THE SUPREME COURT AND THE IBC: PRAGMATISM IN THE BHUSHAN POWER INSOLVENCY

This post is authored by Mahak Yadav and Nikhil Ranjan, 3rd-year students at National Law Institute University, Bhopal

INTRODUCTION

The Supreme Court’s decision in Kalyani Transco v. Bhushan Power and Steel Ltd. & Ors. (JSW BPSL) is a significant turning point in Indian insolvency law. It addresses the primary conflict between commercial pragmatism and procedural rigidity under the Insolvency and Bankruptcy Code, 2016 (IBC). This case emanated from the protracted insolvency proceedings of Bhushan Power and Steel Limited (BPSL). The implementation of the resolution process was delayed because the Enforcement Directorate (ED) attached the assets of BPSL under the Prevention of Money Laundering Act, 2002 (PMLA). The court had to weigh two conflicting objectives. One was the IBC’s mandate to complete the resolution process within the specified time. The second was the PMLA’s mission to track down and safeguard the proceeds of crime. In resolving the dispute, the court took a pragmatic stance. The court gave primacy to feasibility and economic revival over strict procedural timelines. This demonstrates the court’s growing view that IBC serves as an instrument for guaranteeing accountability  of stakeholders such as the CoC and resolution professionals, who must act in the best interests of the corporate debtor’s revival and creditor recovery, while maintaining economic efficiency.

This case has significant implications for the overall functioning of the IBC. The court distinguished between the stages of implementation and resolution. This substantially strengthened the CoC’s wisdom and provided flexibility within the rigid 330-day time limit.   At the same time, the decision raises the critical question: does judicial pragmatism advance the IBC’s goal of corporate revival, or does it risk undermining procedural certainty and structural discipline?

In this blog, the authors use 3 interconnected dimensions to critically examine this case. First, the court’s examination of Section 12 and clause 3.1, and how it affects procedural finality. Second, the endorsement of judicial minimalism and commercial wisdom in insolvency proceedings. Third, the evolving relationship between PMLA and IBC, especially viewed through the lens of the “clean slate” approach of Section 32A. The evaluations aim to examine whether the court’s pragmatic stance supports the IBC’s emphasis on revival or risks undermining its structural discipline.

BACKGROUND

This case arose from the Corporate Insolvency Resolution Process (CIRP) of BPSL. BPSL was included as one of the twelve significant corporate defaulters on the Reserve Bank of India's "dirty dozen" list in 2017. Punjab National Bank (PNB) then submitted an application under Section 7 of the  IBC. The CIRP started when the case was admitted by the National Company Law Tribunal (NCLT), located in New Delhi, in July 2017. Various resolution applicants submitted their plans, and after evaluation, JSW Steel Limited was chosen as the highest bidder.  JSW’s consolidated resolution was approved by the CoC in October 2018, and then the NCLT gave its approval in September 2019. The 11-month delay was primarily caused by the pendency of a money-laundering case initiated by the Enforcement Directorate against BPSL and multiple obstructive applications filed by the erstwhile promoters before various forums, which collectively prolonged the adjudication process.

At this time, the Central Bureau of Investigation (CBI) filed a formal complaint against BPSL and its directors for alleged offences under the Indian Penal Code (IPC) and the Prevention of Corruption Act. The ED then filed a provisional attachment order against BPSL's assets and started legal action under the Prevention of Money Laundering Act, 2002 (PMLA). This attachment of assets led to major delays in the implementation of the approved resolution plan. The former promoters, operational creditors, and other interested parties filed appeals before NCLT and NCLAT.  In February 2020, the National Company Law Appellate Tribunal (NCLAT) maintained the plan's approval while changing some of the NCLT's requirements.

This matter then reached the Supreme Court. Through its judgment dated 2 May 2025, the court invalidated the NCLT and NCLAT orders. It ordered the liquidation of BPSL and rejected JSW's settlement plan for violating Sections 30 and 31 of the IBC. However, through its judgment dated September 26, 2025, the Court recalled the earlier May judgment. This decision brings into focus key issues, which include the rights of former promoters, the link between the IBC and the PMLA, delays in plan implementation, and the CoC's authority following approval. These issues have broad ramifications for the interpretation and working of India’s insolvency framework.

READING CLAUSE 3.1 AND THE COURT’S PRAGMATIC TURN

The temporal discipline envisioned by section 12 of IBC is reinterpreted by the JSW–BPSL decision. Section 12(3) sets a strict deadline of 330 days to finish CIRP.  However, the BPSL process for plan approval spanned from July 2017 to September 2019. The statutory limit was exceeded by years since its execution continued well into 2021-2022. The core issue in the dispute concerned Clause 3.1 of the JSW Resolution Plan. This clause gave the CoC the power to extend the implementation period of the approved by a two-thirds majority. It was argued by the opposite party that this clause rendered the plan open-ended and diluted the IBC’s time-bound framework. This undermined procedural finality and permitted CoC to modify the plan even after approval.

