.2018. He thereafter filed the said Application under Section 31 before the NCLT on 14.02.2019 clearly after the expiry of 270 days of the initiation of CIRP.
  1. The Resolution Professional appears to have justified the delay in filing the Application under Section 31 on the ground that the Appeal No. 198 of 2018 filed by Tata Steel, one of the Prospective Resolution Applicant, was pending before the NCLAT, and that NCLAT had reserved the judgment of the said Appeal on 28.12.2018, and pronounced on 04.02.2019. In this regard, it may be noted that the NCLAT in the said Appeal filed by the Tata Steel, had initially passed interim orders on 09.05.2018 and 24.05.2018, however it had modified the said orders by passing the following order on 12.07.2018: –

“In the meantime, it will be open to the Committee of Creditors to pass appropriate order in terms of Section 30(4) of IBC and if any plan has approved, the Resolution Professional may place it before the Adjudicating Authority for appropriate order under Section 31 of IBC and the Adjudicating Authority may pass appropriate order. Interim orders passed earlier stand modified to the extent above.”

Therefore, in view of the said order dated 12.07.2018, the CoC was permitted to pass appropriate orders in terms of Section 30(4), and if the plan was approved, the Resolution Professional was also permitted to place the same before the NCLT for appropriate order under Section 31 of IBC, and the NCLT was also permitted to pass appropriate order thereon. Therefore, the CoC, Resolution Professional and the NCLT, all were permitted to proceed with the proceedings, in view of the Order dated 12.07.2018.

  1. It appears that though the e-voting process was conducted on 15.10.2018-16.10.2018, the so-called approved Plan was placed before the NCLT for its approval under Section 31 only on 14.02.2019. There is no justification whatsoever submitted by the Resolution Professional as to why the said Application for approval of the Plan was filed after almost four months. Such an Application filed by the Resolution Professional being ex-facie in contravention of Section 12 read with Regulation 39(4) of the Regulations 2016, should not even have been entertained by the NCLT.
  1. As stated earlier, the consequences of not receiving the Resolution Plan under sub-section (6) of Section 30 before the expiry of CIRP period or the maximum period permitted for completion of the CIRP under Section 12, have been laid down in Section 33, according to which the NCLT had to pass an order requiring the Corporate Debtor to be liquidated in the manner laid down in Chapter III of IBC. In the instant case, the Resolution Professional had utterly disregarded the mandatory timeline contained in Section 12 setting out the time limit for completion of CIRP, had not even bothered to seek any extension from the NCLT before the expiry of 180 days from the commencement of the said process nor had bothered to explain in the Application under Section 31 as to how the entire CIRP proceedings were conducted in a time bound manner and particularly within time limits prescribed under Section 12 of IBC read with Regulation 39(4) and Regulation 40A of the Regulations, 2016. Even the NCLT also while passing the order dated 05.09.2019 approving the Resolution Plan of JSW under Section 31, had failed to verify as to whether the said Application of the Resolution Professional was within the time limit prescribed under Section 12 which was mandatory in nature as held by this Court in Arcelormittal India Private Limited (supra).
  1. At this juncture, it may be noted that this Court in a subsequent judgment in ESSAR Steel India Ltd. Committee of Creditors Vs. Satish Kumar Gupta1 2020(8) SCC 5313 had dealt with the two provisos subsequently inserted in Section 12 by the Act 26 of 2019, which came into effect from 16.08.2019, and had observed as under: –

