Supreme Court Ruling: JSW Steel’s Bhushan Acquisition Rejected—Implications for Investors

The Supreme Court of India’s May 2, 2025, decision to invalidate JSW Steel’s acquisition of Bhushan Power & Steel Ltd. (BPSL) has sent shockwaves through India’s steel sector and financial markets. The ruling, which declared the ₹19,350 crore deal “illegal,” underscores the court’s zero-tolerance stance toward procedural lapses under the Insolvency and Bankruptcy Code (IBC). For investors, the verdict raises critical questions about JSW Steel’s valuation, strategic flexibility, and the broader risks of non-compliance in corporate takeovers.

Reasons for Rejection: Procedural Breaches and Timely Compliance

The court identified two fatal flaws in JSW Steel’s resolution plan:
1. Equity vs. Hybrid Instruments: JSW used optionally convertible debentures (OCDS) alongside equity to finance the acquisition. The IBC explicitly mandates acquisitions of insolvent firms to be completed exclusively via equity, a requirement the court deemed non-negotiable.
2. Timeline Violations: The plan was finalized beyond the IBC’s prescribed deadlines, contravening statutory requirements.

These breaches, the court emphasized, rendered the deal invalid from its inception, reversing JSW’s 2021 acquisition of an 83% stake in BPSL.

Market Reaction: Immediate Sell-Off and Analyst Downgrades

The ruling triggered a sharp selloff in JSW Steel’s shares, with its stock plummeting 6.4% to ₹963.80 on the BSE by midday. The market capitalization dropped to ₹2.36 lakh crore, erasing nearly ₹15,000 crore in value in a single session. Analysts at Morgan Stanley labeled the outcome “materially negative,” citing the loss of BPSL’s operational contributions and the risk of stranded investments.

Financial Impact: EBITDA and Capacity Losses

BPSL contributed 10% of JSW Steel’s EBITDA and 12.5–13% of its total steelmaking capacity (37.5 MTPA). The Odisha-based plant, which JSW acquired for ₹19,350 crore, was central to its expansion plans. Now, JSW faces two grim scenarios:
1. Loss of Investment: The ₹19,350 crore spent to settle BPSL’s ₹470 billion debt may turn into a write-off if the company is liquidated.
2. Capacity Reduction: Losing BPSL’s 2.75 MTPA capacity weakens JSW’s competitive edge in a market where scale matters.

Legal and Strategic Next Steps: Review Petition or Retreat?

JSW Steel’s lawyers are likely to file a review petition, arguing that the court’s strict interpretation of equity requirements could be revisited. However, the Supreme Court’s emphasis on procedural rigor suggests this path is uphill. Alternatively, JSW might restructure the deal to use only equity, but this would require renegotiating terms with BPSL’s creditors, including Punjab National Bank and SBI.

Broader Implications: A Warning to Corporate India

The ruling serves as a cautionary tale for firms pursuing IBC-driven acquisitions. Key lessons include:
- Adhere to Equity Rules: Hybrid instruments like OCDS are off-limits for insolvency resolutions.
- Timeliness is Non-Negotiable: Missing deadlines—even by days—can void deals.
- Creditor Committee Oversight: The court’s criticism of BPSL’s creditors for approving the flawed plan highlights the risks of overreach in committee decisions.

Conclusion: A Crossroads for JSW Steel

The Supreme Court’s decision has placed JSW Steel at a critical juncture. With BPSL’s liquidation now looming, the company’s ability to recover its investments hinges on a successful review petition or an alternative restructuring deal. Should JSW fail, the financial impact could be severe:
- EBITDA Hit: A 10% drop in EBITDA would reduce annual profits by ₹1,500–2,000 crore (assuming a ₹15,000–20,000 crore EBITDA base).
- Capacity Penalty: Losing 12.5% of capacity may force JSW to scale back expansion plans, ceding ground to rivals like Tata Steel and ArcelorMittal.

Investors must monitor JSW’s next moves closely. While the court’s stance protects creditor interests, it also introduces uncertainty for acquirers in IBC cases. For now, the verdict reinforces that compliance with IBC’s letter—not just its spirit—is essential for any deal to survive judicial scrutiny.

This data underscores BPSL’s critical role in JSW’s financial health, making the ruling’s aftermath a pivotal test for the company’s future growth trajectory.