Whatsapp
Can Courts Recall a Liquidation Order to Protect Market Sentiment: Judicial Economy or Judicial Overreach?
Abstract
The Supreme Court of India’s handling of the Bhushan Power and Steel Limited (“BPSL”) insolvency has triggered one of the most consequential debates in Indian corporate law: whether a court can recall a liquidation order already passed under the Insolvency and Bankruptcy Code, 2016 (“IBC”) in order to preserve market confidence in the resolution framework. On 2 May 2025, a two-judge bench ordered liquidation of BPSL, rejecting JSW Steel’s ₹19,700 crore resolution plan as non-compliant with the IBC. [1] The judgment caused JSW Steel’s shares to fall nearly 7% within the trading session. Within weeks, the Court stayed the order; and on 31 July 2025, it recalled the liquidation judgment entirely. [2] The September 2025 reconstituted bench reinstated the resolution plan, holding the earlier ruling suffered from factual and jurisdictional omissions. [3] This article examines the legal framework governing recall of liquidation orders in India, the doctrinal basis for the inherent powers exercised, the tension between procedural finality and economic pragmatism, and whether the recall constituted legitimate judicial economy or impermissible judicial overreach.
I. Introduction
The Insolvency and Bankruptcy Code, 2016 was designed as a time-bound, creditor-driven mechanism to rescue viable enterprises from insolvency and to ensure that liquidation remained a remedy of last resort. Section 33(1) of the IBC empowers the National Company Law Tribunal (“NCLT”) to pass a liquidation order where the committee of creditors fails to approve a resolution plan or where an approved plan is not compliant with the Code. [9] Yet what happens when a liquidation order, once passed, begins to destabilise the very market the IBC was meant to revive? The question is not merely academic. The BPSL saga — spanning seven years of insolvency proceedings, multi-crore investments, 25,000 jobs, and a volatile Supreme Court judgment — laid bare the tension between strict statutory compliance and the economic consequences of judicial pronouncements.
The power to recall a judicial order is doctrinally distinct from the power of review. While review requires re-evaluation of the merits on discoverable errors of law, recall — sometimes called procedural review — is exercised to correct a defect in the process by which the order was made: most commonly, violation of natural justice or misrepresentation. This distinction, settled in Indian jurisprudence over decades, has now been transplanted into the insolvency domain with notable force.
This article traces the legal architecture around recalling liquidation orders in India, examines the statutory provisions and case law governing this power, analyses the BPSL episode as a case study, and evaluates competing arguments about judicial economy and overreach.
II. The Regulatory Framework: IBC, NCLT, and the Architecture of Finality
The IBC consolidated India’s fragmented insolvency laws into a single code. Under Chapter III of the IBC, once the CIRP process fails to yield a resolution plan, the adjudicating authority — the NCLT — initiates liquidation proceedings under Section 33. The IBC imposes strict timelines: the CIRP must conclude within 330 days, and any deviation requires judicial sanction under Section 12.
Section 30(2) of the IBC mandates that a resolution plan must provide for payment of insolvency resolution process costs, payment to operational creditors in a manner not lower than their entitlement in liquidation under Section 53, and must not contravene applicable laws. Section 31 of the IBC further requires that the plan comply with all conditions under Section 30 before the NCLT can grant approval. These are not aspirational provisions — they are mandatory, and non-compliance renders the plan void ab initio. [9] The IBC further mandates that resolution applicants meet eligibility criteria under Section 29A, which was inserted in 2017 precisely to prevent undesirable persons from acquiring stressed assets through the insolvency framework.
Critically, however, the IBC does not explicitly confer upon the NCLT or NCLAT the power to review, recall, or set aside their own orders. This legislative silence generated confusion at both tribunals — particularly across coordinate benches — until the Supreme Court and a five-judge bench of the NCLAT resolved the matter. The Supreme Court in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni held that the NCLT possesses inherent powers to recall its own order under Section 60(5)(c) of the IBC, read with Rule 11 of the NCLT Rules, 2016 — which explicitly preserves inherent powers to prevent abuse of process and to meet the ends of justice. [4]
Rule 11 of the NCLT Rules, 2016 reads: “Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.” This provision is the anchor of the tribunal’s recall jurisdiction and operates as a safety valve in the statutory architecture.
