Can Bhushan Steel run as a going concern?

With the company facing liquidation, the liquidator will reassess its valuation
| Photo Credit:
STRINGER/INDIA

The recent order by the Supreme Court in the Bhushan Power and Steel Ltd (BPSL) case has surprised everyone. BPSL was long considered a flagship case that showcased the IBC’s strength in resolving large and complex corporate defaults. Six years after the plan was approved by the NCLT, the Supreme Court has reversed the outcome.

The judgment carries far-reaching implications: it admonishes the conduct and commercial wisdom of stakeholders, questions the unreasonably benevolent interpretation adopted by appellate tribunals, and reignites uncertainty stemming from the misalignment between the IBC and other laws like Prevention of Money Laundering Act.

But a less explored aspect of the judgment is the implication of the liquidation order. The true import of ‘liquidation’ and its possibilities need to be explored. But first, a general assessment of the questions arising out of the order.

Instructive tone

Among IBC’s four pillars — Adjudicating Authority, Resolution Professional (RP), Committee of Creditors (CoC), and Information Utility — two are directly under its radar in this judgment. The tone is instructive, even corrective, especially in its emphasis on first principles like ‘Time’.

The recent judgment has rightfully underscored the sanctity of time in the insolvency process, placing accountability on the Resolution Professional, Committee of Creditors, and the Adjudicating Authority (NCLT) to ensure timely completion. The irony here is that while all stakeholders are urged to adhere to strict timelines, the final verdict reversing the resolution plan came six years after the process began.

The leniency shown by the Resolution Professional, CoC, and even the Appellate Tribunal during the CIRP (Corporate Insolvency Resolution Process) in applying Section 29A stands out as an unpardonable lapse. Even if the objective was to salvage a massive corporate debt owed to public banks, a serious violation of Section 29A cannot be brushed aside to rescue the corporate debtor. CIRP is not just about recovery, reaffirming that resolution has to work within the framework of Section 29A. The order emphasised the rule of law over expedient outcomes.

Now, with the Supreme Court’s reversal, unless a review or appeal is filed, BPSL seems destined for liquidation. IBC currently allows the corporate debtor to be sold as a going concern even during liquidation. This offers a narrow but significant window to consider and carefully resolve the case. The benefit of a moratorium like the prohibition of enforcing the security interest, that is available in CIRP is not available in liquidation. This exposes all the assets of BPSL to be sold by any authority that has charge of the asset, killing any chance of integrated value realisation.

Interestingly, the route of ‘liquidation as a going concern’ is already under policy scrutiny. In its February 2020 report, the Insolvency Law Committee mentions that the attempt to resolve a corporate debtor must stop at CIRP.

Accordingly, the IBBI discusses the sale of corporate debtor as a going concern in its discussion paper on ‘Streamlining Processes under the Code: Reforms for Enhanced Efficiency and Outcomes’ that was brought out on February 4, 2025 (Point 11). The discussion paper had proposed to omit the provisions relating to sale as a going concern in the liquidation regulations.

Valuation factor

The juicy deal for a resolution applicant in the IBC process is its sub-par valuation. Delays can negatively hamper the valuation. In the case of BPSL, where valuation is closely tied to market steel prices, this factor becomes even more critical. The Supreme Court pointedly observed: “Considering the rising prices of steel in the market, JSW sought to comply with the terms of Resolution Plan at a very belated stage, in collusion with the CoC and the Resolution Professional”.

To put this into context, the current steel price in the open market — ₹70,000-75,000 per tonne — is at least 30 per cent higher than the 2017 levels when the plan was first considered.

With the company now facing liquidation, the liquidator is duty-bound to reassess its valuation. Would the valuation consider the profits and investments into the fixed assets in the past six years during the CIRP progress? Ironically, if the valuation improves, this can defy the logic that resolution begets better valuation than liquidation. With the Stakeholders Consultation Committee replacing the CoC in liquidation, the liquidator faces the onerous task of ensuring that all stakeholders work in tandem to pursue resolution within the liquidation process, for the common good.

If the intent is to liquidate BPSL as a going concern, this could become a landmark precedent. But some questions remain: Is PMLA an exception to these provisions in CIRP? Does the immunity provided in Section 32A of the IBC for CIRP with respect to claims on the debtor, extend during liquidation?

The writer is a chartered accountant and insolvency professional

Published on May 19, 2025

📰 Crime Today News is proudly sponsored by DRYFRUIT & CO – A Brand by eFabby Global LLC

Design & Developed by Yes Mom Hosting