The National Company Law Tribunal (NCLT) is right to direct the creditors of Binani Cement to consider UltraTech Cement’s higher bid, even as it has allowed the Dalmia group to bid further, if it so chooses. It seeks to achieve the public-policy objective of obtaining the highest value for the distressed asset under resolution. This, in turn, would pay off not only secured lenders, the banks (who would avoid any haircut in the present case) but also the debts owed to unsecured creditors. If anything is still left over, that should be distributed among shareholders, pro-rata.
Reportedly, UltraTech’s first bid was less than the Dalmia group’s offer. The Committee of Creditors (CoC) had decided to only negotiate with the highest bidder. UltraTech had attempted to revise its offer, but was not allowed to do so by the CoC. The NCLT has said that denying Ultra-Tech an opportunity to be heard is unfair, and against the goal of the Insolvency and Bankruptcy Code (IBC). It held that the “the reason that the process document does not permit the resolution professional and the CoC to consider the revised offer of UltraTech has no legal force”. An extension of the deadline to complete the resolution process also makes sense.
Dalmia Bharat has held that any revised offer from an unsuccessful applicant outside the resolution process cannot guide the CoC. The argument is entirely valid. All bids should be within the resolution process. IBC is still evolving, and rules to enforce the law are far from perfect. The onus is on the regulator to fix the flaws and ensure that the rules for sale of assets do not depress the value below the highest figure that can potentially be obtained. The cement assets being sold off are worth more than either offer on the table, the bidding can continue.
via A sensible ruling on Binani Cement