III. The Judicial Foundation: Recall as Inherent Jurisdiction
The roots of the recall power in Indian law run deep. In Sudarsan Chits (I) Ltd. v. O. Sukumaran Pillai, AIR 1984 SC 1579, the Supreme Court articulated a principle that has since anchored all subsequent discussion on the revocability of winding-up orders: “a winding up order once made can be revoked or recalled but till it is revoked or recalled it continues to subsist.” [8] This dictum — rooted in the old Companies Act framework — was not merely procedural; it embodied a substantive recognition that the finality of judicial orders must coexist with the imperatives of justice.
This principle was sharpened in Indian Bank v. Satyam Fibres India Pvt. Ltd., AIR 1996 SC 2592, where the Supreme Court held that courts possess inherent power to recall and set aside an order obtained by fraud practiced upon the Court, where the Court is misled by a party, or where the Court itself commits a mistake which prejudices a party. [6] The Court drew a categorical line: fraud unravels everything, and no judgment — however final in form — is immune from recall if it rests on deceit or fundamental procedural error.
The five-judge bench of the NCLAT in Union Bank of India (Erstwhile Corporation Bank) v. Dinkar T. Venkatasubramanian & Ors. (2023) definitively settled the position: the NCLAT does not have the power of review (which must be expressly conferred by statute), but it does possess the inherent power to recall a judgment in exercise of its jurisdiction under Rule 11 of the NCLAT Rules, 2016, when sufficient grounds exist — including violation of natural justice, fraud, or jurisdictional error. [5] The Supreme Court affirmed this position, cementing the institutional architecture: tribunals under the IBC may recall their own orders on procedural grounds, but may not review them on merits unless statutes specifically permit it.
The distinction between review and recall is therefore not merely semantic. Review reopens the merits; recall corrects a procedural defect without re-evaluating the substance. This distinction is important because it determines the scope of what tribunals can do after their orders have been implemented, partially or fully.
IV. Bhushan Power and Steel Limited: A Case Study in Recalling a Liquidation Order and Market Sentiment
A. Background of the Insolvency
BPSL was part of the Reserve Bank of India’s notorious “dirty dozen” — the twelve major non-performing accounts directed into insolvency proceedings by the RBI in June 2017. The NCLT admitted the insolvency application of Punjab National Bank on 26 July 2017. Total financial creditor claims admitted exceeded ₹47,000 crore. JSW Steel emerged as the successful resolution applicant with a plan valued at approximately ₹19,700 crore. The NCLT approved the Resolution Plan in September 2019, followed by NCLAT affirmation in February 2020. [1] By the time the plan was finally implemented — with payments to financial creditors made in March 2021 and to operational creditors only in March 2022 — the enterprise had been operational under JSW’s management for several years, with a steelmaking capacity expanded to 4.5 million tonnes per annum.
B. The May 2025 Liquidation Order
On 2 May 2025, a two-judge bench of the Supreme Court comprising Justices Bela M. Trivedi and Satish Chandra Sharma passed the impugned judgment (2025 INSC 621), declaring the JSW Steel resolution plan “illegal” and ordering the liquidation of BPSL under Section 33(1) of the IBC, additionally invoking Article 142 of the Constitution. The Court identified multiple violations: first, JSW had not filed the mandatory affidavit of eligibility under Section 29A, nor had the Resolution Professional independently verified JSW’s eligibility by way of Form H; second, the CIRP had exceeded the statutory 270-day outer limit under the unamended Section 12 of the IBC without a proper application for extension; third, the resolution plan discriminated against operational creditors in violation of Section 30(2) and Regulation 38 of the CIRP Regulations; and fourth, JSW had wilfully delayed implementation, creating what the Court called a “fait accompli.” [9]
The market’s reaction was immediate and unambiguous. JSW Steel’s shares fell 7% on the BSE within the trading session following the judgment. The ruling shook investor confidence not only in JSW Steel but across the broader IBC framework: if a CoC-approved, tribunal-confirmed, and largely implemented resolution plan could be voided five years after approval, the entire edifice of investment certainty under the IBC appeared precarious.
