Supreme Court Annuls JSW Steel’s Acquisition of Bhushan Power & Steel
- ByAdmin --
- 09 May 2025 --
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In a landmark ruling, the Supreme Court of India has annulled JSW Steel’s acquisition of Bhushan Power & Steel Ltd. (BPSL), sending significant ripples across the corporate insolvency and mergers landscape. The Court’s decision highlights the need for strict compliance with statutory procedures during insolvency proceedings and reinforces the importance of constitutional safeguards, especially when competing interests of economic recovery and criminal investigations collide.
Background
Bhushan Power & Steel Ltd., once a major player in India's steel sector, was dragged into the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) after accumulating debts over ₹47,000 crore. Following a competitive bidding supervised by the Committee of Creditors (CoC), JSW Steel emerged as the highest bidder with a ₹19,700 crore resolution plan. The plan was approved by the National Company Law Tribunal (NCLT) and upheld by the National Company Law Appellate Tribunal (NCLAT).
However, issues arose when the Enforcement Directorate (ED) attached several assets of BPSL under the Prevention of Money Laundering Act, 2002 (PMLA), citing money laundering allegations against BPSL’s former promoters. This led to a legal conflict between the rights of a successful resolution applicant and the ED’s statutory powers under the PMLA.
Supreme Court’s Observations
The apex court found serious procedural lapses and statutory conflicts, leading to the annulment of the acquisition.
Key observations included:
- Violation of Due Process:
The acquisition process was not fully transparent, and key stakeholders were not adequately involved as required under the IBC. - Conflict with PMLA Proceedings:
The Court noted that assets attached under PMLA proceedings cannot be transferred until adjudication is complete, referencing Sections 5 and 8 of the Prevention of Money Laundering Act, 2002. - Supremacy of the Rule of Law:
Referring to Articles 14 and 21 of the Constitution of India, the Court emphasized the necessity of fair, reasonable, and non-arbitrary decision-making. - Autonomy of Statutory Authorities:
Proceedings under one law (IBC) cannot extinguish statutory proceedings under another (PMLA), respecting legislative intent under Article 246 of the Constitution.
Relevant Legal Framework
Several important laws came into play in this case:
- Insolvency and Bankruptcy Code, 2016
- Section 31: Resolution plan binding on stakeholders once approved.
- Section 238: IBC overrides other laws unless constitutional protections are violated.
- Section 31: Resolution plan binding on stakeholders once approved.
- Prevention of Money Laundering Act, 2002
- Section 5: Allows provisional attachment of properties involved in money laundering.
- Section 8: Confirms attachment following adjudication.
- Constitution of India
- Article 14: Equality before law.
- Article 21: Protection of life and liberty, including fair procedures.
- Article 246: Division of legislative powers among Union and States.
- Companies Act, 2013
- Section 230-232: Compromise or arrangement with creditors and members.
Thus, while the IBC aims for swift insolvency resolutions, it cannot override proceedings meant to prevent financial crimes under the PMLA.
Implications of the Judgment
The Supreme Court’s decision has wide-ranging implications for the corporate and financial sectors:
- Caution for Investors:
Resolution applicants must now conduct thorough due diligence, ensuring there are no pending criminal proceedings or asset attachments.
- Complexity of Resolution Plans:
Resolution plans must account for attached assets or statutory restrictions imposed by agencies like ED.
- Empowerment of Enforcement Agencies:
The judgment affirms the power of authorities like the ED to act independently of corporate insolvency proceedings.
- Strengthening Judicial Review:
The Court asserted that judicial review remains available to check arbitrary administrative or corporate decisions.
Conclusion
The annulment of JSW Steel’s acquisition of Bhushan Power & Steel is a significant reaffirmation that India's insolvency framework, while robust, must operate within the larger constitutional scheme. Economic expediency cannot come at the cost of procedural fairness or statutory compliance. This judgment will serve as a critical precedent, ensuring that corporate resolutions respect both financial recovery mechanisms and the necessity to curb financial crime.
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