“ ……Thus, while leaving the provision otherwise intact, we strike down the word “mandatorily” as being manifestly arbitrary under Article 14 of the Constitution of India and as being an excessive and unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the corporate resolution process of the corporate debtor must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. However, on the facts of a given case, if it can be shown to the Adjudicating Authority and/or Appellate Tribunal under the Code that only a short period is left for completion of the insolvency resolution process beyond 330 days, and that it would be in the interest of all stakeholders that the corporate debtor be put back on its feet instead of being sent into liquidation and that the time taken in legal proceedings is largely due to factors owing to which the fault cannot be ascribed to the litigants before the Adjudicating Authority and/or Appellate Tribunal, the delay or a large part thereof being attributable to the tardy process of the Adjudicating Authority and/or the Appellate Tribunal itself, it may be open in such cases for the Adjudicating Authority and/or Appellate Tribunal to extend time beyond 330 days. Likewise, even under the newly added proviso to Section 12, if by reason of all the aforesaid factors the grace period of 90 days from the date of commencement of the Amending Act of 2019 is exceeded, there again a discretion can be exercised by the Adjudicating Authority and/or Appellate Tribunal to further extend time keeping the aforesaid parameters in mind. It is only in such exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the corporate debtor must take place beyond which the corporate debtor is to be driven into liquidation”.

  1. Apart from the fact that the two provisos subsequently inserted in Section 12 w.e.f. 16.08.2019 were not applicable to the facts of the present case, the CIRP against BPSL having been initiated on 26.07.2017 and the Resolution Professional having filed the Application under Section 31 on 14.02.2019, even the maximum period of 330 days including the time taken in legal proceedings had expired much prior to filing of the said Application under Section 31 on 14.02.019.
  1. In that view of the matter, we have no hesitation in holding that the Application submitted by the Resolution Professional seeking approval of the Resolution Plan of JSW under Section 31 being hit by Section 12 of IBC, the NCLT had committed grave error of law in approving the said plan vide its order dated 05.09.2019.
  1. Even if it is assumed that the Application filed by the Resolution Professional seeking approval of the Resolution Plan of JSW under Section 31 was not hit by Section 12, and that the CIR proceedings conducted by him was within the time limit prescribed under Section 12, in view of the order dated 04.02.2019 passed by the NCLAT in the Company Appeal being No.198 of 2018 preferred by the Tata Steel Limited vs. Liberty House Group Private Limited, directing the period of pendency of the Appeal, that is the period from 07.05.2018 to 04.02.2019 to be excluded for the purpose of counting the period of 270 days, then also according to us for the reasons to follow, there has been gross non-compliance of the mandatory provisions of the IBC and its Regulations, vitiating the entire CIR proceedings.

Role of the Resolution Professional while conducting the entire CIRP

  1. It cannot be gainsaid that as per the scheme of the Act, the role of the Resolution Professional while conducting the entire CIRP, is not only of an Administrator or Facilitator, but is also of an Invigilator, to ensure that the CIR proceedings are completed in a time bound manner, for maximisation of value of assets in order to balance the interest of the stakeholders and that there is compliance of all the mandatory provisions of the Code during the course of entire proceedings. As per Section 17, from the date of appointment of Interim Resolution Professional, the Management of the affairs of the Corporate Debtor vests in the Interim Resolution Professional, and he is responsible for complying with all the requirements under any law for the time being in force on behalf of the Corporate Debtor.
