Analyzing Diverging Judgements in BPSL and DHFL Cases: Victim Perspectives and the Fragility of the IBC
Analyzing Diverging Judgements in BPSL and DHFL Cases: Victim Perspectives and the Fragility of the IBC

Posted on 13th May, 2025 (GMT 17:39 hrs)
ABSTRACT
The article examines two Supreme Court rulings under the Insolvency and Bankruptcy Code (IBC) that reveal troubling inconsistencies. In the BPSL case, JSW Steel’s ₹19,350 crore resolution plan—initially approved by the Committee of Creditors (CoC) and NCLT—was overturned by the Supreme Court in May 2025, citing procedural lapses such as delay, improper financial instruments, and non-compliance with Section 29A. The judgment criticized the CoC and Resolution Professional for dereliction of duty, raising concerns over investor trust. Conversely, in the DHFL case, where Piramal Capital’s resolution plan addressed ₹87,248 crore in claims, the Court upheld the plan in April 2025 despite allegations of illegality, irregularity, bias and the exclusion of retail investors or ex-promoters from decision-making. Praising the CoC’s conduct, the Court reaffirmed creditor rights but overlooked unequal stakeholder treatment. The article argues that these diverging judgments expose the fragility of the IBC, highlight unchecked CoC power, and underscore the urgent need for a more transparent, inclusive, and just insolvency framework.
Overview
India’s Insolvency and Bankruptcy Code (IBC), enacted in 2016 to allegedly address corporate bad debt and expedite resolutions, aimed to maximize creditor value within a 270-day timeline. Nearly a decade later, the IBC faces intense scrutiny for massive inefficiencies and inequities, as shown by two recent Supreme Court rulings—on Bhushan Power and Steel Limited (BPSL) with JSW Steel (May 2, 2025) and Dewan Housing Finance Corporation Limited (DHFL) with Piramal Capital (April 1, 2025; though PCHFL, as a standalone company, is a non-entity, having been merged with PEL). These cases expose the unchecked power of the Committee of Creditors (CoC), the IBC’s decision-making core, and raise critical questions about judicial fairness as well as possible/alleged equivocation, especially for small depositors like fixed deposit (FD) and non-convertible debenture (NCD) holders in DHFL. This article’s brief analysis critically examines the CoC’s role, the IBC’s systemic flaws, and judicial inconsistencies that threaten its long-term credibility, questioning whether justice under the heavily amended IBC is merely ceremonial!
The Cases: Contrasting Outcomes, Common Concerns
BPSL – JSW Steel: A Resolution Undone
BPSL, a steel manufacturer, entered insolvency in 2017 with ₹47,204 crore in claims, primarily from banks like State Bank of India (SBI) and Punjab National Bank (PNB). JSW Steel’s ₹19,700 crore resolution plan, approved by the CoC and National Company Law Tribunal (NCLT) in 2019, offered 41% recovery for financial creditors and 47.69% for operational creditors—far better than liquidation’s typical 6.33% recovery rate (FY24 data: ₹11 lakh crore claims, ₹69,634 crore recovered). By 2021, JSW held an 83.3% stake in BPSL, boosting production. However, on May 2, 2025, the Supreme Court declared the plan “illegal” and ordered liquidation, citing procedural lapses. The CoC was faulted for approving a non-compliant plan marked by delays (540 days for financial creditors, 900 for operational creditors), improper financial instruments (optionally convertible debentures), and failure to verify JSW’s eligibility under Section 29A, which bars promoters or related parties from bidding. The Resolution Professional (RP) neglected duties, failing to submit Form H or investigate avoidance transactions, and the NCLT’s “perverse” approval compounded the issue. The ruling risks eroding investor confidence, with international funds pausing investments.
DHFL – Piramal Capital: A Resolution Upheld, but at What Cost?
