JSW Steel’s Bhushan Power Bet Backfires: Inside India’s Biggest Insolvency Reversal

By Indira V.

On May 2, 2025, India’s Supreme Court dropped a bombshell that shook the nation’s corporate and financial world, scrapping JSW Steel’s ₹19,700 crore acquisition of Bhushan Power & Steel (BPSL), a deal sealed back in 2021 under the Insolvency and Bankruptcy Code (IBC). The ruling, ordering BPSL’s liquidation—a steel giant drowning in over ₹47,000 crore of debt—has sent shockwaves through India’s insolvency system. It’s sparked heated debates about whether the IBC really works, how well creditors are protected, and whether investors can trust India’s market for distressed assets. For the government, creditors, and JSW Steel, this decision is a wake-up call about the tightrope walk of corporate restructuring and the heavy price of slipping on legal or procedural steps.
The story kicked off in 2017 when BPSL, crushed by financial woes, entered the IBC process, a system meant to save struggling companies or wind them down if revival isn’t possible. JSW Steel, India’s top steelmaker by capacity, swooped in as the winning bidder in 2019, offering ₹19,700 crore to take over BPSL, boosting its portfolio with 2.75 million tonnes of steelmaking capacity, especially in Odisha. Finalized in 2021, the deal was seen as a bold move for JSW, tackling BPSL’s massive ₹47,000 crore debt, including a $453 million fraud flagged by Punjab National Bank in 2019. But trouble brewed from the start, with legal battles piling up, including a ₹47,204 crore bank fraud and money laundering case led by the Enforcement Directorate in 2020, though the Delhi High Court shut that down earlier in 2025.
The Supreme Court’s May 2025 ruling flipped the script. Justices Bela M. Trivedi and Satish Chandra Sharma called JSW Steel’s resolution plan “illegal,” slamming it for breaking IBC rules. The court tore into the committee of creditors (CoC), led by banks like the State Bank of India (SBI), for dropping the ball on their duty to act wisely and protect creditors. It even accused JSW Steel of trying to game the court system with “dishonest and fraudulent” moves. The heart of the issue? Major delays—540 days for financial creditors and 900 days for operational ones—pointing to sloppy handling by the insolvency team and lenders. The court said these missteps violated Section 30(2) of the IBC, which demands fair treatment for creditors. So, it ordered BPSL’s liquidation, the biggest of its kind in India’s corporate history.
The fallout is huge and hits everyone involved. For JSW Steel, it’s a gut punch. The company could lose its hefty investment, with the court demanding it return payments to creditors and equity within two months. The market didn’t hold back—JSW’s shares tanked nearly 7% after the ruling, a clear sign of investor jitters. JSW isn’t going down without a fight, filing a review petition on June 25, 2025, to challenge the order and save its stake. Its cautious statement about “reviewing the order” shows it’s stuck in a tough spot, weighing its next move.

Detailed Table: Key Impacts and Responses

Stakeholder	Impact	Response/Action
JSW Steel	Loss of investment, operational setback, share price drop	Filed review petition on June 25, 2025, awaiting outcome
Creditors (Banks)	Uncertain recovery, lower returns via liquidation	Filed separate review petitions, engaging with government
Government	Need to address IBC framework integrity, policy implications	Finalizing response, discussed with banks, potential reforms
Investors	Shaken confidence, potential deterrence for distressed asset purchases	Monitoring case, assessing future investment climate

Creditors, especially banks like SBI and Punjab National Bank, are in a bind too, facing bleak recovery prospects. With ₹47,000 crore in claims, switching from a resolution plan to liquidation likely means they’ll get far less back, as liquidations often yield pennies on the dollar compared to structured deals. These banks, already reeling from BPSL’s collapse, have filed their own review petitions, scrambling to limit the damage. The stakes are high for India’s banking sector, which has long wrestled with bad loans and the messy business of resolving distressed assets.
The ruling’s ripples go beyond JSW and the banks, shaking up India’s investment scene. Legal experts are calling it a “confidence killer” for investors eyeing distressed assets. The IBC, launched in 2016 to streamline corporate turnarounds and boost creditor recoveries, was meant to make India a better place to do business. But the court’s rare move to undo a completed resolution plan has laid bare its weak spots, especially around transparency and accountability. It’s being called a “cautionary tale,” showing how procedural slip-ups can lead to drastic outcomes, with the court flexing Article 142 of the Constitution to enforce liquidation when rules aren’t followed.
The government’s not sitting idle. On May 5, 2025, M Nagaraju, Secretary of the Department of Financial Services, said, “We’re figuring out how to handle this judgment and will decide soon.” This hints at the government teaming up with banks to explore fixes, whether through policy tweaks or legal moves, to soften the blow on the IBC and the financial sector. Their response is critical, as the ruling could spark demands for reforms to make the insolvency process clearer and more consistent.
As of June 27, 2025, things are on hold, with the Supreme Court’s May 26 order freezing liquidation proceedings to keep the status quo. This gives JSW and creditors breathing room to push their review petitions, with the National Company Law Tribunal (NCLT) told to pause hearings until the court rules. The uncertainty shows how complex this case is and its potential to reshape IBC cases moving forward. If the petitions fail, BPSL’s assets will hit the auction block, likely at a steep discount, making life harder for creditors and throwing a wrench in JSW’s plans.
The Bhushan Power ruling is a game-changer for India’s insolvency system, showing both its strengths and cracks. The court’s move underscores its commitment to legal standards and creditor rights, ensuring slip-ups don’t undermine the IBC’s goals. But it also highlights how tough it is to pull off complex resolutions in a high-stakes corporate world, where delays, mismanagement, and legal fights can derail even the best-laid plans. The court’s sharp words about JSW’s “dishonest” tactics and the CoC’s failures are a loud warning to everyone in the insolvency game to play by the rules.
For investors, this adds a layer of risk that could cool interest in distressed assets. The IBC was built to draw buyers with a clear path to snag valuable assets at good prices, but this case shows how courts can upend deals years later, creating uncertainty that might make investors think twice. That could slow down IBC resolutions and dent India’s image as a business-friendly market. The government’s next steps, as Nagaraju hinted, will be key to rebuilding trust and fixing the system’s weak points.
The saga also sparks bigger questions about balancing corporate recovery with creditor protection. The IBC aims to maximize asset value while treating stakeholders fairly, but the court’s choice to prioritize liquidation over a flawed plan suggests legal integrity can trump economic goals. That’s legally solid but could mean lower recoveries for creditors and disruptions for companies like JSW, which had woven BPSL’s assets into its operations.
With review petitions pending, the Bhushan Power case is a critical test for the IBC’s staying power. Its outcome will likely shape how resolution plans are crafted, how creditors make decisions, and how courts oversee the process. For now, JSW, the banks, the government, and investors are in limbo, knowing this case could redraw the lines of India’s insolvency system. The Supreme Court’s ruling isn’t just about one failed deal—it’s a rallying cry to tighten the rules governing corporate distress, ensuring the IBC lives up to its promise of driving economic stability and investor confidence in India’s fast-moving market.

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