  1. As per Section 20, the Interim Resolution Professional is required to make every endeavour to protect and preserve the value of the property of the Corporate Debtor and manage the operations of the Corporate Debtor as a going concern. The duties of Interim Resolution Professional are enumerated in Section 18, and the duties of Resolution Professional are enumerated in Section 25. A very significant duty which is cast upon the Resolution Professional under Section 30(2) after the receipt of the Resolution Plans from the Prospective Resolution Applicants, is to examine each of such Resolution Plans and confirm that each Resolution Plan provided for the payment of Insolvency Resolution Process costs in the manner specified by the Board in priority to the payment of other debts of the Corporate Debtor; and provided for the payment of debts of Operational Creditors in such manner as may be specified by the Board. The Resolution Professional is required to confirm that each Resolution Plan provides for the matters stated in Section 30(2), and also specifically confirm that the Resolution Plan does not contravene any of the provisions of the law for the time being in force, and conforms to such other requirements as may be specified by the Board. Sub-section (3) of Section 30 states that the Resolution Professional shall present to the Committee of Creditors for its approval such Resolution Plans which confirm the conditions referred to in subsection (2). It is therefore, incumbent on the part of Resolution Professional to examine each Resolution Plan received by him and to confirm that each plan provided for the matters stated in sub-section (2) of Section 30. He has to present to the CoC for its approval, only such Resolution Plans which confirm the conditions referred to in subsection (2). It is also required to be noted that as per sub-section (1) of Section 31, the Adjudicating Authority is empowered to approve only such Resolution Plan approved by the Committee of Creditors under sub-section (4) of Section 30, which meets the requirements as referred to in subsection (2) of Section 30. Meaning thereby, not only that the Resolution Professional has to confirm that the Resolution Plan presented before the CoC for its approval confirmed the conditions referred to in sub-section (2) of Section 30, the Adjuciating Authority is also required to satisfy itself that the Resolution Plan presented by the Resolution Professional and approved by the CoC under sub-section (4) of Section 30, met with the requirements as referred to in sub-section (2) of Section 30. The said requirements as per Section 30(2), (as it stood prior to its amendment w.e.f. 16.08.2019) were to confirm that the Resolution Plan provided for the payment of Insolvency Resolution Process costs in priority to the payment of other debts of the Corporate Debtor; and also provided for the payment of the debts of Operational Creditors, which should not be less than the amount paid to the Operational Creditors, in the event of a liquidation of the Corporate Debtor under Section 53.
  2. The CIRP Regulations being subordinate legislation having statutory force, have the same binding effect as the Code itself. Therefore, the mandates given in the said Regulations to carry out the provisions of the Code have to be strictly complied with by all the stakeholders as well as by the Authorities under the Code. However, in the instant case, the Resolution Applicant – JSW had submitted the Resolution Plan in complete contravention of the mandates given in the Code as well as in the Regulations.

