Jindal Steel said the deal, to be completed by mid-2018, would help it meet its liabilities while JSW gained a foothold in coal-rich eastern India through the acquisition of the power plant in Chhattisgarh state.
The New Delhi-based steel firm majority-owned by Sajjan's younger brother Naveen will get more than 65 billion rupees ($976.29 million) from Mumbai's JSW if some conditions on coal supply and power purchase agreements are met, JSW said. JSW would also extend 5 billion rupees as advance against interest.
"The adverse operating environment within the power sector in the country is driving distress sales in the sector, and JSW Energy's robust financial health coupled with a strong balance sheet is providing the company an opportunity to acquire quality power assets at reasonable valuations..." JSW said.
While the deal, first reported by Reuters on Tuesday, would help reduce debt at Jindal Steel, it would also be a boon for top lender State Bank of India (SBI) which has been trying to broker an agreement between the companies.
Indian banks are saddled with a corporate bad debt mountain of about $121 billion.
Jindal Steel - whose net debt at the end of December was 460 billion rupees, or seven times its current market valuation - had been in talks with lenders including SBI to reschedule repayments due to "cash flow mismatches".
The Jindal brothers once competed to buy foreign assets, but Jindal Steel is now struggling after India's top court cancelled its coal mining licences and a weak commodity market hit margins.
Buying the plant would help JSW, which called it an "arm's length" deal supported by independent valuations, in its efforts to nearly triple its power generation capacity to around 12,000 megawatts by early next decade.
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