Binani Cements Insolvency: NCLT Triggers (Yet Another) Auction

The insolvency of Binani Cements has triggered a number of legal issues involving the Insolvency and Bankruptcy Code, 2016. One of those relates to the manner in which the resolution plan has to be approved and implemented, especially in the context where a number of plans have been proposed. In this case, the company entered the insolvency process, following which the committee of creditors (CoC) called for resolution plans. In an ensuing bidding war carried out under the auspices of the CoC, Dalmia Bharat emerged as the successful party. Immediately thereafter, UltraTech Cement (which was an unsuccessful bidder through the CoC process) entered into a parallel deal with the company whereby it bettered the then successful offer of Dalmia Bharat. This resulted in a contest that pitted various parties against one another, including the company, the bidders, the resolution professional and the creditors.

In the latest iteration of the tale, the Kolkata bench of the National Company Law Tribunal (NCLT) earlier this week ruled on the legalityof the outcome thus far and laid out the path forward to resolve the stalemate. While the NCLT order spans a number of issues,[1]in this post I discuss the principal one, namely, whether the revised offer made by UltraTech violates the Code, the regulations issued thereunder or the objectives of the Code. At the outset, NCLT found that UltraTech was not provided sufficient opportunity to be heard by the CoC before its offer was rejected. Thereafter, it went on to consider the validity of the revised offer made by it. Objections were raised against UltraTech’s revised offer on the grounds that (i) it was sent merely by way of an email; (ii) it was not made in accordance with the process stipulated by the CoC; and (iii) it was made beyond the time limit prescribed under the Code. All of these objections were refuted by the NCLT in its order, which went on to uphold the validity of the revised offer made by UltraTech.

In arriving at its conclusion, the NCLT laid emphasis on the objectives of the Code, whereby the resolution professional as well as the CoC are “duty bound to ensure maximization of value with in the time frame prescribed by the Code”. In other words, the NCLT was driven by the broader outcome to the various stakeholders involved rather than blind adherence to the process stipulated by the CoC. The order favoured a pragmatic approach as opposed to a process-oriented one.

Interestingly, the NCLT has triggered another round of auction by effectively requiring the resolution professional and CoC to consider the revised offer from UltraTech. If any modifications are to be made, then the CoC will have to offer UltraTech an opportunity for hearing. Moreover, this effectively sets UltraTech’s revised offer as a floor price, as Dalmia Bharat is also offered a chance to make a better offer, thereby triggering an auction.

In arriving at this result, the NCLT has taken a wider approach towards resolving the deadlock and followed the objective of obtaining the “best price” for the stakeholders (being creditors, and then any residual value to the shareholders). It has refused to be bogged down by the process-oriented matters. Given the high stakes involved in this battle, an appeal against this order can naturally be expected. From a larger perspective, this controversy exposes some gaps in the insolvency framework in terms of the resolution process (and, in particular, the aspects surrounding bidding for the assets of an insolvency company), and they ought to be addressed sooner rather than later.


[1] Other issues include (i) the scope and extent of the powers of the resolution professionals, including their ability to appoint other professionals and whether they can outsource their work; (ii) the position of unsecured financial creditors in relation to other financial creditors; and (iii) the position of operational creditors in the context of the resolution process.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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