Liquidation of debt-ridden firm last option under Insolvency and Bankruptcy Code: SC

New Delhi, Sep 26 (PTI) Ordering liquidation of a debt-ridden company under the Insolvency and Bankruptcy Code has to be the last option, the Supreme Court said on Friday while upholding JSW Steel's resolution plan for the ailing Bhushan Power and Steel Limited (BPSL).

The top court also held that interfering with the commercial wisdom of the Committee of Creditors (CoC) is ordinarily "non–justiciable" and any judicial intervention "would amount to the court rewriting the law and going against the very objectives of the IBC (Insolvency and Bankruptcy Code)".

The significant observations were made by a bench comprising Chief Justice B R Gavai and Justices Satish Chandra Sharma and K Vinod Chandran in the judgment. It upheld JSW Steel's Rs 19,700-crore resolution plan for debt-ridden BPSL.

It also upheld the February 17, 2020 verdict of the National Company Law Appellate Tribunal (NCLAT) which had allowed JSW Steel to acquire BPSL by providing it immunity from prosecution by the Enforcement Directorate (ED).

These remarks assume significance as the CJI-led bench set aside its own judgment of May 2, penned by Justice Bela M Trivedi, since retired, ordered the liquidation of BPSL.

"In the present matter itself, it can be seen that when the matter was first decided by this Court by judgment and order dated 2nd May 2025, this Court had directed the liquidation proceedings to be initiated against the Corporate Debtor.

"However, as has already been discussed hereinabove, the dominant purpose of the IBC is to resort to the liquidation proceedings as the last option. If the contention of the erstwhile promoters-cum-directors that the CoC ceases to exist after the Resolution Plan is accepted, then as already discussed hereinabove, it will lead to an anomalous situation," the CJI wrote in the 136-page judgment.

Referring to provisions, the verdict said if such an order of liquidation is passed, it will leave "creditors high and dry".

"If the contention is accepted, the creditors would not be in a position to take any steps that are found necessary for realizing its dues from the Corporate Debtor. The said situation may lead to a state of limbo. Such cannot be the intention of the legislature which has enacted the law with the dual purpose of making the Corporate Debtor an on-going concern and realizing the dues of the Corporate Debtor," it said.

It referred to insolvency regulations and said they empowered the CoC to hold meetings till either the Resolution Plan is approved under Section 31(1) of the IBC or an order for liquidation is passed under Section 33 of the IBC.

"It may not be out of place to mention that the CoC has a vital interest in the Resolution Plan and that such an interest would continue till the Resolution Plan is actually implemented. It is only after the implementation of the Resolution Plan that payment can be made to the creditors, of their dues, in accordance with the Resolution Plan, which has been approved by the Adjudicating Authority," it said. PTI SJK SJK KSS KSS