C. The Recall and Its Legal Basis
The fallout triggered rapid legal action. JSW Steel filed an application before the Supreme Court, and on 26 May 2025, the Court ordered a status quo on liquidation proceedings. On 31 July 2025, a different bench — headed by Chief Justice B.R. Gavai — recalled the May 2025 judgment, finding that the earlier bench had failed to correctly consider established legal principles and had introduced arguments not advanced by any of the parties. [2] The Court also emphasised the human cost: the resolution plan had been approved by nearly all creditors, the company was operational and solvent, and 25,000 employees depended on its continued functioning.
The recall rested on what the new bench characterised as errors going to the root of the May 2025 decision: it was not a fresh consideration of the merits but a correction of fundamental procedural and jurisdictional errors in the original judgment. [3] By September 26, 2025, after fresh hearings by the three-judge bench, the Court reinstated JSW Steel’s resolution plan in full, holding that the earlier ruling contained serious factual and jurisdictional omissions, and reaffirming that liquidation is a last resort under the IBC.
V. Relevant Statutory Provisions
Section 33(1) of the Insolvency and Bankruptcy Code, 2016 provides: “Where the Insolvency Resolution Process period expires in accordance with section 12, or where the Adjudicating Authority does not receive a Resolution Plan under sub-section (6) of Section 30 before the expiry of the Insolvency Resolution Process period or the Adjudicating Authority rejects the Resolution Plan under Section 31, it shall pass an order requiring the corporate debtor to be liquidated in the manner specified under this Chapter.”
Section 30(2) of the IBC provides that a resolution plan shall provide for: “(a) payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor; (b) repayment of the debts of operational creditors, which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53…” The Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India (2019 SCC OnLine SC 73) expressly held that the primary focus of the IBC is to ensure revival and continuation of the corporate debtor and that liquidation is treated by the preamble of the Code “as a last resort only” when resolution fails. [7]
Section 60(5) of the IBC reads: “Notwithstanding anything to the contrary contained in any other law for the time being in force, the Adjudicating Authority shall have jurisdiction to entertain or dispose of — … (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.” The Supreme Court in Greater Noida linked this broad jurisdiction directly to the NCLT’s power to recall — treating it as the statutory vessel for the tribunal’s inherent powers.
VI. Judicial Economy or Judicial Overreach?
A. The Case for Judicial Economy
Those who defend the recall argue that allowing the May 2025 liquidation order to stand would have caused irreversible systemic harm disproportionate to the procedural violations identified. The principle of judicial economy counsels courts to avoid outcomes that nullify completed transactions and inflict widespread injury without commensurate corrective benefit. [10] As the September 2025 bench found, the original judgment introduced arguments that no party had made and mis-applied settled principles of IBC law — most critically, conflating procedural non-compliance with substantive ineligibility under Section 29A.
There is also doctrinal weight on this side. The action to recall a liquidation order was not a review of the merits in the traditional sense. It was a correction of a jurisdictional error: the May bench had decided issues that were not before it, misread the timeline provisions under Section 12, and imposed consequences — liquidation and fund restitution — that no party had sought before the Court. This is squarely within the Satyam Fibres principle: where the Court itself commits a mistake which prejudices a party, inherent recall power may be invoked.
Furthermore, the IBC’s explicit policy preference for resolution over liquidation means that to recall a liquidation order aligned with the Code’s own statutory hierarchy. The preamble to the IBC prioritises reorganisation; Section 33 is the exception, not the rule. Recalling a liquidation order that improperly invoked the exception is, in this light, faithful to legislative intent rather than subversive of it.
