Supreme Court Halts Liquidation of Bhushan Power and Steel: A Legal Analysis
- ByAdmin --
- 27 May 2025 --
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The Supreme Court of India recently stayed the liquidation proceedings against Bhushan Power and Steel Limited (BPSL), a company that has been undergoing insolvency resolution. This landmark decision has significant implications for corporate insolvency law in India, particularly under the Insolvency and Bankruptcy Code, 2016 (IBC). This article delves into the legal reasoning, key provisions involved, and the broader impact of this judgment.
Background
Bhushan Power and Steel Limited was admitted to insolvency resolution proceedings by the National Company Law Tribunal (NCLT) after defaulting on its financial obligations. The Resolution Professional (RP) was appointed to find a suitable resolution plan under the IBC framework.
However, the Resolution Plan did not receive the requisite approval from the Committee of Creditors (CoC). Subsequently, the NCLT ordered liquidation of the company, citing Section 33 of the IBC, 2016, which provides for liquidation where no resolution plan is approved.
BPSL challenged this liquidation order before the National Company Law Appellate Tribunal (NCLAT) and, thereafter, the Supreme Court.
Supreme Court’s Intervention
The Supreme Court, on hearing the matter, stayed the liquidation order, emphasizing the importance of preserving the corporate debtor's viability and safeguarding the interests of various stakeholders.
Key observations by the Supreme Court:
- The court highlighted the purpose of the IBC, which aims to revive and rehabilitate viable companies rather than pushing them towards liquidation.
- It reiterated that liquidation should be the last resort, only after all efforts for resolution have been exhausted.
- The court stressed the need for proper consideration of the resolution plans submitted, rather than hastily ordering liquidation.
- Emphasis was placed on protecting the jobs of employees and safeguarding creditors’ interests through resolution rather than liquidation.
Relevant Legal Provisions
- Section 5(26) of the IBC, 2016: Defines “liquidation” as the process of winding up the corporate debtor by selling its assets to repay creditors.
- Section 33(2) of the IBC, 2016: Empowers the Adjudicating Authority to order liquidation if no resolution plan is approved within the prescribed time.
- Section 31 of the IBC, 2016: Deals with approval of resolution plans by the Committee of Creditors.
- Article 21 of the Constitution of India: The Supreme Court’s observations also indirectly connect to the protection of livelihood under the right to life.
Importance of the Judgment
This decision reinforces the philosophy of the IBC to prioritize revival over liquidation. The judgment sends a strong message to the NCLT, Resolution Professionals, and creditors to exercise caution before opting for liquidation.
The stay provides an opportunity for BPSL to find a viable resolution plan, which can save the company from being wound up and preserve economic value.
Impact on Stakeholders
- Creditors: Have a chance to recover their dues through a resolution plan instead of receiving lesser amounts through liquidation proceeds.
- Employees: Stand to retain their jobs if the company is revived rather than liquidated.
- Shareholders: Although generally wiped out during insolvency, the prospect of resolution increases chances of better value realization.
- Resolution Professionals: Need to ensure thorough evaluation of resolution plans and engage stakeholders meaningfully.
Broader Implications for Insolvency Resolution
The Supreme Court’s decision aligns with the National Company Law Appellate Tribunal’s (NCLAT) approach, which favors restructuring and rehabilitation.
It is expected to influence future cases where liquidation is prematurely considered without exhaustive efforts for resolution.
This approach resonates with the object and scheme of the IBC, which includes maximization of value of assets and balancing interests of all stakeholders.
Conclusion
The Supreme Court’s stay on the liquidation of Bhushan Power and Steel is a pivotal moment in India’s insolvency jurisprudence. It underscores the judiciary’s role in interpreting the IBC not just as a tool for debt recovery, but as a framework to revive distressed companies and protect stakeholders.
This judgment encourages a balanced approach between creditors’ rights and the broader economic interest of sustaining businesses and employment.
Going forward, all parties involved in insolvency proceedings must recognize the importance of due diligence, transparency, and the spirit of the law to foster successful resolutions.
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