Tycoon Birla sets up billion-dollar test of India insolvency law

NEW DELHI: Billionaire Kumar Mangalam Birla’s battle for an indebted cement company may decide the fate of India’s efforts to create a time-bound process to resolve one of the world’s biggest piles of stressed assets.

The Supreme Court is scheduled to hear an appeal against a bankruptcy tribunal’s verdict approving Birla’s US$1.1bil offer for indebted Binani Cement Ltd.

Birla’s UltraTech Cement Ltd lost out initially to a bid from a Bain Capital Credit-backed consortium, only to return with an upgraded proposal that was challenged as being late and made once the details of the rival offer were known.

The top court must now decide what’s paramount under India’s two-year-old bankruptcy law – selling an asset to the highest bidder or predictability and timeliness. An order backing the tribunal’s decision will set a precedent for other companies in insolvency proceedings and may jeopardize the 270day timeline laid down to resolve such cases. The law has helped India jump more than 50 positions in the World Bank’s ease of doing business ranking.

“It is patently clear that if value maximisation becomes the focal point of consideration for the insolvency resolution process, then the time-bound process – as envisaged under the Insolvency and Bankruptcy Code – would never be adhered to,” said Rajat Prakash, the founding partner of Delhi-based Athena Legal, which deals with insolvencies.

In its previous rulings, India’s Supreme Court has tightened time lines and emphasised that speed is crucial to the success of the 2016 law, which replaced a web of archaic rules, some 100 years old.

An important objective is to bring the insolvency law under “a single unified umbrella with the object of speeding up” the process, the top court had said in a ruling last year.

In the Binani Cement case, a consortium that included Dalmia Bharat Ltd and a Bain Capitalbacked fund was first selected by lenders to acquire the distressed firm and lodged a legal challenge when UltraTech’s revised offer was approved. A Dalmia group company challenged the decision.

The appellate tribunal for bankruptcy cases rejected Dalmia’s case and approved UltraTech’s plan on Nov 14. “The purpose of resolution is for maximisation of value of assets of the corporate debtor and thereby for all creditors,” the National Company Law Appellate Tribunal said.

If the overall timelines are met, revising a bid upward is in the interest of creditors and the public interest is served if all creditors recover their money, said former Attorney General for India Mukul Rohatgi, who represented UltraTech at the tribunal. Minor delays should not come in way of banks recovering complete dues. “Timelines are not cast in stone,” he said.

Ultratech’s offer balances the interests of all stakeholders, said Mahesh Agarwal, partner at Delhibased law firm Agarwal Law Associates, which represents Ultratech in the case.

The top court’s decision may impact ongoing proceedings involving Essar Steel India Ltd and Bhushan Power & Steel Ltd – two of the biggest steel assets on the block.