A Legal Setback for JSW Steel: How the Bhushan Power Ruling Reshapes India's Insolvency Landscape

The Supreme Court of India’s May 2, 2025, ruling to scrap JSW Steel’s ₹19,700-crore bid to acquire Bhushan Power and Steel Ltd (BPSL) marks a pivotal moment for corporate India. The court’s decision not only upended a landmark deal but also sent shockwaves through the steel sector and investment community, underscoring the risks of operating in a legal environment increasingly intolerant of procedural missteps.

The Ruling’s Core Issues: Equity, Timelines, and Trust

The court identified two fatal flaws in JSW’s resolution plan under the Insolvency and Bankruptcy Code (IBC):
1. Funding Mechanism Violation: JSW used a mix of equity and optionally convertible debentures (OCDs) to finance the takeover. The IBC explicitly requires resolution plans to be funded exclusively through equity, a rule JSW allegedly breached.
2. Timely Implementation Failure: The plan was not executed within the legally mandated timeframe, with JSW’s acquisition of BPSL’s 83.3% stake delayed until October 2021—well beyond the IBC’s stipulated period.

The court further condemned JSW’s conduct as “malafide and dishonest,” alleging the company exploited ongoing investigations into BPSL’s former promoters by the Enforcement Directorate. This accusation adds a layer of reputational damage to JSW’s challenge.

Immediate Fallout: A 7% Stock Plunge and Strategic Uncertainty

The ruling’s impact was immediate and severe. JSW Steel’s shares plummeted by up to 7% on the day of the verdict, closing at ₹961.90—a stark reversal of investor sentiment. Analysts like Morgan Stanley labeled the decision “materially negative,” citing the ₹4,000-crore investment JSW had already poured into BPSL’s Odisha plant, which contributed 2.75 mtpa of steelmaking capacity. This asset accounted for roughly 10% of JSW’s consolidated EBITDA and 12.5% of its total capacity, making its loss a significant blow to operational scale and profitability.

Legal Pathways and Uncertain Remedies

JSW’s next moves are critical. While it could file a review petition to challenge the ruling, legal experts note the court’s emphasis on strict IBC compliance leaves little room for leniency. Potential avenues include:
- Revised Funding Terms: Committing to equity-only financing to align with IBC requirements.
- Acceleration of Implementation: Demonstrating that future plans meet timelines.

However, the court’s harsh language—calling JSW’s actions “dishonest”—suggests a skeptical judicial view of the company’s intentions, complicating any appeal.

Broader Implications for India’s Insolvency Framework

This case signals a pivotal shift in how India’s judiciary interprets the IBC. By prioritizing procedural rigor over commercial pragmatism, the ruling may deter potential investors in high-stakes insolvency cases, particularly in sectors with legacy legal issues. For companies like JSW, which rely on M&A to scale, the message is clear: compliance is non-negotiable, even at the cost of operational flexibility.

For BPSL’s stakeholders, the liquidation order introduces fresh perils. Creditors now face protracted battles over asset recovery, while BPSL’s 2,500 employees confront job insecurity. Meanwhile, the case underscores the fragility of deals in India’s complex legal ecosystem, where even approved plans can be voided over technicalities.

Conclusion: A Crossroads for JSW and India’s Legal System

The Bhushan Power ruling is a cautionary tale for investors in India’s corporate landscape. JSW’s ₹19,700-crore gamble—a deal that promised 2.75 mtpa of steel capacity and 10% of its EBITDA—now lies in tatters, with its shares down 7% and its growth plans in disarray. The Supreme Court’s decision, while legally sound, risks chilling investor appetite for IBC processes, where the stakes are high and the margin for error is vanishingly small.

For JSW, the path forward hinges on navigating this new legal reality: either accept a scaled-back presence in Odisha or risk further losses in prolonged litigation. For India, the ruling reinforces a judiciary increasingly committed to upholding IBC’s letter—leaving companies to bear the cost of its spirit. In an economy where 30% of steel demand is met by private players like JSW, the stakes could not be higher.