CAUGHT BETWEEN LETTER AND SPIRIT OF LAW
12 big ticket cases on RBI’s first list of NPAs put a question mark on the sanctity of the 270-day deadline in the Insolvency and Bankruptcy Code
The preamble of the Insolvency and Bankruptcy Code (IBC) describes the basic functions as: “...to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders...”
As the 12 big ticket cases on the Reserve Bank of India’s (RBI’s) first list of non-performing assets are flit in and out of the tribunals, the adjudicating authority appears to be pointing to the spirit of the IBC, which is maximisation of value. The other stakeholders, however, point out that the maximisation of value is to be achieved in a time-bound manner.
In the Monnet Ispat & Energy case, the resolution plan by the AION-JSW Steel combine had been approved within the 270-day deadline with the National Company Law Tribunal (NCLT) for approval but is awaiting its nod. The NCLT in its last hearing questioned the committee of creditors (CoC) on its approval, given that the bid was below the fair value. The plan had secured 98.97 per cent voting from the lenders. Sources argue there was only one bid and the debt ballooned to unreasonable proportions.
In Bhushan Power & Steel, the Liberty House bid, which was higher than competing bids, came in after the deadline. The RP and the CoC had refused to accept the bid. Tata Steel was the higher bidder till then. But the NCLT directed the CoC to consider it. Tata Steel subsequently moved the National Company Law Appellate Tribunal (NCLAT) for a stay, but the NCLAT while admitting its plea, refused to grant a stay.
A senior advisor with the Indian Banks’ Association (IBA) pointed out the NCLT and the NCLAT were taking a long-term view, including precedence, but resolution professionals are looking at just the case on hand to maximise benefits in the immediate timeframe. “Thus, the RP is limited in his/her horizon... These 12 cases are going to set precedence so even if it takes longer, it doesn't matter,” he said.
For 11 out of the 12 cases, the stipulated deadline within which the approved resolution plan has to be filed with the NCLT is over. In five cases, resolution plans have been filed with the tribunal even though some are being challenged in the NCLAT.
The 12 RBI cases apart, the most importance being given to maximisation of value is in the case of Binani Cement. The Dalmia Bharat consortium was selected as the H1 bidder by the CoC. UltraTech, which was the H2, revised the offer, but the CoC issued the letter of intent in favour of the consortium, prompting UltraTech to move the Kolkata Bench of the NCLT.
The NCLT in its order directed the CoC to consider the revised offer from UltraTech, while giving Dalmia Bharat consortium an opportunity to match the offer. Lenders had gone by guidelines set out by the Indian Banks' Association (IBA) that negotiations would be held with only H1 bidder. A head of credit recovery at a large public sector bank said getting maximum return by following the spirit of IBC is laudable, even if that may overstep deadlines. “Yet, most of us would stick to the rules and guidelines
set out by law due to fear of facing action postretirement. It is prudent to go by the letter of law than the spirit of law,” he said.
Sumit Binani, an RP, noted the preamble of the IBC talks about maximisation of the value of assets as well resolution in a time-bound manner. “Bids based on pre-defined evaluation criteria and received within a deadline communicated to the prospective resolution applicants should be only considered,” he said. As per the IBC framework, the selection of a resolution applicant based on predefined evaluation criteria is a business decision that the CoC needs to take, he said.
The last on the notion of value maximisation has not been heard yet, though. Last week, in the Essar Steel hearing in the NCLAT, Numetal pleaded the second round of bidding should be considered for the sake of maximisation of value. Currently, the first round of bidding, where the bidders are Numetal and ArcelorMittal, is under consideration.