The Supreme Court, however, adopted a pragmatic and functional interpretation. The court held that Clause 3.1 does not contradict IBC but rather facilitates the implementation in consonance with Section 30(2)(d), which contemplates provisions for supervision and execution. The court held that the timer in Section 12 stopped working once the resolution plan was approved under Section 31, and therefore, subsequent implementation falls under CoC’s commercial discretion. It made a distinction between the stages of implementation and resolution. External legal obstacles contributed to the delay, such as ED’s attachment of assets under the PMLA. The delay was not because of CoC or the successful resolution applicant's fault. The court declined to punish for events outside of its control, emphasizing the IBC’s mission of value maximization and regeneration. The court upheld Coc’s autonomy and economic feasibility by recognizing Clause 3.1 as a valid mechanism for post-approval flexibility, particularly in cases where implementation is delayed due to external factors.

This reasoning was described as doctrinally consistent with earlier rulings such as  Essar Steel India Ltd. v. Satish Kumar Gupta. The Supreme Court then adopted a liberal position in that case by striking down the word “mandatorily” from the section 12 proviso. Minor flexibility to put resurrection ahead of liquidation was preferred by the court. Similarly, Ritu Rastogi v. Riyal Packers demonstrates judicial tolerance for small delays (15-20 days) to avoid liquidation. These instances reflect the delicate balance courts aim to strike between economic pragmatism and procedural rigor.

However, Jtrue consistency is debatable. The opposite strategy was reflected in the Jet Airways case. The Supreme Court, in the referred precedent, invoked Article 142 of the Constitution of India to enforce strict adherence to Section 12 and ordered liquidation to protect procedural compliance. This contrast suggests not doctrinal consistency but rather an emerging shift toward selective flexibility based on the Court’s perception of economic context. The JSW judgment suggests that the “mandatory” deadline in Section 12 may be treated as directory rather than mandatory, as it prioritizes practicality over finality. Although economically sound, this line of reasoning might jeopardize the Code's core guarantee of time-bound certainty. It makes it difficult to distinguish between regulatory laxity and revival. It also calls into doubt the IBC's long-term legitimacy as a prompt and orderly insolvency process.

COMMERCIAL WISDOM AND THE QUESTION OF JUDICIAL ROLE

In this case, the court upheld the commercial wisdom doctrine, which follows the same path from K Sashidhar to Essar Steel. The court in K. Sashidhar held that the CoC’s collective judgments regarding feasibility and commercial acceptability are not subject to judicial review, if the statutory requirements are met. The court reiterated in Essar Steel that the NCLT and NCLAT cannot review or reevaluate CoC decisions if they are in compliance with Section 30(2) and grounds under Section 61(3). The recent Piramal Capital and Housing Finance case rejected appellate interference with allocations under Section 66 that were accepted by the CoC. The courts stressed that only blatant injustice or statutory infractions warrant intervention.

Judicial minimalism preserves market autonomy and creditor-led decision-making. However, excessive deference can enable outcomes that disadvantage certain creditor constituencies, particularly dissenting financial creditors and operational creditors who have limited voting power. To ensure fairness, courts must maintain limited but principled oversight to prevent procedural imbalance, valuation opacity, or arbitrary exclusion.

A comparison of global insolvency frameworks shows that, unlike India’s largely unrestricted CoC authority, other jurisdictions follow a system of structured oversight. In the United Kingdom, creditors can challenge the misconduct of administrators before the court. In Singapore, the judicial management process operates under active court supervision. In the United States, creditor committees’ function within a codified framework, such as Section 1129(a)(7) of United States Bankruptcy Code, to ensure fair treatment of all creditors. India’s insolvency regime can draw from these practices. Introducing guiding principles and procedural checks would help promote greater transparency, fairness, and accountability in the exercise of the CoC’s commercial wisdom.

SECTION 32A AND THE NEW CORPORATE IMMUNITY

The IBC Amendment Act, 2020, added section 32A, which strikes a careful balance between reviving stressed companies and accountability for past misconduct. Corporate debtors are provided immunity post approval of the resolution plan, but this protection applies only to the corporate debtor. The immunity is conditional upon a genuine change in management or control. Genuine change refers to a change in management or control of the corporate debtor to a person who was neither a promoter, related party, nor involved in any offence connected to the corporate debtor as explicitly outlined under Section 32A(1)(a) and 32A(1)(b). This section marks the “clean slate” principle, which was first recognized in Committee of Creditors of Essar Steel Ltd v Satish Kumar Gupta. This encourages the investors to bid for distressed assets without worrying about inheriting prior criminal liabilities.

