The JSW Steel Ruling: A Watershed Moment for Legal Certainty in India's Insolvency Landscape

The Supreme Court of India's June 2025 rejection of JSW Steel's review petition in the Bhushan Power and Steel Ltd. (BPSL) case marks a seismic shift in the nation's insolvency regime. By invalidating a multi-billion-dollar resolution plan that had already been implemented, the court has underscored a stark new reality: procedural rigor under the Insolvency and Bankruptcy Code (IBC) now outweighs commercial outcomes. For investors, this decision introduces profound uncertainty in distressed asset acquisitions, reshaping risk calculations across sectors like steel, where consolidation has relied heavily on IBC-driven turnarounds.

The Legal Groundbreaking: Procedural Compliance as the New North Star

The court's ruling hinged on six critical violations of the IBC's procedural framework, starting with a glaring 18-month delay in concluding BPSL's Corporate Insolvency Resolution Process (CIRP). Section 12 of the IBC mandates a 330-day timeline for such processes, but the BPSL CIRP stretched to over 600 days. The court labeled this a “per se defect”—an irreparable flaw that rendered the entire process unlawful, regardless of the plan's commercial merits.

Further flaws included the Resolution Professional's failure to verify JSW Steel's eligibility under Section 29-A (which bars entities with criminal cases from submitting plans) and the National Company Law Tribunal's (NCLT) approval of a conditional, delayed implementation of the plan. These oversights, the court ruled, betrayed a systemic dereliction of duty by the Committee of Creditors, the RP, and the adjudicating authorities.

The most consequential takeaway? The court's refusal to tolerate “technicalities.” As Justice D.Y. Chandrachud noted, “A violation of procedure is not a minor blemish—it is a breach of constitutional trust.” This textualist stance signals that investors can no longer assume procedural compliance is secondary to financial returns.

Implications for Investment: A New Era of Due Diligence

The BPSL ruling introduces two existential risks for strategic investors:
1. Reversal of Finalized Deals: JSW Steel's plan, implemented over two years and now voided, forces investors to question whether even fully executed IBC resolutions are secure. The court's use of Article 142 to order liquidation—despite a viable plan—sets a precedent where legal formality trumps economic substance.
2. Heightened Scrutiny Costs: Investors in distressed assets must now conduct procedural audits alongside financial ones. This includes verifying timelines, eligibility checks, and the integrity of every step in the CIRP. The cost and complexity of such due diligence could deter smaller players and slow down the pace of IBC-driven consolidation.

For the steel sector, this is particularly acute. Steelmakers like JSW, Tata, and Essar have relied on IBC takeovers to acquire assets like BPSL, which holds critical infrastructure. The ruling's chill on such deals could stall consolidation, leaving smaller, inefficient players in the market and delaying India's push to achieve a $1 trillion steel industry by 2030.

Creditor Dynamics: A Zero-Sum Game?

The court's decision has also thrown creditor relationships into disarray. Operational and financial creditors, who had already received partial payments under the JSW plan, must now await liquidation proceeds. But liquidation values are typically 30–50% lower than resolution plans, meaning many will see reduced recoveries.

The ruling's “clean slate” doctrine reversal—stripping JSW of immunity from pre-CIRP liabilities—is another blow. This could incentivize creditors to challenge even settled deals, creating a climate of perpetual legal disputes.

Data Spotlight: JSW Steel's Market Impact

JSW's shares fell sharply after the ruling, reflecting investor anxiety over both the financial burden of returning ~INR 19,350 crores to creditors and reputational damage from the procedural failure. However, the stock's subsequent recovery suggests markets now see the ruling as a “buy the rumor, sell the news” moment—assuming the company can navigate the refund without liquidity strain.

Strategic Recommendations

1. Proceed with Caution in IBC Deals: Until the Supreme Court clarifies the threshold for “material defects,” investors should treat all IBC resolutions as provisional. Focus on sectors with minimal regulatory complexity or consider joint ventures to share due diligence burdens.
2. Monitor Steel Sector Consolidation: The BPSL case may delay consolidation, creating a window for long-dated short positions in smaller steelmakers lacking scale. Conversely, companies with strong procedural compliance (e.g., Tata Steel's Jamshedpur plant) could gain market share.
3. Consider Creditor Claims: Investors with expertise in distressed debt might explore purchasing creditor claims at discounts, though liquidation's lower recoveries make this a high-risk play.

Conclusion: The Price of Certainty

The JSW Steel ruling is a clarion call for legal precision in India's corporate turnaround ecosystem. While it strengthens procedural safeguards, it risks deterring the very investors critical to economic revival. The path forward lies in judicial guidance on procedural thresholds and reforms to the IBC's remedies framework—until then, investors must treat every distressed deal as a minefield.

For now, the lesson is clear: in India's insolvency arena, process is profit. Ignore it at your peril.