In today’s Finshots, we look at how a thousand of crores worth of a resolution plan was tossed out years later and why it could shake the very core of India’s insolvency law.

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The Story

If I told you a steel company collapsed under ₹47,000 crores of debt, you might think it’s one of those classic tales from the pre-Insolvency and Bankruptcy Code (IBC) era – when companies borrowed like there was no tomorrow and banks dished out loans like wedding sweets.

And you’d be right.

But what if I told you that even after five long years… after the company resolution was approved, the buyer paid the full amount, the debt was written off, and everything seemed settled… India’s Supreme Court recently scrapped the whole deal and sent it back to square one?

That’s exactly what’s happening with Bhushan Power & Steel Ltd or BPSL.

But how did it come to this?

Let’s take it from the top.

In the 2000s, BPSL was on a roll. Part of the Bhushan Group, it had big dreams — ride India’s infrastructure boom, build massive capacity, borrow heavily and become a steel empire. And by 2013, it did become one of India’s largest steel companies.

Only, it borrowed a little too much.

By 2017, it owed over ₹47,000 crores to nearly 30 banks! Sure, most of it went into aggressive expansion — plants in Odisha, Maharashtra and Chandigarh. But in chasing scale, the company forgot sustainability. It imported expensive equipment, ran into delays and couldn’t get a handle on costs. Revenue stalled. Steel prices crashed. Losses piled up. And soon, it was bleeding ₹1,600 crores a year in interest payments alone.

Meanwhile, its promoters weren’t exactly helping the case. . The Enforcement Directorate (ED) accused them of defrauding banks of over ₹4,000 crores and laundering money through shell companies.

Oh, and just around this time, in 2017, the Reserve Bank of India (RBI) dropped the… “Dirty Dozen” list. A list of India’s 12 most toxic corporate defaulters that together owed banks over a gargantuan ₹3.4 lakh crore and accounted for about 25% of the country’s bad loans. And on top of that list of defaulters was …well, BPSL.

And just like that, it became one of the first big cases pushed into insolvency under India’s new Insolvency and Bankruptcy Code.

Now, the IBC was India’s cleanup act. Before that, defaults dragged on for years. Promoters stalled cases. Banks wrote off loans. But IBC promised resolutions in 270 days, failing which, companies would be liquidated. Creditors finally had power. And it attracted serious buyers who could spot value in stressed assets.

And that’s where JSW Steel walked in.

By 2019, JSW agreed to acquire BPSL by paying ₹19,700 crores to creditors. Yup, it was just 41% of what BPSL actually owed, but given the mess, banks approved this plan.

And JSW committed another ₹8,550 crores in equity to revive operations.

After years of legal tussles, the National Company Law Tribunal (NCLT) approved the deal in 2021. JSW paid the money. Banks wrote off the rest. BPSL was back in business under new management.

That should’ve been the happy ending, right?

Well, not quite.

Turns out, the ED had attached BPSL’s assets in the money laundering case against the old promoters. The NCLT and NCLAT ruled that JSW wasn’t liable for past crimes. But the ED wasn’t having any of it. Fraud is fraud, it argued. A new buyer doesn’t wipe the slate clean. So it took the matter to the Supreme Court.

And that brings us full circle…

Fast forward to this month and the SC dropped a bombshell.

It didn’t just side with the ED. It scrapped the entire JSW-BPSL resolution.

Why? Because the process violated key principles. The SC listed several issues:

First, the process overshot IBC’s 270-day limit. JSW submitted a revised bid after the deadline, and the process dragged on for two years.

Second, operational creditors — suppliers of goods and services, were sidelined. They got just ₹350 crores against ₹733 crores in claims.

Third, the Committee of Creditors (CoC) approved changes without adequate rationale or public disclosure. The court said they didn’t show proper “commercial wisdom.”

Fourth, the process ignored ED’s asset attachments. That undermined the resolution’s finality.

Fifth, the court said granting a “fresh start” to JSW without resolving pending legal proceedings created a legal loophole.

Sixth, the NCLT and NCLAT overstepped by approving changes and dismissing objections from investigative agencies.

In short, the SC said the entire resolution flouted IBC’s principles of transparency, fairness and finality.

And so now, years after insolvency proceedings were initiated, we’re back to where it all began. Bhushan Power is officially unresolved again and on the brink of liquidation.

What happens next?

Well, ripple effects.

First up, JSW Steel. It has operated BPSL for over two years. It’s pumped in crores to upgrade plants, integrated BPSL into its books and 12% of JSW’s steel output comes from it. But now the ownership itself is in limbo. JSW says it’ll explore legal options — probably a review or a curative petition. But for now, it can’t reflect BPSL’s full value on its books. And this raises a larger question — will buyers take on such risks if past crimes keep haunting future owners?

Then, there are the banks.

They’d marked BPSL as resolved. Wrote off bad loans. Booked recoveries. Reversed provisions. Now, with liquidation back on the table, they may have to treat it as a bad loan again — meaning higher provisioning, lower profits and eventually taxpayer-funded recapitalisation. Again.

SBI, PNB, Union Bank of India, and Canara Bank are among the worst hit. They had over ₹31,000 crores in claims. And after years and a massive haircut, they’re back to square one.

But most importantly, this rattles the IBC itself.

Remember, its biggest promise was finality. Once a resolution was approved and implemented, it couldn’t be challenged endlessly. That’s now shaken. If a court can overturn a done deal years later, what’s the incentive for a buyer?

That makes future CoCs cautious too. They might drag their feet on approving bids, fearing legal consequences. And that again slows the entire resolution process.

In short, a classic case that highlights the tension between criminal accountability and commercial certainty. Should bad actors be punished even if it hurts future buyers? Or should we give a clean slate to revive sick companies quickly?

The SC chose the former. But in doing so, it might’ve made the latter — the IBC — weaker.

And maybe that’s the message here.

Because let’s face it. The rot began much earlier. BPSL borrowed recklessly. Banks lent blindly. No one asked if the bets were backed by profits.

And now no one knows what will happen next.

The government is reviewing the SC’s order. The CoC may need to rerun the resolution process. JSW or other buyers might step in to bid again. Or maybe, the whole thing drags on for years, and we end up seeing BPSL broken up and sold piece by piece — land, plants, machinery, to recover what’s left.

Meanwhile, the IBC remains a work in progress. Sure, it’s resolved over 900 cases and forced promoters to take debt seriously. But it’s also shown us that bankruptcy isn’t just about money. It’s about law, enforcement and unintended consequences.

So yeah, if India wants to fix its bad loan mess, it’ll need more than a bankruptcy code. It needs sharper bank due diligence, faster action on fraud and a process that balances clean exits with accountability — without taking seven years to decide what should’ve taken months.

And that’s the court’s real message.

Maybe this shake-up was overdue.

Because this wasn’t just a failed resolution. It was a very expensive reset.

Until then…

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