Binani Cement Insolvency:

The Insolvency and Bankruptcy Code, 2016 (hereinafter referred as “Code”), a legislation with dynamic features, underwent many key changes to benefit the process of insolvency. The central dogma, on which IBC is based, is to resolve a plan for a company inefficient to pay its creditors and to revive the company back to its normal track.

The gaps in the law are filled through various interpretations by the judiciary and a precedent is set, which serves as the purpose of custom, (which are very well considered as one of the sources of law). The case of Binani cement, which underwent many ups and downs and legal tussles in the courtrooms has already celebrated its first anniversary and is still going on even after the stipulated time mentioned under the Code and has established a benchmark in the insolvency world:

Factual Matrix-

• In June, 2017, Bank of Baroda, Financial Creditor, shouldered a dispute to NCLT (National Company Law Tribunal), Kolkata Bench against the Binani Cement, a subsidiary company of Binani Industries (Corporate Debtor), to recover the outstanding loan of over Rs. 97 crore. The total debts on Binani Cement were estimated to be around Rs. 3884 crore.
• In the late February, bids were called for and the Committee of Creditors (Coc) was constituted which chose Dalmia Bharat ltd-consortium as the winner with the highest bid of 6300 Crore INR.
• A revised bid of Rs. 6900 Crore was offered by Ultratech after the deadline was over. The proposal for revised bid was not accepted by the CoC (Committee of Creditors) and RP (Resolution Professional) because the process for bidding was over and it became time barred.
• Meanwhile, UltraTech made an agreement with Binani Industries Limited, the parent company of Binani cement, to buy around 98% stake in the Binani Cement on the condition to terminate insolvency proceedings. Ultratech had left no stone unturned to take this deal away from Dalmia group.
• Ultratech’s proposal for revised bidding was sanctioned by The Hon’ble Supreme Court of India and the CoC gave assent to the bid by issuing LOI (Letter of Intent) to UltraTech.

Issues-

IBC took a great turn through this case and the two new glitches in the Code are highlighted:

• The revised bidding
• The termination of Corporate Insolvency Resolution Process.

Analysis-

• Does the Revised Biding violate the principle of IBC?

Under IBC Code, there is a mandatory two stage approval processes for an application to be accepted. i) Acceptance of resolution plan by CoC and ii) further final approval by Adjudicating Authority (NCLT). The Code is silent on the time period between the CoC submitting the plan to the Adjudicating Authority and its acceptance by the adjudicating authority. The Code has no provision which gives a chance to the unsuccessful bidder to offer higher price after the announcement of the selection of the highest bidder by the CoC and before the approval of the resolution plan by the NCLT.

The two stage approval process creates such situation which emerged in this case and UltraTech grabbed the opportunity to place a higher bid before the final approval of NCLT, which made the Apex court to accept the revised bid. The prime objective of the Corporate Insolvency Resolution Process is to provide maximum benefits to the creditors and other stakeholders, so for keeping the motive of the IBC intact i.e. maximization of the value of assets, the highest bidder out of all should be shortlisted.

A similar situation aroused under the erstwhile Companies Act, 1956. The guiding principles laid down by the SC in cases of liquidation was to get the best price out of all and it is the duty of the court to keep openness of the auction so that intending bidders feel free to offer higher value. The same principles should apply in the context of IBC as well.

• Whether provision for termination of Insolvency process be enacted?

The Supreme Court can exercise its power under Article 142 of the Constitution of India to terminate this process under genuine circumstances. It is generally considered that once the application is admitted and the process is initiated, there is no recourse for Corporate Debtor and the control goes in the hands of IRP. The code is silent about the termination of corporate insolvency resolution process after the application is admitted in the court.

Comments-

The option for giving high benefits through revised bidding was provided by Ultratech, which was opposed by Dalmia, as the concept of revise bidding has no presence in the whole Code. But Law has never performed its duties with mechanical perspective. A rule is always made and read with the main objective of the code. Hence, The Apex Court decided to allow the revised bidding keeping in the absolute objective of the Code and placed a question of analysis and discussion, that logically the bid with higher price be considered if there are no other negatives in the acceptance of the bid?

With regards to termination of the process, the promoter should be allowed to reconsider the interest and reclaim the assets, and in the process give a better deal to the stakeholders of the corporate debtor. If the ultimate goal of the code is to maximize the assets of the creditors, then such steps where interest of the creditors lies, should be upheld. Keeping in mind the interest of the Stakeholders, the court in genuine cases should give a chance to the revised bidder like Ultratech. But, precautions should be taken that it does not become a regular practice and gives an opportunity for rebidding after the prescribed period by adoption of a pre-planned strategy of making minimal bids in start as it will lead to lapse in the procedure and will also question the credibility of the COC and Resolution Professional.

The Government of India has taken appreciable steps by introducing a law in the first place but still for better results, it is required to have stringent watertight Code with no escape and adherence to the objective.