Rethinking the state's role

A landmark ruling on May 2, the Supreme Court of India ordered the liquidation of Bhushan Power and Steel Ltd (BPSL) while disposing of an appeal filed in 2020.

- MS SAHOO

The court found grave irregularities, some intentional and collusive, in the approval and implementation of the resolution plan, attributing lapses to the Resolution Professional (RP), the successful Resolution Applicant (RA), the Committee of Creditors (CoC), the National Company Law Tribunal (NCLT), and the National Company Law Appellate Tribunal (NCLAT).

The judgment has since dominated headlines and ignited an intense debate.

Supporters have welcomed the verdict, asserting that the integrity of the insolvency process is non-negotiable and the rule of law must prevail.

They argue that the decision will act as a deterrent against misconduct and help restore trust in the Insolvency and Bankruptcy Code (IBC).

Critics, however, warn of the severe economic and institutional consequences of undoing a resolution years after its implementation.

They caution that no prudent RA would invest in a process that remains susceptible to reversal by state authorities even after closure.

From an economic standpoint, whether an insolvency proceeding ends in a resolution plan or liquidation is secondary, as is the scale of operation of the company undergoing the process.

What matters is the integrity and finality of the outcome.

If a resolution outcome, duly approved by the competent authority and either already implemented or under implementation, is annulled years later, it effectively punishes the company, its new stakeholders, and the broader economy.

This is not because of their failings, but due to the failure of those responsible for the approval and implementation of the resolution outcome.

A more balanced approach would have been to ring-fence the resolution outcome while ensuring swift and exemplary penalties for the wrongdoers.

The appeal could and should have been resolved in 2020, avoiding the five-year detour culminating in liquidation.