Failures of Resolution Professional

  1. As set out earlier, the Resolution Professional had utterly failed in discharging his duties under the Code, by not making Application for extension of time under Section 12 and by not certifying as to whether the Resolution Applicant-JSW was an “eligible” person under Section 29A to submit the plan. He also had failed to make any Applications for avoidance of transactions in accordance with Chapter-III of the Code. When the RBI had issued directions to the Indian Banks to mandatorily initiate CIRP against infamously known as “dirty dozen” companies, and when BPSL was one of them, it was obligatory on the part of the Resolution Professional to discharge his statutory duty cast upon him to file Applications for avoidance of transactions in accordance with Chapter-III of IBC.
  1. The Resolution Professional had also failed to confirm that the Resolution Plan of JSW met with the requirements under Section 30(2) more particularly with regard to no contravention of any provision of law and with regard to the payment of debts to the Operational Creditors in priority.
  1. As per Sub-regulation (1) of Regulation 38 as it stood prior to its amendment in November, 2019, the amount due to the Operational Creditors under a Resolution Plan had to be given priority in payment over the Financial Creditors. However, in the Resolution Plan, the said mandatory requirement was not complied with and the dues of Financial Creditors were given priority over the dues of the Operational Creditors Despite such gross non-compliances of the mandatory provisions of IBC and the CIRP Regulations 2016, the Resolution Professional placed the Resolution Plan of JSW before the CoC. The CoC also without verifying the mandatory requirements of Regulation 38 particularly with regard to the feasibility and viability of the plan, effective implementation of the plan and the capability of Resolution Applicant to implement the plan, permitted the Resolution Applicant to submit the Consolidated Resolution Plan with Addendum Letter, which otherwise had many loose ends.Just as the Resolution Professional had failed to examine and confirm the compliance of mandatory provisions of the Code, to secure the interests of all the stakeholders involved in the process, the CoC also did not discharge its duty to carefully examine the feasibility and viability of the plan, and the capacity and resources of the Resolution Applicant-JSW for the implementation of the plan proposed by it.
  1. As transpiring from the minutes of 18th and 19th Meetings held on 14.08.2024 and 10.10.2024 respectively, a very strange procedure was followed by the CoC. As recorded in the Minutes of 18th Meeting of CoC held on 14.08.2018, Resolution Applicant JSW had acquired highest score amongst the three Prospective Resolution Applicants, but there was no declaration made as to H1 and H2. It further appears from the Minutes of 19th Meeting that thereafter the 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. The said Consolidated Resolution Plan of JSW was circulated to the members of CoC on 05.10.2018. The said Consolidated Resolution Plan of JSW along with its Letter dated 10.10.2018 (Addendum Letter) was considered by the CoC at its 19th Meeting held on 10.10.2018. As transpiring from the Minutes of 19th Meeting, number of objections were raised by the representatives of the Financial Creditors and of 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; as regards non-compliance of amended Regulation 38 for making payment of amount due to the Operational Creditors in priority over the payment to the Financial Creditors; as regards the Resolution Professional having not checked the compliances of the revised Resolution Plan of JSW, though the CoC had pointed out that the plan of JSW reviewed by the Resolution Professional earlier was different from the Resolution Plan of JSW put forth subsequently for voting; as regards the consideration of the revised plan of JSW without the compliance certificate from the Resolution Professional; as regards the implication and legal obligations of the avoidance transactions and fraudulent trading by the Corporate Debtor etc. Despite such gross violation of mandatory provisions of IBC and the CIRP Regulations in the entire proceedings undertaken by the Resolution Professional, and by the CoC while considering the Consolidated Resolution Plan and Addendum Letter of JSW, the Resolution Professional without paying any heed to the said violation or noncompliance, submitted the said Resolution Plan of JSW for approval before the NCLT. The NCLT also without satisfying itself whether the Resolution Applicant-JSW was eligible to submit the plan or not, whether the Application for approval of plan was within the prescribed time limit under Section 12 or not, whether the Resolution Plan submitted by JSW had met the requirements as referred to in sub-section (2) of Section 30 or not, and whether the Resolution Plan had the provisions for its effective implementation as required to be satisfied under proviso to sub-section (1) of Section 31, approved the said Plan of JSW.

