The order opens up the debate over what is bigger - the process or maximization of value
The National Company Law Appellate Tribunal's approval for UltraTech Cement's offer for Binani Cement will have a bearing on other cases, including that of Essar Steel, which are still at the insolvency courts.
The NCLAT on Wednesday approved UltraTech's bid for Binani Cement, and rejected the contention of Dalmia Group, which had argued that the Aditya Birla Group company had violated Clause 29A of Insolvency and Bankruptcy Code.
"Today's order could set a precedent, as in many insolvency cases there has been a debate on what is greater - the process or maximization of value," said a senior executive from the industry.
The biggest of the insolvency cases is that of Essar Steel. While its creditors have approved the offer by ArcelorMittal, a counter and higher offer came in the last minute from the Ruias, who had founded the company.
Also, on Tuesday, operational creditors of Essar Steel moved the Ahmedabad bench of National Company Law Tribunal, alleging that their interests have not been taken care of either by the Committee of Creditors, nor by the offer from ArcelorMittal.
The Binani case
Initially, the Committee of Creditors had approved the resolution plan presented by Dalmia, which had offered Rs 6,350 crore to Binani's lenders, with an equity of 20 percent.
Dalmia's bid, made through its unit Rajputana Properties, is backed by Bain Piramal Resurgence Fund.
Binani’s total secured and unsecured debt amounts to about Rs 6,265 crore.
Later, UltraTech came to a settlement with the promoters of Binani Industries. Under the settlement, UltraTech would issue Binani Industries a letter of comfort providing Rs 7,266 crore, which will be used by the Binani company to pay off Binani Cement's creditors, including the unsecured ones. In return, UltraTech will acquire 98.47 percent stake in Binani Cement.
A Dalmia Bharat Group spokesperson declined to comment, and said that the order statement will be studied first before the company responds.
Sources close the development, however, said the group may opt to appeal the NCLAT order at the Supreme Court. "But then a call has to be taken if it makes sense to go ahead. Despite following the process, Dalmia has faced set backs...and UltraTech comes with deep pockets," said the source quoted above.
Process or value
UltraTech's offer was supported by the lenders and the operational creditors of Binani Cement, as it was higher and also provided for the unsecured lenders.
But Dalmia Group had alleged that an agreement outside the court, as done by UltraTech and Binani's promoters, compromised the essence of the insolvency process.
Interestingly, in the case of Essar Steel, the creditors didn't entertain the last minute offer from the Ruias. But the Essar Steel founders have found support from the operational creditors, who have pointed out that the Ruias are offering more for their claims.
Speaking on the issue during an informal chat with journalists on Tuesday, Seshagiri Rao, Joint Managing Director and Group CFO of JSW Steel, commented that globally, the objective of the process is to maximise value.
"The process could be defined, but it could be on a flexibility... the eventual objective of public money is protected. Maximization of value in my view is the eventual criteria in all the crisis," said Rao. At the same time, he underlined that the process should not be completely ignored.
JSW Steel has bagged Monnet Ispat, and is in the running for Bhushan Power & Steel, where it is competing with Tata Steel.
In Bhushan Power & Steel's case, the creditors were set to vote on Tata Steel's offer, when JSW Steel re-entered the race with a higher offer. Tata Steel has approached the court saying it has followed the process, and had challenged the NCLAT order that allowed revised bids.