Amidst all the problems cropping up with regard to the resolutions of stressed companies under the Insolvency and Bankruptcy Code (IBC), the good news is that Tata Steel is close to taking control of Bhushan Steel. Unfortunately though, the Tata-Bhushan transaction could turn out to be an exception; with a host of prospective buyers having approached the courts with one grievance or another, litigation threatens to disrupt and delay the process. Arcelor Mittal has just knocked on the doors of the National Company Law Tribunal (NCLT), seeking a fresh opinion on its eligibility to bid for Essar Steel. Earlier, NuMetal, a JV that includes a member of the Ruia family, claimed in the tribunal that it was eligible to bid for Essar Steel. Meanwhile, a late, but a very attractive bid for Binani Cements emerged from Ultratech—ostensibly at the request of the Binani promoters—after Dalmia Bharat had been declared the winner. Some disagreements on the eligibility of participants who had made a pitch for Bhushan Power could result in fresh round of bidding for Bhushan Power and Steel.
Such disruptions are to be expected. The question is whether the eligibility of prospective buyers should be reconsidered. This newspaper would argue they should be because, at the end of the day, it is important that lenders are able to recover as much as possible, and, moreover, that a valuable asset is salvaged. That, however, does not mean the spirit of the IBC is violated; so promoters who are big defaulters should be barred from trying to get back their companies, with a haircut to boot. But, a more nuanced view has to be taken of smaller defaulters. Which is why, the NCLT benches, resolution professionals (RPs) and the committees of creditors (CoC) must be willing to re-open the bidding process and accept late offers from buyers, if they are substantially better.
It might seem unfair in some instances, especially if the offer comes in late, but given the IBC is in its infancy and the process is still evolving, and also given that the assets at stake are very valuable, the IBC structure must be flexible enough to ensure the best solution for every company. In the case of a steel or cement company, for instance, it is important the lenders are able to recover as much of their dues as possible. However, with a real estate venture, it is more important that the project is completed and homebuyers get possession of their apartments. As such, the bulk of the funds brought in by the buyer should be used to ensure this. Unless the RPs and CoCs work towards this, there is a real risk of good companies being liquidated as time runs out.