Bhushan Power liquidation order rattles banks, lawyers

The Supreme Court on Friday ordered the surprise liquidation of Bhushan Power & Steel Ltd, nearly five years after India's largest steelmaker JSW Steel Ltd acquired the bankrupt company in an insolvency auction.

- Krishna Yadav & Shayan Ghosh

Lawyers termed the order unprecedented, as it overturns prior orders by the company law tribunal, raises questions over the fate of loans recovered by the banks, and imperils the investments that JSW Steel made into the company.

JSW Steel's ₹19,700-crore rescue plan violated provisions of the Insolvency and Bankruptcy Code (IBC), and BPSL's committee of creditors (CoC) erred in approving it, a bench of justices Bela M. Trivedi and Satish Chandra Sharma ruled.

The court declared the resolution plan "illegal and contrary to IBC provisions" and criticized the CoC for failing to follow the legal framework, before invoking Article 142 of the Constitution to order the liquidation.

The decision marks a dramatic end to one of India's longest and closely-watched insolvency cases. It could have significant implications for lenders including State Bank of India and Punjab National Bank, among BPSL's largest creditors. That's because liquidations typically result in much lower recoveries than resolutions. It is unclear what happens to the recoveries made by banks.