A furnace strikes sparks on a red hot steel beam inside a plant. (Photographer: Waldo Swiegers/Bloomberg)

Bitter Court Wars Bog Down Arcelor, Tata as India Law Tested

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(Bloomberg) -- India’s new bankruptcy law is being bogged down by bitter court room disputes that include the likes of ArcelorMittal and the Tata Group -- jeopardizing the law’s promise of time-bound resolution in a country famous for its sluggish legal system.

None of the 12 large debtor companies that the central bank forced into bankruptcy court in June have been sold yet. The National Company Law Tribunal or NCLT, in charge of the process, has extended a 270-day deadline enshrined in the law for Bhushan Power & Steel Ltd. and Essar Steel India Ltd. by excluding the days under litigation. Others may follow as the courts are inundated with appeals from founders, administrators, lenders and bidders.

The successful resolution of about $210 billion in stressed loans is crucial to Prime Minister Narendra Modi efforts to clean-up the balance sheets of state-run banks, which hold nearly 90 percent of impaired assets. The first 12 large cases are being closely watched to gauge whether India can hasten the pace of bad-loan recovery, which the World Bank puts at 4.3 years, ranking the nation at 103 for resolving insolvency.

“Discretionary extensions run the risk of setting a dangerous precedent, driving a hole through the very integrity of the code,” said Ran Chakrabarti, a New Delhi-based finance lawyer and partner at IndusLaw. Should the courts water down the 270-day period, “we’re back to square one, and any hope of a swift liquidation process and an efficient recycling of capital -- the very point of any insolvency law -- will go out of the window.”

In what was seen as an initial success for the law, Electrosteel Steels Ltd. was awarded to billionaire Anil Agarwal’s Vedanta Ltd. The hurrah was short-lived as the process has now been stalled by a court order following an appeal by a rival bidder.

The company tribunal has repeatedly postponed a verdict on a bid for Monnet Ispat & Power Ltd. by JSW Steel Ltd. and Apollo Global Management LLC-backed Aion Capital Partners. Tata Steel Ltd. is waiting on final approval for its purchase of Bhushan Steel Ltd., even as it appeals an order allowing a late bid by Liberty House Group for Bhushan Power. ArcelorMittal and a VTB Capital-backed consortium are in court over Essar Steel.

Based on the U.S. experience, it seemed “perfectly predictable and, in fact, necessary” for there to be a period of many years during which India’s bankruptcy rules are worked out and refined, Adam Feibelman, a professor at Tulane University Law School specializing in bankruptcy law, said in a March 29 emailed response to questions.

Beyond the 12, the fight for Binani Cement Ltd. is also emerging as a test case, with a consortium backed by Bain Capital Credit slugging it out with billionaire Kumar Mangalam Birla’s UltraTech Cement Ltd. While the former had the winning bid under the bankruptcy process, Birla’s company made a late counteroffer and then signed an agreement with Binani’s founders to buy the asset. The matter has been taken to an appellate tribunal and the nation’s supreme court before being referred back to the lenders’ committee.

Bankruptcies Are Booming in India, But Where Are the Judges?

“If in nine months you can’t get a resolution done then you’ve failed the law,” said Shardul S. Shroff, executive chairman of law firm Shardul Amarchand Mangaldas & Co., which represents one of the Binani suitors. “The battle for victory is not the end game for resolution plan, reviving the company is. Therefore, tribunal should avoid getting caught up by challenges and attempts by losing bidders to somehow or the other get back into the game.”

Following is the status of the 12 large defaulters identified by the Reserve Bank of India in June.

CompanyClaims (INR Billion)270-Day DeadlineCurrent Status
Bhushan Steel 559.9April 22NCLT approval pending on offer by Tata Steel
Lanco Infratech 515.1May 4Administrator may file application for liquidation
Essar Steel507.8May 29Plea by bidders in appeals court on May 17
Bhushan Power 485.2April 22Tata Steel’s plea in appeals court due on May 24 on Liberty’s bid
Alok Industries299.1April 14NCLT to hear appeals objecting to liquidation on June 11
ABG Shipyard 185.4April 28Tribunal extends deadline by excluding period under litigation; NCLT to hear Liberty’s application on June 13
Jaypee Infratech 133.2May 12Creditors reject resolution plan by Lakshadweep Investments
Electrosteel Steels 133April 16Sale to Vedanta put on hold as appeals court to hear Renaissance plea on May 17
Amtek Auto125.9April 20NCLT decision pending on Liberty resolution plan
Monnet Ispat & Energy 104.1April 13NCLT hearing on June 25 on JSW-Aion’s resolution plan
Jyoti Structures80.8March 31NCLT nod awaited on resolution plan by unnamed applicant
Era Infra Engineering Not yet filedFebruary 2019Tribunal admits insolvency case on May 8

* Data sourced from company filings, court proceedings, India’s Economic Survey 2017-18

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