Finding resolution in bankrupt companies through insolvency proceedings is becoming murkier after the estranged promoters and the rivaling bidders take the legal routes to put spanner in the process. When the UK-based Liberty House questioned the rejection of its bid for Bhushan Power and Steel, the promoter holding firm of Binani Cement challenged the liquidation value set by Interim Resolution Professional (IRP). Videocon Industries challenged the lender's move to invoke insolvency proceedings in the company.
It was in mid-June last year that the Reserve Bank of India (RBI) first told the banks to file cases against 12 big loan defaulters in a month's time. When the Insolvency and Bankruptcy Code (IBC) directs to find a resolution within 180 to 270 days, the time flies off without giving any hint of settlement in any of the big firms. In August, the RBI had directed banks to either resolve another 28 large stressed accounts or refer them to the NCLT by December 31. About 24 companies from the second list have already been taken to NCLT, say lawyers. According to RBI, the bad loans in the banking system come to Rs 8-lakh crore.
According to experts, the contentious issues are qualification of bidders, submission of bids after the deadline and selection of highest bidder. "The interpretation of the IBC leads to confusions when the law applies differently to different defaulters. The resolution is essentially about finding the right value and the right bidder. But there are many loopholes in IBC that can lead to further litigations," says a senior lawyer. The selection of highest bidder is mostly counted at three fronts - debt takeover, capital infusion and equity stake offered to the lenders. It is the committee of creditors (CoC) that evaluates the bid and select the highest bidder. In this case, there is a possibility that the creditors may differ in selection since criteria are varied, say experts.
Binani Industries, the holding company of bankrupt Binani Cement, approached the National Company Law Tribunal (NCLT) last week, seeking permission to participate in the sale process of the cement subsidiary. It also alleged that the IRP undervalued the company at Rs 6,300 crore, against its valuation of Rs 17,300 crore, reports say. Earlier, Videocon Industries had moved the Bombay High Court against challenging the lender's move to invoke insolvency proceedings in the company. The company argues it took steps, including sales of assets, to repay its loans but bank ignored all its actions.
The UK-based Liberty House plans to approach NCLT claiming that their bid for Bhushan Power is superior to that of Tata Steel. The reports say that committee of creditors (COC) rejected its bid because of the late submission. However, JSW Group failed to get the nod for taking over the real estate assets of Jaypee Infratech despite emerging as the highest bidder. The IRP called for second round of bids in Jaypee.
Renaissance Steel, one of the resolution applicants in Electrosteel, raised formal objections regarding the eligibility of other bidders Tata Steel and Vedanta. The reports say that Renaissance asked the CoC to disqualify the rivals under Section 29A (d) of the Insolvency and Bankruptcy Code (IBC) because their overseas subsidiaries have been convicted.
The eligibility of bidders - ArcelorMittal and Numetal Mauritius - is the contentious issue in Essar Steel. ArcelorMittal had stake in another bankrupt company Uttam Galva Steel, while Rewant Ruia, one of the estranged promoters of Essar Steel, holds stake in Numetal. IRP had appointed Grand Thornton to evaluate the bids based on the financial and eligibility criteria. The media reported that ArcelorMittal chairman Laxmi Mittal met Finance Minister Arun Jaitley regarding the ongoing insolvency process of the debt-ridden Essar Steel amid speculations that bids by both the company may get cancelled. Another report said that Mittal is largest bidder of Essar Steel.
For Amtek Auto, the binding bids from Deccan Value and Liberty House were below liquidation value in the first round. The lenders later asked both the bidders to improve the offer before deciding on liquidation of the company. The latest reports say that Deccan Value offered almost on par with the liquidation value and emerged as the highest bidder.
The clarity on final resolution is yet to come in most of the cases. As the extended date of 270 days is nearing at least in the first 12 cases, the question is will the companies taken to liquation amidst litigations.