Investor Confidence and the Insolvency and Bankruptcy Code (IBC): The JSW Steel-Bhushan Power Verdict

The Insolvency and Bankruptcy Code (IBC), 2016, was introduced to bring about a much needed change in India’s credit ecosystem. With the aim of resolving stressed assets quickly, improving ease of doing business, and boosting investor confidence, the IBC marked a shift from a debtor-in-possession model to a creditor-in-control regime. One of the most prominent and telling examples of how the IBC has evolved in action is the JSW Steel–Bhushan Power and Steel Ltd (BPSL) case, particularly with respect to investor protection, judicial interpretation, and corporate rescue.

At the heart of this landmark case was a critical question: Can a successful resolution applicant be held liable for past wrongdoings of the corporate debtor? When JSW Steel’s bid to take over Bhushan Power was approved by the

National Company Law Tribunal (NCLT) in 2019, the process seemed to be nearing resolution. However, complications arose when the Enforcement Directorate (ED) attached BPSL’s assets as part of a money-laundering investigation against its former promoters. This created a legal limbo: JSW Steel was being asked to take over a company whose assets were frozen for crimes committed before it even stepped in.

This had far-reaching implications. If resolution applicants could be burdened with past liabilities of the corporate debtor—especially criminal liabilities—it would seriously undermine the very purpose of the IBC. The Code aims to give the company a fresh start, separate from the misconduct of its previous management. Without such protection, potential investors and buyers would be deterred from rescuing distressed companies, defeating the objective of insolvency resolution.

Recognizing this danger, the government amended the IBC by inserting Section 32A in 2020, which offers immunity to successful resolution applicants from past offences of the corporate debtor, provided they had no role in the misconduct. The intent was clear: protect honest buyers and allow clean takeovers. This amendment was later upheld by the Supreme Court in Manish Kumar v. Union of India (2021) as being within constitutional limits.

In 2021, the Supreme Court in the JSW Steel-Bhushan Power verdict gave a decisive judgment. It ruled that once a resolution plan is approved, and the new management takes control without any link to the old wrongdoings, criminal proceedings and attachments related to past offences must not affect the new owner. The Court highlighted that resolution applicants must be given certainty, finality, and confidence in the process.

This judgment has had a deep impact on the IBC regime:

• First, it reinforced the sanctity of the resolution process, ensuring that once a plan is approved, it cannot be endlessly challenged or obstructed.

• Second, it boosted investor confidence, especially among foreign and strategic investors, by assuring them that the law would protect them from legacy risks.

• Third, it balanced the rights of enforcement agencies with the needs of economic revival—a crucial line to maintain.

However, the verdict also came with a note of caution. The judiciary made it clear that immunity under Section 32A is not absolute. It is only available when the resolution applicant is genuinely uninvolved in the fraud or misconduct and when a proper resolution plan has been approved.

In conclusion, the JSW Steel–Bhushan Power case is a landmark in the IBC journey. It underlines how judicial interpretation can uphold investor protection without compromising on accountability. For India’s insolvency regime to remain credible, it must continue to deliver on its twin promises: timely resolution of bad assets and legal certainty for honest investors. As India positions itself as an attractive investment destination, cases like these will serve as key benchmarks for policy, law, and judicial consistency.