Bid tests insolvency proceedings before NCLT; case could be taken to apex court
MUMBAI, MARCH 19
UltraTech Cement on Monday took a bold move to kill Dalmia Bharat’s bid to acquire Binani Cement. The Aditya Birla Group company has cut a deal with Binani Industries to acquire 98.43 per cent stake in the latter’s distressed assets for ?7,266 crore. The move in effect bypasses the ongoing insolvency proceedings initiated by the lenders of Binani Cement.
UltraTech’s offer has been backed by Binani Industries, which has filed a petition seeking to withdraw the insolvency proceedings before the National Company Law Tribunal’s Kolkata bench.
Letter of comfort
Binani Industries has also requested UltraTech for a letter of comfort confirming that the company will provide funds to pay off the financial creditors, effect settlement to trade creditors and for payment of costs incurred in the corporate insolvency resolution process.
The deal will test the Insolvency & Bankruptcy rules as it creates a complex situation. On the one hand, the bid placed by Dalmia Bharat has been given the green signal by the Resolution Professional (RP) appointed to sell Binani’s assets; on the other, Binani Industries has cut a separate deal with UltraTech, which could give more to the lenders. UltraTech had also put in its bid for Binani through the NCLT-led process but the RP picked Dalmia Bharat.
UltraTech said the deal with Binani is subject to termination of the current insolvency proceedings in which the consortium led by Dalmia Bharat was declared as the highest bidder to acquire the asset by the committee of creditors.
KK Maheshwari, Managing Director, UltraTech Cement, said the company has lost confidence in the NCLT proceedings and is still keen to know why its highest bid was rejected by the Committee of Creditors.
But the key question is whether a company can cut its own deal after insolvency proceedings have been initiated. Ashok Gupta, Legal Head, UltraTech Cement, said the right of property is guaranteed under the Indian constitution. The Transfer of Property Act and Sarfesi Act have provisions that Binani Industries can protect its property even at this stage.
Babu Sivaprakasam, Partner, Economic Laws Practice, said this may go all the way to the Supreme Court as rejecting the higher bid may lead to an aggrieved unsecured lender challenging that his interest has not been protected despite a higher offer was available.
“Such decisions will lay down the rules for the Committee of Creditors to take care of the interest of unsecured lenders and stakeholders even when their interests are fully protected,” he added.
Dalmia Bharat did not comment on UltraTech’s move, but it could be betting on the lenders sticking with the NCLT process instead of letting private deals scuttle the proceedings.