On Resolution Plan

  1. It is pertinent to note that as per the Resolution Plan, the Effective date for the purpose of the approved Resolution Plan was the date not exceeding 30 days from the approval by the NCLT of the Resolution Plan approved by the CoC, or such extended period which may be permitted by 66% majority of the lenders forming part of the erstwhile CoC. The JSW had proposed in its Resolution Plan to implement its obligation under the said plan by incorporating/ identifying a 100% wholly owned subsidiary company. It had also proposed to invest in equity (to the extent of Rs.8,550 Crores) of a special purpose vehicle which had to merge with the Corporate Debtor on the appointed date upon the approval of the Resolution Plan by the NCLT (Section I of Part A of the Resolution Plan). The indicative timelines for the implementation of the Resolution Plan were also given in Clause 4 (vi) of Part A of the Resolution Plan. The Resolution Plan provided for an upfront amount of Rs. 19,350 Crores to be paid to the Financial Creditors against their total admitted claims of Rs.47,157.99 Crores,over and above the cost to be paid by the JSW. The JSW had also undertaken to procure the satisfaction of all the conditions precedent, as detailed in Section 4 (ii) of Part A of its Resolution Plan, within a period of 30 days or such other extended period approved by 66% lenders from the date of issuance of the Letter of Intent. It had also undertaken to immediately, after the approval of the Resolution Plan by NCLT, notify the Monitoring and Steering committee for taking steps for the implementation of the Resolution Plan. Despite, all these clauses and terms stated in the Resolution Plan, on which the CoC had approved its plan and the NCLT had also granted approval under Section 31 of IBC, the JSW instead of implementing the said Approved Resolution Plan, challenged the judgment and order of NCLT dated 05.09.2019 by filing an Appeal being Company Appeal No. 957 of 2019 before the NCLAT. As held by us in the earlier part of this judgment, such Appeal itself was not maintainable under Section 61 of IBC. The said terms of the Approved Resolution Plan remained unimplemented pending the Appeal before the NCLAT, and also during the pendency of the present Appeals before this Court. Under the circumstances, the upfront payments which were to be made to the Creditors within 30 days of the NCLT passing the order approving the Resolution Plan, remained unpaid till March, 2022.
  1. Pertinently, the CoC in the reply to the Application filed by the Respondent JSW before this Court seeking clarification of the order dated 06.03.2020, had raised serious grievances on affidavit against the SRA – JSW for not implementing the Resolution Plan as approved by the CoC and further approved by NCLT. It was specifically stated therein that the failure on the part of the JSW to resolve one of the top 12 Corporate Insolvency cases, created a broader concern as to the sanctity of the process under IBC; that the conduct of JSW demonstrated ill-intent and malafides to mislead the Court and misuse the process of Court in order to delay and defer the implementation of the Resolution Plan which was in fact an unconditional plan; that though there was no stay granted by this Court on the implementation of the plan, there was willful breach of plan by not implementing the same; that the pendency of Appeal or any litigation would not mean a stay on an approved and binding Resolution Plan as per Section 31; that by way of its in action, it is bleeding dry the public sector banks to whom it owes Rs.19,350 Crores; that the JSW was under an obligation under the expressed terms of the Resolution Plan to implement the same within 30 days of its approval by NCLT; that applicability of Section 32(A) to the benefit of JSW was not a pre-condition to the implementation of the Resolution Plan nor it would change the unconditional commitment of JSW to implement the plan in time bound manner; that the JSW had refuted the rightful claim of CoC of the upfront payments as committed in the Resolution Plan and also the compensation for not paying the same etc. The CoC had pointed out the defaults of JSW in not implementing the Plan and submitted that the CIRP proceedings were languishing for more than 35 months because of the non-implementation of the Resolution Plan at the instance of JSW. In spite of such allegations made and grievances raised by the CoC on affidavit before this Court, surprisingly, the CoC for the reasons best known to it, all of a sudden changed its stance, and accepted Rs. 19,350 Crores at a very belated stage, offered by JSW, without any demurrer.
  1. Having adumbrated the entire facts and circumstances, Supreme Court found much substance in the submissions of the learned Senior Advocate Mr. Dhruv Mehta for the Ex-Promoters that apart from the fact that there was gross noncompliance of the mandatory provisions of the IBC and the Regulations, there was a dishonest and fraudulent attempt made by JSW, misusing the process of the Court by not making the upfront payments as committed by it for about two and a half years and thereby enriching itself unjustly, and thereafter considering the rising prices of steel in the market, JSW sought to comply with the terms of Resolution Plan at a very belated stage, in collusion with the CoC and the Resolution Professional. The changing stance of CoC in the present proceedings also smacks of its bona fides and raises serious doubts about the exercise of its so called commercial wisdom.