B. The Case for Judicial Overreach
The counterargument is troubling and cannot be dismissed. The very fact that a Supreme Court judgment — passed by a coordinate bench after extensive hearings — could be recalled by a subsequent bench within three months raises profound questions about judicial coherence. Critics point out that Article 137 of the Constitution and Order XLVII of the Supreme Court Rules, 2013, permit review only on very narrow grounds: discovery of new and important evidence, error apparent on the face of the record, or any other sufficient reason. Recalling a judgment based on the view that it “failed to correctly consider established legal principles” arguably blurs the line between recall and substantive review — the very distinction the NCLAT jurisprudence has laboured to maintain.
There is also a concern about the signalling effect. If market pressure — including a 7% fall in a listed company’s shares — becomes a judicially cognisable factor in deciding whether to recall an insolvency order, a new and unstable variable enters the IBC ecosystem. [10] Creditors and resolution applicants might reasonably ask whether the finality of NCLT and NCLAT orders is contingent not only on legal correctness but also on stock market reactions. This would fundamentally alter the risk calculus for IBC participants.
Senior advocates appearing in the matter raised the functus officio principle: once a resolution plan is approved by the NCLT, the CoC loses its authority to revisit it. By the same logic, once the Supreme Court has passed a final order directing liquidation, the proper remedy for an aggrieved party is a review petition on Article 137 grounds or a fresh CIRP — not a recall by a subsequent bench exercising inherent jurisdiction. The recall, on this view, was substantive in effect even if procedural in form.
VII. How the Power is Regulated: Institutional Safeguards for Recalling a Liquidation Order
The Supreme Court’s jurisprudence on recall a liquidation order — most recently crystallised in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni — has identified specific grounds on which such recall applications are maintainable, and has stressed that this power must be used “sparingly” and only in “very limited circumstances.” [4] The grounds recognised are: where the aggrieved party was not served with notice of the proceedings; where the order was obtained by misrepresentation or fraud upon the tribunal; where there is an inherent lack of jurisdiction; or where the Court itself has committed a material error that prejudices a party. These limitations are not merely hortatory — they are designed to prevent recall of a liquidation order from becoming a routine tool for re-litigation and delay, which would directly undermine the IBC’s time-bound objectives.
The IBBI (Insolvency and Bankruptcy Board of India), as the regulatory authority under Section 188 of the IBC, oversees the conduct of resolution professionals and maintains oversight of CIRP timelines through quarterly newsletters and regulatory circulars. The IBBI Quarterly Newsletter (October–December 2024) noted that the average duration of CIRPs yielding resolution plans had reached 585 days, against a statutory limit that contemplates 330 days. This systemic delay — endemic to the BPSL case — is a product of multiple appeal layers and now, it appears, the unpredictability of post-approval judicial intervention.
VIII. Conclusion
The recall of the May 2025 liquidation order in the Bhushan Power and Steel saga is a watershed moment in Indian insolvency jurisprudence — not because recalls are novel, but because the stakes involved were exceptional and the consequences of judicial error were market-wide rather than party-specific. The episode reveals that the IBC, for all its architectural sophistication, operates within a judicial ecosystem where even final orders are vulnerable to revision when the process that generated them was fundamentally flawed.
Whether the recall constituted judicial economy or overreach ultimately depends on one’s theory of judicial role. If courts are guardians of systemic integrity — including the integrity of the insolvency market — then correcting a judgment that introduced unargued issues and misapplied settled law is both necessary and economically justified. If courts are strictly bound by the doctrine of procedural finality, the recall crossed a doctrinal line that earlier jurisprudence had carefully drawn. [5] What is certain is that the BPSL case will define, for a generation, the outer limits of the NCLT’s and Supreme Court’s inherent jurisdiction over IBC orders — and will compel legislators and regulators to consider whether explicit statutory guidance on post-approval judicial intervention is overdue.
References
[5] Acuity Law, ‘NCLT and the Power to Recall’ (June 2025)
[7] Indian Kanoon, Swiss Ribbons Pvt. Ltd. v. Union of India (2019 SCC OnLine SC 73)
[8] Vinod Kothari Consultants, ‘Reversibility of Liquidation Order’ (September 2018)
