Workers unload sacks of cement from a freight train in Mumbai, India. (Photographer: Kuni Takahashi/Bloomberg)

IBC: Binani Cement Promised To UltraTech Even As Dalmia Bharat Wins Insolvency Bid

Binani Industries Ltd. will seek termination of the ongoing insolvency process against its cement arm after UltraTech Cement Ltd. agreed to buy the debt-laden company.

The board of Binani Industries Ltd. met today and decided to approach the National Company Law Tribunal to end insolvency proceedings against Binani Cement Ltd. following the pact with UltraTech, it said in a stock exchange filing. To terminate the process, Binani Cement will have to repay its lenders and other liabilities, which by the company’s estimate total between Rs 5,600 - 6,000 crore.

The decision to seek an exit was taken on account of the shortcomings of the insolvency process, according to Sameer Kaji, senior adviser of Binani Industries and the Braj Binani Group. “As a corporate debtor, we wanted transparency and information sharing by the resolution profession at the various meetings of the Committee of Creditors. Unfortunately, we did not succeed,” Kaji told BloombergQuint in an interview. “We were not part of any discussions.”

The incumbent management was frustrated by the CoC’s decision to keep confidential details regarding the bids put in by Aditya Birla Group-owned UltraTech Cement and the Dalmia Bharat-led consortium.

We feel, under the code, we should have been invited to understand and evaluate those bids because we could’ve enhanced them and added value. Because of this we felt that we should look at other options. This was a key reason.  
Sameer Kaji, Senior Adviser, Braj Binani Group

We were also keen on value maximisation, said Kaji, referring to the CoC’s decision to approve the Dalmia Bharat Ltd. bid over UtraTech’s, which the latter company revised higher after the bidding process closed.

Kaji cited the same reasons to explain why Binani Industries had concluded an in-principle commercial understanding to sell its entire 98.43 percent shareholding interest in Binani Cement to UltraTech.

Disclosures to this effect were made by both Binani Industries and UltraTech in filings to the stock exchange today.

UltraTech said its board of directors had approved to provide Binani Industries funds for paying all creditors and for the cost of the insolvency process as per the resolution plan it had submitted for acquiring Binani Cements. The plan had offered Rs 7,266 crore for Binani Cements.

The commercial understanding between the two companies is contingent to the termination of the insolvency process and entering into a definitive agreement for acquisition, besides other regulatory approvals.

This is a step towards value maximisation, factoring the interests of all stakeholders and lenders, including 3,000 MSMEs. - UltraTech Statement

UltraTech had increased its offer for Binani Cement after Dalmia Bharat emerged as the highest bidder. The committee of creditors, however, on March 15 approved the rival bid by a consortium led by Dalmia Bharat and backed by Bain Capital. UltraTech then approached the NCLT, which was scheduled to hear the matter today.

Kaji said that Binani Cement is the only asset admitted to the tribunal where lenders didn’t have to take a haircut. “We are willing to meet every single logical, legitimate liability,” he said earlier in a media conference.

Binani Cement is one of the few assets with a sizeable capacity available in land-locked north. It also has a well-established brand and markets its product in Rajasthan and neighbouring Gujarat, Maharashtra and cement-deficit states of Uttar Pradesh, Bihar, Punjab, Haryana and Delhi.

BloombergQuint’s calls and messages to Vijaykumar Iyer of Deloitte, the resolution professional appointed to the case, remained unanswered.

Here are other highlights of Kaji’s interview with BloombergQuint.

  • Our objective has been to maximise value for shareholders
  • Feel NCLT has power, even at this stage, to take Binani Cement outside insolvency process
  • Have a very good possibility of undoing the entire insolvency process
  • Over the last 60 days, made enough attempts to resolve the issue, without tying up with anyone
  • When UltraTech’s bid was rejected, we felt there was logic to exploring a relationship with them
  • UltraTech was an interested party; made logical sense to have an arrangement with them
  • Was in conversation with Dalmia Bharat in October 2016, before the ordinance which barred promoters from participating
  • Binani Cement’s total debt is around Rs 6,000 crore; UltraTech's offer is for Rs 7,300 crore

Does IBC Process Allow A Takeover?

Binani Industries is seeking to terminate the Binani Cement insolvency process under provisions of Section 60(5) of the Insolvency and Bankruptcy Code, 2016, said Kaji. He also cited Section 230 of the Companies Act, 2013.

There are no provisions in the IBC that explicitly bar Binani Industries from seeking a termination of the insolvency process or selling it shares even while an insolvency process is underway, lawyers BloombergQuint spoke with said. But neither is there an explicit provision that permits the NCLT to terminate an insolvency thus, they said.

The idea of the insolvency and bankruptcy process is to ensure that lenders are paid their dues, said Sanjay Asher, senior partner at Crawford Bayley & Co. “If the borrower is able to find a suitor who is willing to pay the dues of the lender, surely NCLT has the power to set aside whatever the resolution professional has done till date, and see to it that the lenders get the money.”

H Jayesh, founding partner at Juris Corp agreed. “There is no bar on the transfer of shares or even agreeing to collaborate with a corporate,” he said.

You may not have an explicit provision which says whether you can do so, but again there is no bar on doing so. Whether the NCLT entertains or not, is the moot question.
H Jayesh, Founding Partner, Juris Corp

Promoters had the flexibility to make such a deal before the initial admission in the NCLT, said Rajat Sethi, partner at law firm S&R Associates said in an interview on Tuesday.

Now that the insolvency petition has been admitted, bids have been accepted and the highest bid has been submitted before the tribunal, “the way the court has been designed, does not support this,” he said. “In my view even they (NCLT) don't have the flexibilty to terminate an Insolvency process and allow for an alternative process.”

A failure to approve a resolution plan within the mandated time limits in the IBC will lead to the triggering of liquidation under the law. “If you don't allow the resolution to be approved, then you have to order liquidation,” said Jayesh.

That is likely to be challenged by the parties involved, that is the corporate debtor, its parent and the bidders. That may result in a long-drawn legal battle which may diminish the value of the asset and not maximise it, Jayesh cautioned. According to him, in the interest of maximising the value of the asset, the NCLT may consider not permitting a termination of the resolution process.

But that too is likely to be challenged by Binani Industries and Ultratech, resulting in the matter reaching the Supreme Court either ways, said the lawyers.

Precedent For Other IBC Cases

The two lawyers were sanguine about this unusual development of a side deal being struck even as the company is in insolvency proceedings. And that, if permitted, it could jeopardise other insolvencies as well.

As the new bankruptcy process evolves, “there would be a different methods of getting a resolution plan, whether it is directly through the resolution process or any other mechanism available,” Asher said.

I would welcome the twists and turns to ensure that the asset is sold at the best possible price, and the lenders get the maximum value of it.
Sanjay Asher, Senior Partner at Crawford Bayley & Co

UltraTech’s bid for Binani Cement may be considered a hostile takeover but so is the IBC process, said Jayesh. “Even the resolution plan involves getting approved by the CoC without any shareholders say.” Besides, the NCLT in this case has not approved a resolution plan, he added.

If the lenders are getting repaid in full, and which is what I am given to understand is the case as far as Binani is concerned, then we have to look at the shareholders’ value...That may end up becoming a decisive factor between how the law evolves in this given case.
H Jayesh, Founding Partner, Juris Corp