Rising litigation mars IBC debt resolution
With bidders and owners of companies that defaulted on debt repayments complaining of arbitrary use and interpretations of the Insolvency and Bankruptcy Code (IBC) by insolvency resolution professionals (IRPs) and lenders, more cases relating to non-performing assets (NPAs) resolution are likely to head to court.
While there solution process of Bi nani Cement, Video con Industries, and Jay pee is in court, the next round of litigation is expected in the bidding process of B hush an Power& Steel and Essar Steel.
“Most of these cases will be appealed in the Supreme Court as the interpretation of the code is different in most cases. While in the Bi nani Cement case, the I RP called for bids for the second round despite J SW Cement being the winner in the first round, in other cases latecomers were not allowed to bid ,” said a Mumbai- based corporate lawyer.
London-based Liberty is planning to move court next week after it was not allowed to bid for Bhushan Power & Steel, for which Tata Steel emerged as a winner in the first round.
Bi nani Cement promoter Bi nani Industries has moved the National Company Law Tribunal ( NC LT), Kolka ta, after it alleged that the I RP under valued the company at ~63 billion, against its valuation of ~173 billion. The company complained the I RP had “personal” interests in offering the company to its “favourite bidder ”.
When asked for comments, Vijay kumar Iyer of Deloitte, who is the IRP, did not commenton Bi nani Industries’ statement.
Video con Industries, on the other hand, has moved the Bombay High Court against the Reserve Bank of India( RBI) and the State Bank of India on the I BC proceedings initiated against it by the bank. The company said it had taken steps, including sales of assets, to re pay its loans worth ~22 billion, but all its actions were ignored by the bank.
“The RBI should say on what basis it sent some companies for resolution, resulting in widespread job losses, while ignoring others. That is the reason why many companies have moved court ,” said the chief executive officer of a debt-hit company. The biggest court battle, however, is expected in the case of Essar Steel, which received two bids. The lenders said the bids of Arc el or Mitt al and Nu metal, a company whose 25 percent is owned by a trust belonging
to the Rui as, were likely to be rejected. That is because Arc el or Mitt al owned 29 percent in Uttam Galva, which had NPAs, and sold its stake just before it made the bid for Essar Steel.
Arc el or Mitt al-promoter LN Mitt al held 33 percent in K SS of Kazakhstan, which, in turn, had a 100 percent stake in K SS Pet ron, a company that defaulted in loan obligations, and was sent to the NC LT. Mitt al sold his personals take in KS Saw eek before bidding for Essar Steel. However, Arc el or Mitt al executives are saying the firm’ s offer for Essar Steel will be cleared. Nu metal executives, too, are confident after taking legal opinion from former Supreme Court judges and government law officers.
“The offers of Arc el or Mitt al and Nu metal will be decided by the highest court as the aggrieved party will move court if its bid is rejected. This will further complicate the IBC process,” said a bidder.