Resolution professionals (RPs) are coming under sharp attack not only from bidders but also the National Company Law Tribunal (NCLT) for not following the process mandated under the Insolvency and Bankruptcy Code (IBC), 2016. The arbitrary way of handling IBC cases has led to litigation and delayed resolution of bank debt worth Rs 3 trillion, say lawyers.
The courts have already given directions in the bidding process undertaken by the RPs of Binani Cement, Essar Steel, Bhushan Power and Jaypee Infratech, witnessing extensive litigation, and bidders say the final verdict is still a few months away. On Monday, the NCLT’s Delhi Bench asked the RP to allow Liberty House, barred earlier by the RP for not submitting its offer before deadline, to bid for Bhushan Power & Steel. Tata Steel had emerged as the highest bidder for Bhushan Power, in which banks will take a 48 per cent haircut.
Last week, India Infrastructure Finance Co (IIFCL) blasted the bidding process for Jaypee Infratech, saying the company was being undervalued during the resolution process. IIFCL sought a "fair and transparent" process and said the RP had valued the company at half of its market value of Rs 171.1 billion. It said the scores assigned by audit firm Deloitte and IDBI Capital were arbitrary and fair practices had not been adopted. Both Deloitte and IDBI Capital are advising the Committee of Creditors. A joint venture of Dosti group and Suraksha ARC has bid Rs 73.5 billion for the company and emerged as the highest bidder for the company with a huge tract of land on both sides of the Yamuna Expressway between New Delhi and Agra.
Lawyers and bidders say assigning of scores is subjective and many a time even companies with good track records are thrown out.
Officials of Aditya Birla group’s UltraTech Cement complained they were not allowed to check how the scores were given in the Binani Cement debt resolution process. The resolution professional said UltraTech that its bid was rejected in a one-line email while announcing Dalmia Bharat was the highest bidder. “The way the Binani Cement case has been handled by the resolution professional should be a case study for incompetence in the years to come,” said an UltraTech official.
Interestingly, in the Binani Cement case, the Supreme Court upheld the integrity and sanctity of the IBC process by ruling against an out-of-court settlement by Binani Industries, backed by UltraTech. The matter is back at NCLT Kolkata.
“Though different aspects will need to be considered for better price discovery and value maximisation, the benchmark has been set for other cases in terms of adhering to deadlines and bidding under IBC’s provisions,” said an Edelweiss report, dated April 16, on Binani Cement resolution. Binani Cement will be one of the rare cases where lenders will not take any haircut. Lenders in general are taking an average 52 per cent haircut in the first list of insolvent companies identified by the RBI.
The RP of Essar Steel was also at the receiving end of the NCLT Ahmedabad Bench last week when it asked the RP to allow the bids made by a by a Numetal and ArcelorMittal-led consortium. The lenders are expected to meet in the next few days to seek fresh bids so that they got better value for their loans worth Rs 440 billion. In its order, NCLT Ahmedabad said the committee of creditors did not follow the due process and allowed RP’s legal advisors to disqualify both companies under Section 29 A of the IBC code 2016.
Legal experts said as the IBC 2016 is a new law, its interpretation is varied. “Ultimately, it will be the Supreme Court that will decide on each case, as lenders do not want any complications later. Everyone is playing safe,” said a Mumbai-based corporate lawyer.