DHFL, a non-banking financial company (NBFC), was somewhat compelled to enter the IBC in 2019 under the oversight of the Reserve Bank of India (RBI), with ₹87,248 crore in claims, including those from retail FD and NCD holders. Piramal Capital’s ₹37,250 crore plan was approved by a 93.65% majority of the Committee of Creditors (CoC), noting that this was done without making the settlement proposal available to FD holders, a significant voice within the CoC, and by disregarding the ex-promoters consistently. The plan, sanctioned by the NCLT in 2021 (after the NCLT initially ordered the CoC to reconsider the ex-promoters’ proposal, though without success), apparently promised better recoveries than the liquidation estimates of 10-15%. On April 1, 2025, the Supreme Court upheld the plan, overturning the NCLAT’s modifications that had challenged Piramal’s proposal for having numerous legal lapses, being irregular in character, and raising issues of legal void concerning certain CoC meetings. Oaktree, one of the bidders in the resolution process, alleged significant bias of the CoC in favour of Piramal. Despite all these issues that are quite similar to the JSW case, the apex court commended the CoC’s compliance, clarified creditor rights (e.g., binding votes, FD repayments), and awarded Section 66 (fraudulent transaction) recoveries—potentially worth ₹45,050 crore but valued at ₹1—to Piramal, rather than to the creditors. While banks like Union Bank and SBI benefited, lakhs of small retail creditors, including those with ₹200 crore in debentures, legitimately decried the allocation as exploitative, arguing that fraud recoveries should benefit all creditors. Yet, this did not materialize!
The CoC’s Supremacy: King or Tyrant?
The CoC wields near-absolute power to select resolution plans, a principle limiting judicial review to legal compliance. However, the BPSL and DHFL rulings reveal how this “commercial wisdom” leads to divergent outcomes, often sidelining the face of justice.
1. Compliance: A Judicial Double Standard
In BPSL, the CoC’s wisdom was dismantled for endorsing a plan violating Section 30(2) (feasibility and timeliness) and Section 29A (applicant eligibility). The CoC ignored JSW’s joint venture with BPSL’s ex-promoters and contradictory court stances, prompting judicial intervention. The RP’s failure to verify compliance or submit Form H justified liquidation, which may force lenders to return funds from distressed asset sales.
In DHFL, the CoC’s so-called compliance with IBC and RBI regulations earned judicial deference, while ignoring the pertinent, well-substantiated points mentioned by the NCLAT in its 27th January, 2022 verdict. It was as if the 93.65% approval rate left no room for interference, but the 45k crore=Rs. 1 allocation to Piramal sparked outrage. The decision enriched Piramal while FD-NCD holders, lacking voting clout, were sidelined, suggesting the IBC prioritizes procedural form over transparency or fairness.
Critical View: The DHFL ruling shows compliance does not ensure equity. The CoC’s ability to favor resolution applicants and large creditors undermines the IBC’s promise to maximize value for all stakeholders, rendering justice entirely ritualistic in the contemporary conditions of the Indian political economy.
2. Context: Systemic Stakes vs. Disposable Assets
BPSL’s tangible steel assets made liquidation viable, despite lower recoveries (6.33% vs. JSW’s 41%). The court’s step reflected the CoC’s betrayal of creditor interests, but it risks deterring investors. DHFL’s systemic importance as an NBFC with ₹87,248 crore in public liabilities made resolution critical to avoid financial chaos. The CoC’s near-unanimous vote and RBI oversight lent a surface-level (or perhaps, predetermined) credibility, but sacrificing FD-NCD holders’ rights to fraud recoveries ignored their plight.
Critical View: The IBC favors a false sense of stability over fairness, marginalizing retail creditors in cases like DHFL, where justice is subordinated to status quo systemic priorities.
3. Judicial Role: Guard or Enabler?
The IBC restricts courts to ensuring compliance. In BPSL, systemic failures—RP negligence, NCLT’s flawed approval, and JSW’s “mala fide” delays—forced intervention. In DHFL, the court upheld the CoC’s commercial call on Section 66 recoveries, overturning NCLAT’s so-called overreach without sufficient argumentation. By prioritizing the CoC’s taken-for-granted autonomy, the court enabled a thoroughly inequitable outcome for FD-NCD holders, reinforcing the CoC’s dominance.
Critical View: The DHFL ruling’s deference to the CoC enabled bias, while BPSL’s intervention risks chilling investment. The IBC essentially lacks balance between CoC power and judicial oversight.
