Dalmia Bharat Affidavit Says UltraTech-Binani Agreement Is Illegal
Dalmia Bharat affidavit alleges “malafide conduct” and “intent to cause obstacles” by UltraTech Cement.
Cement company Dalmia Bharat Ltd. has in an affidavit filed with the National Company Law Tribunal listed several reasons for why it believes rival bidder UltraTech Cement Ltd. has demonstrated “malafide conduct” and “intent to cause obstacles” in the insolvency resolution of corporate debtor Binani Cement Ltd. The affidavit was filed on Wednesday, said a person aware of the development on condition of anonymity.
On March 19, Dalmia Bharat Ltd.’s winning bid for Binani, submitted by its wholly owned subsidiary Rajputana Properties Private Ltd., was presented to the National Company Law Tribunal for approval. The Dalmia-led consortium backed by Bain Capital Credit and Ajay Piramal’s Piramal Enterprises Ltd. has been selected as the winning bidder by the Committee of Creditors at Binani. On the same day, Aditya Birla Group company UltraTech, the second and losing bidder for Binani Cement, struck an agreement with Binani Industries to purchase its 98 percent shareholding in the cement subsidiary.
The Dalmia affidavit argues that this alternate transaction is beyond the provisions of the Insolvency and Bankruptcy Code, 2016 and the corporate insolvency resolution process.
“Any proposal of UltraTech and Binani Industries Limited which is directly contrary an approved resolution plan and which proposes change in ownership interest of Binani Cement Limited is illegal and void as per Section 28.”
While Dalmia has not publicly disclosed its bid value, a Bloomberg report suggested it was close to Rs 6,350 crore. Ultratech’s Chief Financial Officer Atul Daga told BloombergQuint that the company’s first bid was at Rs 6,200 crore, which it then revised to Rs 6,900 crore. In the alternate transaction with Binani, UltraTech said it is committed to offer Rs 7,266 crore.
Dalmia Says UltraTech-Binani Distorting The Process
The alternative transaction between UltraTech and Binani comes after UltraTech has reportedly filed up to three different applications at the NCLT questioning the evaluation criteria used to determine the winning bid and alleging circumvention of its objections by the resolution professional and CoC. The third application filed by UltraTech was to quash the resolution process on basis the first two applications.
In an earlier interview with BloombergQuint, Daga claimed the resolution process was “clouded in secrecy”.
This is our point of grievance and bitterness, that the resolution professional didn’t disclose anything to us except an email saying that we were not the highest bidder. We have been asking them right from day one to share the evaluation criteria and the process by which they’ve scored us. Unfortunately, they’ve refused to share any information and that’s why we filed a petition at the NCLT about the lack of transparency shown by the professional. Our bid is for Rs 7,266 crore as against Dalmia Bharat’s Rs 6,350 crore. Clearly a significant difference.Atul Daga, CFO, UltraTech Cement
The Dalmia affidavit argues that UltraTech’s applications are an effort to distort the process under the Insolvency and Bankruptcy Code, 2016. A copy of the affidavit has been viewed by BloombergQuint.
Grave prejudice would be caused to the Respondent No. 2 (Dalmia Bharat) if the Applicant (UltraTech Cement) is allowed to, in any manner, distort or destroy the corporate insolvency resolution process and if there is any delay in completing the process in the mandated 270 days.Dalmia Bharat Affidavit
The Resolution Process Timeline
Dalmia's affidavit lists milestones in the resolution process that kicked off last year in order to support its arguments that due process was followed by the resolution process and CoC.
July 25: Insolvency petition was admitted by NCLT and Vijay Iyer appointed as interim resolution professional.
December 20: The CoC authorised Iyer to release a process document that said the CoC had the sole discretion of approving a resolution applicant (bidder).
January 15: Six resolution applicants submitted their resolution plans (bids).
January 18: All six made presentations regarding their plans to the CoC.
February 1: Iyer, under CoC instructions, issued the “Evaluation Criteria for Qualitative Scoring”.
February 7: Clarifications to the evaluation criteria issued by Iyer.
February 9: Iyer communicated that Feb. 12, 2 p.m., was determined as the cut-off date for submission of all resolution plans.
February 12: All six applicants submitted their plans.
February 23: All six applicants made presentations regarding their plans to the CoC.
February 27: Dalmia Bharat was declared as H1 bidder. The company was informed there would be negotiations with the creditors. UltraTech was informed that it was not the H1 bidder.
Interim: There were negotiations between the creditors and Dalmia Bharat.
March 7: Final negotiated proposal was submitted by Dalmia Bharat to Iyer. CCI grants unconditional approval to Dalmia Bharat for the transaction.
