A landmark decision

The long drawn battle between Dalmia Bharat group’s Rajputana Properties and the Aditya Birla Group-led UltraTech Cement, to acquire Binani Cement made significant headway recently, with the National Company Law Appellate Tribunal (NCLAT) approving UltraTech’s bid for the debt-laden company. At the heart of the dispute has been UltraTech’s presumably late, but higher bid of ₹7,950 crore that came in after the committee of creditors (CoC) had approved Dalmia Bharat’s lower bid of ₹6,930 crore. This had raised niggling concerns on the sanctity of the IBC process, as late bids could lead to endless negotiations and a losing bidder, as it appeared then, could undesirably strike a cosy deal outside the IBC system. But interestingly the 44-page NCLAT order has shed a different light on the crux of the issue. According to the findings of the adjudicating authority, the CoC had, in fact, ignored the revised bid by UltraTech submitted much before the approval of Dalmia’s plan, thereby failing to realise the intended purpose of resolution — one of maximisation of value for all stakeholders. The NCLAT also found that the CoC had failed to safeguard the interest of all stakeholders even while approving the resolution plan of Dalmia Bharat. By noting that a lesser percentage of claim was given to a certain set of similar creditors, the NCLAT found Dalmia Bharat’s resolution plan ‘discriminatory’ against some operational and financial creditors.

The landmark decision by NCLAT, aside from clarifying key issues in the Binani Cement case, has set a precedent for future cases under IBC, by re-iterating key aspects of the Code. For instance, the NCLAT has re-affirmed that the insolvency process must seek to extract maximum value from resolution of stressed assets and ensure that interests of operational creditors (who are not part of CoC) are also well served. The NCLAT’s emphasis that an insolvency application once filed cannot be withdrawn at a later date merely because the promoter of the financially stressed company has offered to pay all outstanding dues, will have an important bearing on the ongoing Essar Steel case.

That said, the NCLAT ruling that has held Dalmia’s plan as ‘discriminatory’ has opened up a Pandora’s box on the grounds on which the Appellate Authority can reject a resolution plan. But the larger issue of disputes and interventions delaying the IBC process remains. While it is imperative that adjudicating authorities settle points of law and ensure that interests of all stakeholders are safeguarded, it is also vital that cases are resolved quickly. According to IBBI data up to September 2018, of the 1,198 cases under insolvency, only 52 have seen approval of resolution plan. While Dalmia has moved the Supreme Court against the NCLAT order, avoiding excessive delay is essential to maintaining the sanctity of the Code.