Creditor Impacts: Winners and Losers
BPSL: Creditors Betrayed
BPSL’s liquidation is catastrophic, with JSW’s plan offering 41% recovery on ₹47,157 crore for financial creditors and 47.69% on ₹621 crore for operational creditors, while the liquidation’s 6.33% rate could yield only ₹2,985 crore and ₹39 crore, respectively, impacting banks like SBI and PNB and leaving operational creditors with minimal relief. Investors are currently pausing distressed asset purchases following the Supreme Court’s May 2025 ruling to nullify JSW Steel’s ₹19,350 crore acquisition of Bhushan Power & Steel Ltd. (BPSL) and order its liquidation, which has exposed deep flaws in India’s Insolvency and Bankruptcy Code (IBC) process. The verdict highlighted systemic failures in the Corporate Insolvency Resolution Process (CIRP), including the Resolution Professional’s neglect of statutory duties such as verifying JSW’s eligibility, adhering to timelines, and approving a non-compliant resolution plan that unfairly treated operational creditors. While emphasizing the need for transparency and accountability, the decision raises concerns about the IBC’s effectiveness, potentially deterring investors and weakening lender confidence due to the lack of finality in insolvency resolutions. Additionally, the ruling, driven by operational creditors’ challenges, may increase liquidations over resolutions, threatening the IBC’s goal of maximizing asset value and preserving businesses.
DHFL: Retail Creditors Marginalized
DHFL’s allegedly financially abusive resolution benefits banks with ₹37,250 crore in recoveries. FD repayment rights offer extremely partial relief, but FD-NCD holders are highly aggrieved due to the justified reasons stated above. Small creditors, lacking CoC influence, feel betrayed by a process prioritizing banks and the resolution applicant, deterring public investment.
Critical View: The DHFL outcome exemplifies the IBC’s creditor hierarchy, sacrificing retail FD-NCD holders for resolution. Diverting ₹45,050 crore in potential recoveries to Piramal for ₹1 is predatory, challenging the IBC’s fairness all over again.
Systemic Flaws: A Failing Framework
The IBC faces critical issues:
- Delays and Low Recoveries: 75% of cases exceed 270 days; creditors recover 31% of $133 billion, often <10%. BPSL’s eight-year saga and DHFL’s appeals reflect CoC utter inefficiency.
- Investor Distrust: BPSL’s ruling deters investors; DHFL alienates retail creditors, weakening the IBC’s appeal.
- Business Environment: BPSL’s ruling may reopen settled plans, harming India’s ease of doing business. DHFL’s retail creditor distrust signals an unfair system.
- CoC Bias: Bank-dominated CoC excludes retail creditors, as in DHFL’s Section 66 allocation.
- Retail Disempowerment: FD-NCD holders lack influence, exposing a gap in representation.
Proposed Reforms
- Compliance Audits: Mandate automated checks and penalties for CoC/RP lapses.
- CoC Oversight: Establish Monitoring Committees to ensure fairness without political/crony obfuscation, alteration as well as orchestration.
- Retail Empowerment: Grant, preserve and maintain the voting rights to FD-NCD holders.
- Stricter Timelines: Enforce 270-day goal with penalties.
- Judicial Clarity: Define intervention grounds to balance CoC power and justice.
- Section 66 Reform: Ensure fraud recoveries benefit all creditors without discrimination.
Conclusion
The CoC’s unchecked power under the IBC often overshadows justice. BPSL’s liquidation punishes CoC negligence but risks investor trust, while DHFL’s resolution betrays retail creditors, rendering justice a ritual. The IBC’s promise of fair resolutions is undermined by delays, biases, and judicial inconsistencies. Without reforms, the IBC risks favouring powerful stakeholders, leaving smaller creditors and justice sidelined.
SOURCES:
- Bhushan Power saga: Why did Supreme Court reject JSW Steel takeover bid and order liquidation? The Indian Express
- Supreme Court upholds DHFL resolution plan, clarifies creditor rights, ET LegalWorld ET LegalWorld
- What Procedural Failures in Bhushan Power and Steel Ltd. (BPSL) Insolvency led the Supreme Court to Reject JSW’s Resolution Plan and Order Liquidation? IBC Laws
- BPSL case to send firms on back foot: Supreme Court ruling sparks fears over insolvency uncertainty Telegraph India
- DHFL default cases land in Supreme Court as fixed-deposit holder files plea Business Standard
- Supreme Court’s Bhushan Steel Verdict Exposes Systemic Rot but Leaves the IBC’s Future Hanging Times of India
- Why India’s nine-year-old insolvency law has bankers going bald with worry Business Standard
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