IBC was not enacted to punish promoters, Binani tells Supreme Court
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IBC was not enacted to punish promoters, Binani tells Supreme Court

Varun Marwah

The holding company of Binani Cements, Binani Industries, has now taken the Ultratech matter to the Supreme Court, in its attempt to terminate the resolution process initiated under the Insolvency and Bankruptcy Code, 2016 (IBC).

Binani Industries has moved to the Supreme Court by the way of an appeal  filed under Section 62 of the IBC, against an NCLAT order dated April 5, 2018.

Brief factual background

Binani Cement went into resolution on July 25, 2017 based on application filed by Bank of Baroda. Resolution plans were then sought from prospective bidders and the (revised) date for submission of these bids was February 5, 2018. There were at least two bidders who had submitted bids by the final date, one being Ultratech and the other being Rajputana Properties, a wholly owned subsidiary of Dalmia.

On a Creditors’ Committee  meeting held on February 27, 2018, Ultratech’s plan wasn’t selected. Immediately after, on March 6, 2018, suspecting that Rajputana would have won the bid, Ultratech filed an application with the NCLT praying for transparency in resolution process. And soon after on March 8, 2018, Ultratech revised its bid, offering 100% upfront cash settlement to secured and unsecured creditors.

While the case was pending with the NCLT, the Creditors’ Committee conducted a meeting on March 14, 2018 and selected Rajputana as a winning bidder. On the same day, Ultratech struck a deal with Binani Industries, to buy off its 98% stake in Binani Cement that would help clear all its debt.

On March 18, 2018 Binani Industries sought to terminate the insolvency proceedings by filing an application with the NCLT in view of the Ultratech deal, which proposed  payment of its entire debt.

On March 27, 2018 NCLT passed an interim order suggesting that the parties may ‘consider a harmonious settlement’, in the larger interest of all stakeholders.

Meanwhile, Rajputana moved to the NCLAT challenging the March 27 NCLT order. On April 3, 2018 the NCLAT again recorded the chance of settlement between the parties involved. However, on April 5, 2018, the NCLAT held that the NCLT may proceed with the resolution process ‘unaffected by its order dated March 27 and its previous order dated April 3’, suggesting that the NCLT need not wait for settlement discussions.

It is this April 5 order that Binani Industries has challenged in the Supreme Court.

Grounds

The appeal raises questions with respect to the jurisdiction of NCLT/NCLAT under the IBC.

Binani asks if NCLT/NCLAT will continue to have jurisdiction to consider resolution plan submitted by the a third party even when the original promoters/shareholders are willing to pay back the entire debt. It argues that the IBC was not enacted to punish promoters by preventing them from paying 100% debt, while being ‘mute spectators’ to their company being sold at a huge discount to a third party.

Binani’s contention largely revolves around the superiority of its offer, which settles 100% of the company’s debt in contrast to Rajputana, which has offered a sum involving a haircut of Rs. 1,100 crores.

Binani is further arguing that the IBC does not take away the right of a mortgagor to redeem the mortgagee before the sale, and/ or take away the right of the promoter to pay all its dues. In this case,  a rejection of their offer would amount to taking their right away to redeem their property, even though they’re willing to make full payment.

Binani has also relied on the previous judgments of Supreme Court where under Article 142, the Supreme Court ended insolvency proceedings in view of settlement of debt.

It is further being argued that the lender has no vested right to sell the security or asset of the borrower when the borrower is willing to make full payment, specially before the confirmation of sale to third party.

Prayer

Accordingly, Binani Industries is seeking Supreme Court’s intervention in quashing the NCLAT order dated April 5. This would help reinstate its settlement discussions with lenders.

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