On commercial wisdom

  1. The position of law, propounded by this Court is that commercial wisdom of CoC means a considered decision taken by the CoC with reference to the commercial interest,the interest of revival of Corporate Debtor and maximization of value of its assets. This wisdom is not a matter of rhetoric but is denoting a well-considered decision by the CoC as the protagonist of CIRP. The CoC therefore has to take into consideration the mandatory requirements of the Code as well as the Regulations framed by the Board, and to see that the Insolvency Resolution of the Corporate Debtor is completed in a time bound manner and for maximization of value of assets of the Corporate Debtor. The mandatory requirements under the Code are, the compliance of the time limit specified in Section 12, the compliance of Section 29A to see whether the Resolution Applicant is an eligible applicant to submit the plan, the compliance of sub-section (2) of Section 30 of IBC etc. The mandatory requirements stated in Regulation 38 of the Regulations, 2016 are that the Resolution Plan must demonstrate that it addresses the cause of default, that it is feasible and viable, it has the provisions for its effective implementation and the Resolution Applicant has the capability to implement the Resolution Plan in a time bound manner. If the Resolution Plan does not comply with such mandatory requirements and such plan is approved by the CoC, it could not be said that the CoC had exercised its commercial wisdom while approving such Resolution Plan.
  1. In the instant case, though the CoC in its 18th and 19th Meetings had flagged all the issues with regard to noncompliance of various provisions of the IBC and the Regulations by JSW, surprisingly it approved Plan of JSW, without any deliberation on all the compliances. Further, in the present proceedings also after making serious allegations against JSW of misusing the process of law and not implementing the Resolution Plan in the time bound manner, accepted the amount of Rs. 19,350 Crores after about two years of the approval of Plan granted by the NCLT, without raising any objection, and supporting the stand of JSW about the implementation of Plan during the course of arguments. Though the commercial wisdom of the CoC should have been given the primacy in any adjudicatory proceedings, the changing stance of CoC from time to time during the course of proceedings right from the holding of meetings for approving the Resolution Plan of JSW till the final hearing of the present Appeals, has led this Court to believe that the CoC also has played a very dubious role in the entire CIRP. It was stated by the CoC on affidavit before this Court that because of the delaying tactics adopted by JSW and deferring the implementation of the Resolution Plan, the CoC was entitled to the compensation and interest on the said amount of Rs.19,350 Crores for causing loss of crores of rupees per day. Though the CoC had written number of letters raising grievances with regard to non-payment of upfront amount of Rs.19,350 Crores to the Financial Creditors within 30 days of the approval of the plan, the CoC had changed its stance all of a sudden accepting the payment of Rs. 19350 crores without any demurer, and though the Effective date for implementation of the plan had already expired. As stated earlier, there is no material placed on record as to how, when and by whom the Effective date as stated in the Resolution Plan was extended. During the course of arguments also Dr. Abhishek Manu Singhvi appearing for the CoC supported the submissions made by the learned Senior Counsel Mr. Neeraj Kishan Kaul for JSW to the effect that the Resolution Plan was implemented in part in March 2021 by making payment of Rs.19,350 Crores to Financial Creditors and making payment to the Operational Creditors in March 2022, and therefore the Appeals of the Appellants were required to be dismissed. Such a contradictory stands taken by the CoC at various stages of proceedings clearly proves that CoC had played foul and had not exercised its commercial wisdom in the interest of the Creditors.
  1. The SRA-JSW also made misrepresentations before the CoC, presenting a very rosy picture of Resolution Plan at the time of evaluation process conducted during the 18th Meeting and after securing the highest score as per the evaluation matrix, amended the said Plan, under the guise of compliance of the amended provisions of the Regulations, by submitting the Consolidated Resolution Plan with Addendum. Though the said plan was got approved from the NCLT by the Resolution Professional without confirming the compliance of Section 30(2) and the Regulations 38 and 39, JSW instead of complying with the terms and clauses of the approved Resolution Plan filed the Company Appeal before the NCLAT, just to delay the implementation of the Plan.
  1. Even after the impugned judgment was passed by the NCLAT, allowing the said untenable Appeal of JSW and dismissing the other Appeals of the Operational Creditors and the Ex-Promoters, the Resolution Plan was not implemented by JSW under the guise of pendency of the present Appeals, though there was no stay granted by this Court against the implementation of the Resolution Plan. On the contrary a statement was made by Dr. Singhvi appearing for the CoC, as recorded in the order dated 06.03.2020, to the effect that “in case he receives money he will return the said amount within two months, if the appeal succeeds.” Again, pending these Appeals, with a view to delay the implementation of the Resolution Plan, JSW filed an IA being No. 47947/2020 in SLP(C) No. 29327-29328/2019 (Civil Appeal Nos.14503-14504 of 2004), which were tagged along with the present Appeals, attempting to seek a stay on the implementation of plan under the garb of seeking clarification of the court’s order dated 06.03.2020, stating inter alia that JSW was not obligated to implement the Resolution Plan during the pendency of the Appeals filed by the Appellants herein.
  1. Thus, all throughout the proceedings, the plan was not implemented by JSW without any cogent reason or justification for about two and a half years after the approval granted by the NCLT and for about two years after the impugned order was passed by the NCLAT, leaving the creditors in lurch and leaving them high and dry.

