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Binani Cements

Dalmia Bharat makes it complicated but also significant

Among the various companies under resolution at the NCLT, the case of Binani Cements has been one of the most complicated. It has not only raised some serious questions about the role of the Committee of Creditors but also about how the bidding process should be actually conducted at the NCLT. But, first a brief background!

Background to the case...

When the first round of bidding concluded for Binani Cements, Dalmia Bharat had emerged as the highest bidder with a bid of Rs.6800 crore. However, subsequent to this Ultratech of the Aditya Birla group had put in a bid of Rs.7900 crore. Ultratech had also offered the option of an out-of-NCLT settlement directly with Binani Cements which had been turned down by the NCLT. However, the NCLT has accepted the Ultratech revised offer. Dalmia had subsequently approached the NCLAT against the order but the NCLAT had ruled in favor of Ultratech since the deal had the assent of the Committee of Creditors. However, that is hardly going to be the last word. Dalmia has now approached the Supreme Court against the NCLAT order. What shape it takes is not too clear but this case has certainly raised some very interesting questions. These questions will have implications not only for the NCLT process but also for the format of approval in future such cases. Let us look at 3 key issues that arise from this particular case.

What about auction process?

The first question that arises is on the current auction process. If the sealed auction process is used then the highest priced auction has to be respected. That is what Dalmia Bharat has been arguing about. According to Dalmia, Ultratech coming in after the round of auctions is a clear use of financial muscle to distort the entire NCLT process. That is surely a valid point and needs to be addressed.

Role of the COC

The key approvals in case of the NCLT process are dependent on Committee of Creditors, which is represented by the bankers. However, there are a lot of other stake holders like trade creditors, bond holders and the equity holders who are left out of the process. The banks are focused more on recovering their loans with minimal haircut. Hence the decision is driven purely by that one single factor. That needs a rethink!

Speed is the essence

This issue needs to be addressed early so that the process does not get skewed in favor of large conglomerates. That has been the case in the last few cases where it is the Tatas, Birlas, Jindals and the Mittals who have managed to get troubled companies at fairly attractive prices. This process needs to get a little more democratic in the larger interests of the various stakeholders!

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