Impact of Supreme Court's Ruling on JSW Steel's Acquisition on M&A Practices
- ByAdmin --
- 13 May 2025 --
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In a landmark decision, the Supreme Court of India annulled JSW Steel’s ₹19,700 crore acquisition of Bhushan Power & Steel Ltd. (BPSL), citing violations of the Insolvency and Bankruptcy Code (IBC). This ruling has profound implications for mergers and acquisitions (M&A) in India, particularly concerning the reliability of the IBC as a mechanism for corporate restructuring.
Background of the Acquisition
In March 2021, JSW Steel acquired BPSL through the Corporate Insolvency Resolution Process (CIRP), aiming to resolve BPSL’s debts exceeding ₹47,000 crore. The acquisition was approved by the Committee of Creditors (CoC) and the National Company Law Appellate Tribunal (NCLAT). However, the Supreme Court's recent verdict overturned this decision, ordering BPSL's liquidation instead
Key Legal Findings
The Supreme Court identified several critical issues:
- Non-Compliance with IBC Provisions: The Court found that the resolution plan did not adhere to mandatory requirements under the IBC, including the treatment of operational creditors and the timeline for resolution.
- Failures in Resolution Process: It criticized the Insolvency Professional and the CoC for not fulfilling their statutory duties, leading to an "illegal" acquisition
- Lack of Transparency: The judgment highlighted deficiencies in the transparency and fairness of the resolution process, undermining stakeholder confidence.
Implications for M&A Practices
This ruling has significant consequences for M&A transactions in India:
- Uncertainty in Resolution Outcomes: The decision introduces uncertainty regarding the finality of resolutions under the IBC, potentially deterring investors from engaging in future insolvency-driven acquisitions.
- Increased Scrutiny of Resolution Plans: There will likely be heightened scrutiny of resolution plans by regulatory bodies, requiring more rigorous compliance with IBC provisions.
- Potential for Increased Litigation: The ruling may encourage more stakeholders to challenge resolution plans, leading to prolonged litigation and delays in the resolution process.
- Impact on Investor Confidence: The judgment may erode investor confidence in the IBC as a reliable mechanism for corporate restructuring, affecting the flow of capital into distressed assets.
Strategic Considerations for Corporates
In light of this development, companies engaged in or contemplating M&A activities should consider the following strategies:
- Enhanced Due Diligence: Conduct thorough due diligence to ensure compliance with all IBC provisions and to identify potential legal challenges.
- Stakeholder Engagement: Engage proactively with all stakeholders, including creditors and regulatory bodies, to address concerns and ensure transparency.
- Legal Advisory: Seek expert legal counsel to navigate the complexities of the IBC and to develop strategies to mitigate risks associated with potential litigation.
Conclusion
The Supreme Court's annulment of JSW Steel's acquisition of BPSL underscores the need for meticulous adherence to legal frameworks in M&A transactions. While the IBC remains a pivotal tool for corporate restructuring, this ruling serves as a cautionary tale for companies to ensure comprehensive compliance and transparency in their dealings.
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