Acts of misuse and abuse of process of law cannot be vindicated

  1. Now, a situation of fait accompli is sought to be presented before this Court by the learned Senior Advocate Mr. Neeraj Kishan Kaul appearing for JSW by submitting that pending the present Appeals, the Resolution Plan has been fully implemented. In our opinion, nobody should be permitted to misuse the Process of law nor should be permitted to take undue advantage of the pendency of any proceedings in any Court or Tribunal. Instituting vexatious and frivolous litigations in the NCLT or NCLAT and delaying the implementation of Resolution Plan under the garb of pendency of proceedings, has clearly proved the mala fide and dishonest intention on the part of JSW, in firstly securing highest score making misrepresentation before CoC and then not implementing the same under the garb of pendency of proceedings, though the Resolution Plan was supposed to be an unconditional one. Such acts of misuse and abuse of process of law cannot be vindicated by this Court, which otherwise would tantamount to ratifying and pardoning the illegal acts committed by JSW and thereby giving them a clean chit.
  1. An illegality of any nature cannot be permitted to be perpetuated, and a plea of fait accompli cannot be permitted to be raised by any party to cover up their illegal acts, after achieving the ill motivated intentions circumventing the law. As demonstrated earlier, there was an entire spectrum of lacunas and flaws in the Resolution Plan of JSW with regard to non-compliance of the mandatory requirements under the IBC. The Resolution Plan as approved by the CoC was an unconditional plan, and JSW was supposed to implement the same regardless of any unprecedented challenges or circumstances. JSW cannot treat the plan as conditional or optional, nor can it abdicate its responsibilities on the ground of unforeseen obstacles. It is pertinent to note that though all throughout from the date of order passed by the NCLT till March, 2021, the stand of the JSW evidenced through an affidavit was that it was not obliged to implement the plan because of the pendency of these Appeals, however JSW played smart by making part payment to the Financial Creditors in March, 2021, realizing the beneficial market trend of the Steel. It also surreptitiously got the Effective date extended to 31.03.2021 from the so-called core group of CoC, which had already become functus officio and which had no authority to extend the said Effective date. The net result is that the upfront payments as agreed to be made in the Resolution Plan within thirty days of the approval of the plan by NCLT was delayed by 540 days in respect of payment to the Financial Creditors and by 900 days in respect of payment to the Operational Creditors. The Equity commitment as per clause 2.3 of the Resolution Plan with regard to the infusion of Equity into the Company for an amount aggregating INR 8,550 crores, to be infused upfront on the Effective date, was also not complied with by JSW.
  1. It is very pertinent to note that the upfront payments and commitment with regard to infusion of Equity into the company was one of the main criteria on which JSW had scored the highest in the evaluation matrix determined by the CoC. Thus, after obtaining the approval of its Resolution Plan from CoC by presenting a rosy picture, misguiding the CoC, and defeating the rights of other Resolution Applicants, JSW did not respect and honor the said commitments, and on the contrary tried its level best to delay the implementation of the Resolution Plan without any cogent reason or justification. This is nothing but a misuse of process of law and a fraud committed by JSW with the CoC and other stakeholders.
  1. Recently, this Court in State Bank of India and Others Vs. Consortium of Murari Lal Jalan and Florian Fritsch and Another (2024) SCC OnLine 3187, has made very apt observations, with regard to the delaying tactics adopted by the Successful Resolution Applicant in implementing the Plan, and the NCLT and NCLAT adopting casual approach in exercising discretion in granting extension of the timelines fixed under the Code. The Court while directing the Corporate Debtor to be taken into liquidation, observed thus: –

“173. This litigation is an eye-opener also as regards the manner in which the implementation of plans are handled by the successful resolution applicant and the lenders involved in the process. Once a resolution plan is approved under the Insolvency and Bankruptcy Code, 2016 the successful resolution applicant undertakes a profound responsibility to implement the plan in both letter and spirit. This obligation is not merely an empty formality but an enduring commitment to restore the corporate debtor to viability and ensure a meaningful turnaround. The role of the successful resolution applicant is thus far more than a transactional duty towards the creditors or stakeholders; it embodies a pivotal responsibility to the distressed entity itself, which must be approached with utmost dedication and an earnest sense of duty.

