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Our conversations with various stakeholders suggest that the recent Supreme Court order to liquidate Bhushan Power and Steel (BPSL) is a setback to the case and the IBC process. However, it is likely that stakeholders will look at other legal options before looking at liquidation. While it appears as a setback to the IBC process, we see these rulings as a means that strengthens the law rather than a reversal of the process. We expect buyers through the IBC process to be cautious in the future.

JSW Steel—no timebound respite visible

Our reading and conversations with various stakeholders on the recent court order to liquidate BPSL suggest that the order has looked at the adherence to the law from a factual standpoint (gaps in execution as prescribed under the law). This would imply that JSTL could look to file a review petition, followed by a curative petition. There is no time limit for the disposal of these petitions due to which the legal process could be long-drawn. We also understand that lenders may not have to reverse the provision of the payment made for this acquisition. We understand that liquidation or reversal of the transaction is not a straightforward exercise. JSTL has invested management bandwidth/capital for the turnaround of the asset in the past five years, apart from capacity expansion. There is limited clarity on (1) how JSTL would get compensated in the case of liquidation and (2) how the asset will be run while legal proceedings are ongoing.

Beyond the boundaries—new challenges for IBC

While we note that IBBI and the government is studying the judgment, it does not look like there is any need to revisit the law at this stage. This judgment opens questions on the path forward. We would have to interpret that this could result in revisiting previously completed cases where there were operational lapses. Current or prospective bidders are likely to wait for full clarity of all legal aspects before concluding the deal. This implied delay in completing deals looks a like possible downside. The intense scrutiny at every step of the resolution process will lead to lower flexibility, as any marginal deviation could have severe consequences.

Costly course correction triggered by a retrospective ruling

At this stage, we firmly believe that IBC remains a robust tool for lenders to exercise their rights when a borrower defaults. We are confident that recent judgments only reinforce the law rather than reverse it. Creditor protection typically reduces the cost of credit by ensuring higher recovery rates. This gives comfort to creditors that would imply that the benefit is eventually passed to debtors through various means (covenants, collateral or interest rates). Corporates must tread carefully, as a successful resolution to a default could result in them losing business. This inherent risk serves as a deterrent, likely leading to lower default rates.