March 8: UltraTech submitted revised offer to Iyer and CoC.
March 14: Dalmia Bharat's resolution plan was tabled before CoC and approved by 99.43 percent majority.
March 15: Iyer communicated approval of Dalmia Bharat's resolution plan.
March 18: A letter of intent was issued to Dalmia Bharat which in turn submitted a performance bank guarantee.
On March 19, Binani Industries said its board of directors had decided to apply to the NCLT to terminate the insolvency process against Binani Cement. And that to pay off the lenders the company has concluded an in-principle commercial understanding to sell its entire 98.43 percent shareholding interest in Binani Cement to UltraTech.
Soon after, Binani Industries adviser Sameer Kaji told BloombergQuint that lack of transparency in the resolution process and a desire to maximise value were the reasons for wanting to terminate the insolvency.
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
Daga said UltraTech’s bid was superior in quality and there was nothing wrong in the deal it has signed with Binani.
The owners have realised that they’re not getting full value for their asset, and that’s why they have approached us. We are not changing our bid. The bid that we filed with NCLT is the same amount we offered to Binani Industries, provided they are able to get Binani Cement out of the insolvency proceedings. I don’t think there is anything wrong with that.Atul Daga, CFO, UltraTech Cement
The Dalmia Bharat affidavit states “the sequence of events would indicate that an unsuccessful Resolution Applicant is only attempting to push the Corporate Debtor into liquidation by creating obstacles in completion of the Corporate Insolvency Resolution Process of the Corporate Debtor”.
No Sanctity To Bid Process?
The other key arguments Dalmia has made in the affidavit are...
- UltraTech's second resolution plan was submitted after the final submission date set out by the resolution professional. By then Dalmia had already been selected as the winning bidder.
- Two plans cannot be submitted by an applicant as per clauses laid down in the process document issued by the resolution professional on Dec. 20.
- The evaluation matrix stipulating general and quantitative parameters and was shared by the resolution professional with all bidders. One of the criteria is regulatory compliance and whether any adverse regulatory order has been passed against the applicant.
- The right to set criteria to determine a winning bid or resolution plan is the exclusive domain of the COC and a resolution applicant can’t contend that “maximisation of value” is the sole criterion for evaluation of bids.
- A circular issued by the Indian Banks Association in January states that in any corporate insolvency resolution process banks will negotiate only with the highest (H1) bidder.
- Circulars issued in the past by the Central Vigilance Commission state that post tender negotiations are not to be held except with the highest tenderer.
- UltraTech's revised offer cannot be opened by the NCLT as it is not within the scope of its jurisdiction to entertain a new offer, evaluate it and compare it to an approved resolution plan. Such power lies only with the CoC.
- The NCLT’s jurisdiction is limited to examining the resolution plan approved by the CoC to ensure it meets IBC provisions.
- The NCLT should follow the Supreme Court's example and apply the doctrine of restraint in matters of complex fiscal evaluations. That is, the NCLT ought not to sit in appeal over the assessment of financial consultants to the CoC and resolution professional.
- The IBC prohibits any change in the ownership of the corporate debtor while the insolvency process is on.
- Section 29A of the IBC bars Binani Industries from participating in the resolution process and the support of UltraTech to Binani is also impermissible.
- UltraTech has yet to receive approval from the Competition Commission of India having made its filing on Feb. 22. The transaction with Binani is in defiance of UltraTech’s own notification to the Competition Commission of India.
- The resolution professional has applied to the NCLT on March 16 to place on record suspect and fraudulent transactions involving Binani Cement, based on the report of forensic consultant Ms. Haribhakti. These charge the management of Binani Cement of undertaking preferential, undervalued, extortionate credit transactions and fraudulent transactions.
- Dalmia Bharat has already signed the letter of intent, provided bank guarantee, received CCI approval and is therefore in a position to implement the resolution plan.
- Consideration of UltraTech’s revised offer suggests there is no sanctity to the bid process or due date and will set a bad precedent for all pending insolvency cases.
In the circumstances, all applications made by Binani Industries Limited and UltraTech, in view of the serious allegations of fraud in relation to the property of the corporate debtor and the collusion between an unsuccessful bidder and a fraud promoter, ought to be dismissed. Their entire premise that beyond the Resolution plan Submission Date, and after the conclusion and declaration of results of evaluation and approval of the resolution plan; that the resolution process can be re-opened is fanciful and ought to be rejected as an attempt to mislead this Hon’ble Tribunal into error.Dalmia Bharat Affidavit
BloombergQuint’s earlier efforts to reach out to Dalmia Bharat and Vijaykumar Iyer of Deloitte, the resolution professional appointed in the case, remained unanswered.