Regardless of the challenges that may arise, the successful resolution applicant cannot treat its obligations as optional or conditional, nor can it abdicate its responsibility in the face of unforeseen obstacles. Its efforts must reflect a determination to implement the plan fully and to rejuvenate the debtor company, as this is integral to the success of the Insolvency and Bankruptcy Code, 2016 framework and the spirit of economic revival it seeks to foster. The approach, therefore, must not be frugal or narrowly profit-driven, limited to viewing the transaction through a purely commercial lens. Instead, it must recognize that rescuing a distressed company is a responsibility of significant social and economic value, demanding a holistic and responsible strategy. This involves a dedication to long-term outcomes, where the successful resolution applicant adopts measures that genuinely support the debtor’s rehabilitation, rather than making minimal or half-hearted attempts at implementation. The courts and Tribunals have consistently underscored that the successful resolution applicant’s role transcends commercial interest and embodies a commitment to the larger purpose of corporate revival. Consequently, it must make thoughtful and sustained efforts, demonstrating adaptability and resilience even when faced with obstacles or operational impediments. Simply put, the successful resolution applicant cannot step back or dismiss its obligations by attributing delays or setbacks to the conduct of other stakeholders, as this would undermine the very purpose of insolvency resolution.

174-175………………………

    1. The Insolvency and Bankruptcy Code, 2016 is silent as regards the phase of implementation of the resolution plan by the successful resolution applicant. This is mostly due to the fact that each resolution plan might be unique and customized to the specific needs of the corporate debtor and an excessive amount of statutory control over the implementation of the plan may prove to be counterproductive to the cause of the corporate debtor. However, this has unfortunately led to the consequence of giving excessive leeway to the successful resolution applicants to act in flagrant violation of the terms of the resolution plan in a lackadaisical manner. The successful resolution applicants repeatedly approach the Adjudicating Authority or the National Company Law Appellate Tribunal for the grant of reliefs in relation to relaxation of the strict compliance to the terms of the plan, including the timelines imposed therein. The National Company Law Tribunal and National Company Law Appellate Tribunal more often than not, accede to such requests in exercise of their inherent powers under rule 11 or their power to extend time under rule 15 of the National Company Law Tribunal and National Company Law Appellate Tribunal Rules, 2016 respectively. It is reiterated that the National Company Law Tribunal and National Company Law Appellate Tribunal must not entertain such repeated attempts at violating the integrity of a committee of creditors approved resolution plan by accommodating the incessant requests of the successful resolution applicants. The exercise of discretion as regards altering the binding terms of the resolution plan, including the timelines imposed, must be kept at a minimum, at best. The National Company Law Tribunals/National Company Law Appellate Tribunals need to be sensitized of not exercising their judicial discretion in extending the timelines fixed under the Insolvency and Bankruptcy Code, 2016 or the resolution plan, in such a way that it may make the Code lose its effectiveness thereby rendering it obsolete.”
  1. Thus, it is quite clear that merely because the Code is silent with regard to the phase of implementation of the Resolution Plan by the Successful Resolution Applicant, neither the Tribunal nor the Courts should give excessive leeway to the Successful Resolution Applicant to act in flagrant violation of the terms of the Resolution Plan or in a lackadaisical manner. In the instant case, SRA/JSW did not implement the Resolution Plan for about two years since its approval by the NCLAT, though there was no legal impediment in implementing the same. Such flagrant violation of the terms of the Resolution Plan, has frustrated the very object and purpose of the Code. It is needless to say that the Resolution Plan, after its approval by the Adjudicating Authority i.e. NCLT under Section 31, is binding not only to the Corporate Debtor, its employees, members, creditors and the Government authorities but also to all the stakeholders including the successful Resolution Applicant itself. It may be noted that any contravention of the terms of the approved Resolution Plan, by any person on whom such plan is binding under Section 31, is liable to be prosecuted and punished under sub-section (3) of Section 74 of the IBC. It is also further required to be noted that in view of Section 33, where the Adjudicating Authority, before the expiry of the insolvency resolution process period or the maximum period permitted for completion of corporate insolvency resolution process under Section 12, does not receive a Resolution Plan under Sub-section (6) of Section 30; or rejects the Resolution Plan under Section 31 for the non-compliance of the requirements specified therein, it has to pass an order requiring the Corporate Debtor to be liquidated in the manner as laid down in Chapter III of the IBC.

 

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