August 2025
1. Introduction
The Supreme Court’s ruling in Kalyani Transco v. M/s Bhushan Power & Steel Ltd. & Ors. addresses whether procedural irregularities that occur during the Corporate Insolvency Resolution Process (“CIRP”) are sufficient to undo an approved resolution plan under the Insolvency and Bankruptcy Code, 2016 (“Code”). CIRP leads to two possible outcomes; either the revival of a company through resolution or liquidation. Traditionally, courts have upheld the finality of a resolution plan once the Committee of Creditors (“CoC”) and the adjudicating authority approve it. However, this judgment signals a shift, suggesting that if CIRP suffers from illegality or non-compliance, judicial intervention may be warranted even after the plan is approved.
This newsletter analyses the impact of the decision on India’s insolvency framework.
2. Facts and Contentions
2.1 Facts: Punjab National Bank initiated CIRP against Bhushan Power and Steel Limited (“BPSL”). During the proceedings, numerous resolution plans were submitted and, ultimately, the CoC approved JSW’s plan. In due course, National Company Law Tribunal or NCLT approved the resolution plan subject to certain conditions. These were (a) adhere to section 30(2) of the Code;[1] (b) treat pending criminal proceedings against the previous management of BPSL such that they do not impact implementation of the resolution plan; and (c) distribute profits earned by corporate debtor during the CIRP in accordance with the judgment of Essar Steel.[2]
Within a month of NCLT approval, the Enforcement Directorate or ED claimed an independent right to investigate and attached the assets of BPSL under section 5 of Prevention of Money Laundering Act, 2002 (“PMLA”).[3]
Meanwhile, JSW filed an appeal before National Company Law Appellate Tribunal or NCLAT, challenging the conditions in NCLT order and asset attachment by ED. NCLAT upheld the resolution plan, removed all conditions imposed by NCLT, and, relying on section 32A of the Code, barred ED from attaching BPSL’s assets since the resolution plan had already been approved.[4] Thereafter, certain parties including operational creditors, erstwhile promoters of BPSL, and State of Odisha, approached the SC to cancel resolution plan and initiate liquidation. While SC proceedings remained pending for more than five years, JSW proceeded with plan implementation and paid financial and operational creditors. ED also filed a separate appeal in the SC challenging the NCLAT order, which the apex court later disposed, directing attached assets to be restored to JSW.
2.2 Contentions: The appellants contended that the CIRP and resolution plan violated the Code’s provisions as (a) CIRP was not completed within the statutory period of 270 days; (b) CoC and resolution professional failed to verify the eligibility of the resolution applicants, especially JSW; (c) financial creditors were given precedence over operational creditors, in violation of the statute; (d) JSW colluded with the CoC, enriching itself at the cost of the operational creditors; and (e) NCLAT exceeded its jurisdiction by barring ED’s attachment of assets under the PMLA, which is outside the scope of the Code.
The Respondents, JSW and the CoC, argued that (a) CIRP went beyond the 270 days period due to uncertainty caused by ED’s attachment of assets; (b) since JSW submitted the statutory affidavit verifying its eligibility, there was no need for re-verification; (c) JSW paid financial and operational creditors in accordance with the approved plan; (d) there was no collusion since, decisions of the CoC, including extensions granted for implementation of the resolution plan, were based on commercial viability and, therefore, not up for judicial review; (e) resolution plan is in the best interest of all the parties.
3. Court’s Findings and Analysis
3.1 Findings: The SC, set aside NCLAT judgment, rejected the resolution plan for non-compliance with the Code, and ordered BPSL’s liquidation on the following grounds
- Adherence to Code’s timeline: resolution professional and the CoC failed to complete the CIRP within the statutory period of 270 days mandated under Section 12 of the Code. Adherence to this timeline forms core of the insolvency framework; therefore, any resolution plan approved beyond this time limit becomes legally unsustainable and, consequently, invalid in law;
- Verification of resolution applicant: resolution professional did not verify the eligibility of resolution applicant and failed to submit the compliance certificate which certifies the same. This failure of resolution professional may result in an ineligible applicant being granted access to CIRP thereby violating provisions of the Code;
- Rights of operational creditors: section 30(2) protects the rights of operational creditors regarding payment of debts.[5] Any deviation, whether through inadequate payment, dilution of priority, or improper approval by resolution professional or the CoC, would render the resolution plan illegal and incapable of implementation;
- Resolution plan to be implemented swiftly: once submitted and approved, the resolution plan must be enforced promptly and unconditionally. Since the Code is silent regarding phased implementation of resolution plan, JSW misused the process of law and delayed the implementation by over two years;
- Jurisdictional overreach by NCLAT: NCLT and NCLAT have well-defined jurisdictional powers. NCLAT exceeded its jurisdiction by adjudicating matters relating to the PMLA, which fall outside the purview of the Code.
3.2 Analysis: The judgment raises broader questions regarding the finality of a court-approved resolution plan. The SC’s rigid adherence to the CIRP timeline at the expense of overall commercial viability, certainty of process under the Code and rights of stakeholders like employees of BPSL undermines a foundational principle of insolvency law, that decisions regarding feasibility of resolution plan rest with the CoC. In fact, it is their collective assessment of commercial matters which guides the insolvency process. Judicial intervention at a stage, when the CIRP is nearing completion and stakeholders have already received payments, may also discourage prospective applicants from participating in the process.
The duration of the matter in the SC is also a cause for concern. Although NCLAT approved the resolution plan in 2020 and the appeals were filed in the same year, the matter was only heard effectively in 2025. It is indeed ironical that despite the apex court’s consistent emphasis on completing the CIRP within the statutory period, the appeal was heard five years after the plan was approved and accepted by all stakeholders.
However, the SC has now admitted a review petition filed by JSW, where it sought an injunction on liquidation of BPSL. SC has allowed this petition, and has recalled its judgment, staying its implementation, noting inconsistencies with earlier precedents. This development reopens the debate on the validity of the resolution plan, role of the CoC, and limits of judicial intervention under the Code.
4. Conclusion
The judgment exposes issues within the Code, including the status of amendments in an approved resolution where judicial overreach and statutory compliance take priority over commercial viability and finality of the resolution plan. Additionally, it challenges the doctrine of “Clean Slate Theory”, which states that once a resolution plan is approved, the successful applicant acquires corporate debtor free from past liabilities, prosecutions, or attachments, thereby granting finality to the plan. The doctrine has been one of the cornerstones of the insolvency regime in India after its codification through section 32A. With the SC recalling the judgment, its legal position remains in flux. The outcome will be pivotal in defining the boundaries between the insolvency regime and enforcement actions under other statutes.
Author
Nilay Mishra
[1] The provision casts a duty on resolution professional to examine every resolution plan submitted during the CIRP.
[2] In Committee of Creditors of Essar Steel v. Satish Kumar Gupta, SC held that profits earned by corporate debtor during CIRP must be distributed proportionately among creditors in accordance with the resolution plan.
[3] The section empowers authorities to attach property suspected of being involved in money laundering.
[4] The provision provides the liability for offences committed prior to commencement of the CIRP shall not be imposed on the new management of the corporate debtor.
[5] The provision requires that a resolution plan must provide for the payment to the operational creditors of at least the amount they would have received in the event of liquidation.