The Supreme Court in Manish Kumar v. Union of India affirmed Section 32A's constitutionality. At the same time, the court clarified that the immunity is only provided to the corporate debtor and does not extend to erstwhile promoters responsible for prior offenses. The Court stressed that Section 32A is not a loophole for wrongdoers. However, this judicial assurance warrants closer scrutiny. While the provision aims to encourage bona fide investors, its broad phrasing leaves room for potential misuse if resolution applicants with indirect links to former promoters acquire control through intermediaries. Without robust due diligence and enforcement mechanisms, Section 32A could unintentionally serve as a shield for complicit actors rather than a safeguard for genuine acquirers.

Further judgments, including Rajiv Chakraborty RP of EIEL and Shiv Charan v. Adjudicating Authority, confirmed that corporate assets could be released from PMLA attachments following resolution. This guarantees that the approved plans remain viable. Meanwhile, the current case reaffirmed that statutory bodies such as the ED cannot overrule public law proceedings taken by NCLT and NCLAT. This protects corporate revival while maintaining the separation of powers.

All things considered, Section 32A establishes a pragmatic equilibrium. It safeguards the corporate debtor and its assets to revive viable businesses. In addition, it maintains accountability for prior misconduct. However, the provision’s effectiveness ultimately depends on the rigor of its enforcement. If the change in management is merely formal rather than substantive, Section 32A could risk shielding individuals indirectly connected to the wrongdoing. Ensuring thorough regulatory oversight and transparent verification of new ownership is therefore essential to preserve the balance between revival and responsibility. When implemented with these safeguards, Section 32A reinforces the IBC’s dual objective of maximizing asset value and ensuring timely, credible resolution.

BROADER IMPLICATIONS AND EMERGING TRENDS

The JSW-BPSL ruling has significant ramifications for India’s insolvency framework. The Court subtly suggests a more flexible approach to plan implementation by upholding the enforceability of post-approval flexibility. As a result, the CoC and resolution applicants can address intricate operational and regulatory issues without facing automatic procedural consequences. This flexibility, however, comes with a possible cost, because extended timelines may erode the predictability and procedural rigor that the IBC was intended to enforce.

Along with the limited judicial deference, the reaffirmation of the commercial wisdom concept demonstrates a trend in which Indian courts are favoring economic pragmatism over interventionist monitoring. This approach of the Indian courts aligns with international practices, such as Singapore’s judicial management framework and the UK’s administrator-led insolvency system. Simultaneously, section 32A becomes an important tool for investor trust. It offers a legally secure “clean slate” while making sure that defaulting promoters are held accountable for past wrongdoing.

All these changes point to a changing insolvency landscape that prioritizes investor protection, efficiency, and revival. But, at the same time, vigilance is also required to prevent potential abuse of procedural discretion.  Currently, the IBC lacks a clearly defined post-approval framework that regulates how resolution plans are to be executed once approved by the Adjudicating Authority. Introducing statutory guidelines for monitoring committees, timelines for execution, and accountability mechanisms for both resolution applicants and the Committee of Creditors would ensure greater procedural transparency. It would also help prevent undue delays caused by external factors or interpretive ambiguities, as seen in the JSW-BPSL case. Codification of such post-resolution obligations would thereby align India’s insolvency regime with global best practices, where clear supervisory structures exist to track compliance and performance after plan approval.

Additionally, it points out how important it is to maintain the fair treatment of operational creditors and calibrate timetables. When taken as a whole, these actions strengthen the IBC's dual purpose of value maximization and speedy resolution.

CONCLUSION

This judgment highlights the Supreme Court’s practical engagement with the IBC. It also draws attention to the fine line that separates legal frameworks from economic realities. The ruling provides a perspective for considering India's insolvency law as a dynamic tool of economic policy, in addition to restating procedural and commercial principles. Judicial interpretation influences not only legal decisions but also broader market confidence and corporate revival.

At the same time, the judgment highlights the persistent tension between operational flexibility and procedural discipline. While judicial pragmatism can prevent unnecessary liquidation and promote value maximization, it risks eroding the Code’s foundational guarantees of timely resolution and predictable outcomes. Maintaining this balance requires a combination of statutory and regulatory measures. Clarifying Section 12 to explicitly distinguish between resolution approval and post-approval implementation could allow limited flexibility while preserving the overall timeline. Regulatory guidance for CoC implementation would help set minimum standards for monitoring, transparency, and reporting during post-approval execution. Similarly, developing precedential frameworks for judicial review could outline when and how courts should intervene in CoC decisions, ensuring that commercial discretion does not compromise the rights of minority or operational creditors.

By integrating these reforms, India’s insolvency regime can safeguard both economic revival and procedural integrity. The JSW-BPSL ruling offers a blueprint for navigating the delicate interplay between economic realities and legal certainty, but its full promise depends on deliberate measures to institutionalize oversight, accountability, and transparency in post-approval implementation. In this way, judicial pragmatism can strengthen the IBC’s objectives without undermining its foundational principles.