In a landmark decision that could have wide-reaching implications for India’s insolvency landscape, the Supreme Court on Friday annulled JSW Steel’s ₹19,700 crore resolution plan for Bhushan Power and Steel Ltd (BPSL), ordering liquidation of the troubled company.

The court declared the resolution plan “illegal,” citing violations of the Insolvency and Bankruptcy Code (IBC), and deemed the entire process non-compliant with mandated financial norms.

The resolution plan had previously received approval from BPSL’s Committee of Creditors (CoC). However, the apex court noted that JSW Steel employed a funding strategy that deviated from standard insolvency law protocols — using a mix of equity and optionally convertible debentures (OCDs) rather than pure equity.

The court emphasized that such a structure undermines transparency and creditor protection, which are central to insolvency law. It also pointed out JSW Steel’s failure to implement the resolution plan within the statutory deadline, further weakening the case for its approval.

As a result of the ruling, Bhushan Power & Steel, which has long struggled under a mountain of debt, will now head into liquidation. This marks a significant shift from what was initially one of the most anticipated takeovers in India’s steel sector.

The Supreme Court’s judgment sends a clear message to potential resolution applicants that creative financing tools, unless aligned strictly with the IBC, will not be entertained.

JSW Steel’s stock responded sharply to the ruling, falling by 5% on the Bombay Stock Exchange, as investors reacted to the loss of a strategic acquisition and the broader implications for the company’s expansion plans.

This decision is likely to influence how future resolution applicants structure their bids and reinforce the need for strict adherence to the IBC framework.

The verdict could also impact other pending or ongoing insolvency cases, prompting a reassessment of several resolution plans under review.

With the liquidation process now underway, creditors of BPSL may face significantly lower recoveries compared to what they would have received under the now-invalidated resolution plan.

Legal experts believe this ruling will trigger amendments or clarifications in insolvency laws to eliminate ambiguity around financing structures in resolution plans.