Why Binani Cement deal is a test case for Insolvency and Bankruptcy
Code?
UltraTech
Cement Struck a Deal with Binani Cement
That
UltraTech Cement struck a deal with Binani Cement outside the IBC framework,
especially when lenders had already chosen Dalmia Bharat as the top bidder, tests the sanctity of the
Insolvency and Bankruptcy Code
14
Petitions Against Binani Cement Ltd , Insolvency Case
Fourteen petitions. That’s
the number of pleas filed against the insolvency proceedings of Binani Cement
Ltd, which is fast turning out to be a test for the Insolvency and Bankruptcy
Code (IBC) due to multiple issues ranging from allegations of fraud to lack of
transparency in the bidding process. Hearings are currently underway at the
Kolkata bench of the National Company Law Tribunal (NCLT).
1.
What’s the background?
Binani Cement was a
regular bankruptcy case under IBC. Bids were called for, and the committee of
creditors chose a Dalmia Bharat Ltd-consortium as the winner. The resolution
professional had also filed the Dalmia Bharat resolution plan with the tribunal.
However, UltraTech Cement Ltd, which had also put in a bid for Binani Cement,
alleged that the process
for choosing the top bidder was not transparent and that the resolution
professional had not followed established best practices.
2.
What did UltraTech do then?
It complained to NCLT
and also wrote to Binani Cement’s resolution professional, offering to increase
its bid to about Rs6,900 crore from about Rs6,200 crore earlier. But when that
was not accepted, the firm struck a deal with Binani Industries Ltd, the parent
of Binani Cement, to buy its 98.43% stake in the cement unit, provided the
insolvency case was terminated. On its part, Binani Industries approached NCLT asking that the case be
terminated. At a hearing last week, Binani Industries told the tribunal
that it will repay creditors within two weeks.
3.
Why is this important?
UltraTech has struck
this deal outside the bankruptcy framework. Striking a deal outside the framework, especially when
the process is nearing completion, tests the sanctity of the code. If
UltraTech wins, every unsuccessful bidder could approach the promoter and
strike a deal to fund the repayment of the liabilities with the banks.
4. What does the law say?
The code itself does
not have a procedure laid down for terminating the insolvency process. However,
in another case last July, the Supreme Court ruled that a settlement can be
considered and a case can be withdrawn after insolvency proceedings have
started against a company. In that particular case, the company and its creditors
had settled their dispute.
In Lokhandwala
Kataria Construction Pvt. Ltd. Vs Nisus Finance and investment Manager case
,Supreme Court allowed
settlement to be recorded between the parties even when the insolvency
application had already been admitted and put quiet status under 142 of the
Constitution.
5.
What next?
The committee of
creditors has indicated its willingness to consider the UltraTech-Binani
Industries deal since it would entail a lower sacrifice on the lenders’ part.
Its counsel had sought time till Monday to consider UltraTech’s offer. If the
lenders do choose to accept the offer, the Kolkata NCLT will have to rule. An
adverse ruling for Dalmia may prompt the consortium to approach higher courts.
If the case ends up at the Supreme Court, its ruling could set a precedent for
other cases. Expect the drama to continue.
Courtesy: Live Mint
