The Insolvency and Bankruptcy Code (IBC) has come under sharp scrutiny following the Supreme Court’s decision to liquidate Bhushan Power and Steel Ltd (BPSL), rejecting JSW Steel’s ₹19,700-crore resolution plan. The verdict has prompted serious concerns from major public sector banks, which were aired in a closed-door meeting of the Parliamentary Committee on Finance on Thursday (10 July).Sources told CNBC-TV18 that top executives of three leading public sector banks expressed alarm over the implications of the Supreme Court ruling, stating that the reversal of implemented resolution plans undermines the finality of the insolvency process. They added that such reversals hurt accounting, delay recoveries and dent the profitability of the banks.The banks said the judgment casts doubt on the commercial wisdom of the Committee of Creditors (CoC) and may even deter future participation in distressed asset resolution. According to the banks, if plans approved by the CoC and National Company Law Tribunal (NCLT) can be struck down years later, it discourages bidders and weakens the entire resolution ecosystem.
Another major concern raised was the potential for retrospective challenges to completed cases. The ruling, they said, has created legal uncertainty even for successful resolution applicants who have already taken over companies.In light of these challenges, bankers recommended a series of changes to the IBC framework. They emphasised the need for a clear legal provision to handle appeals against resolution plans already approved by the CoC and the NCLT. They also called for steps to preserve the economic value of stressed assets while maintaining accountability, protect the rights of creditors who assent to a plan, and impose strict timelines for appellate courts to decide on such appeals.Importantly, they urged that judicial intervention should be limited. Courts should only step in if there’s a fundamental violation of law—not to second-guess commercial decisions, they said.The parliamentary panel, which includes MPs from both the ruling party and the opposition, can only make recommendations to the government after hearing various stakeholders.The Supreme Court’s May 2 judgment cited JSW’s use of optionally convertible debentures along with equity for the acquisition, as well as delays in implementing the plan, as the reasons for striking it down. JSW Steel has since filed a review petition challenging the verdict.(Edited by : Ajay Vaishnav)
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