Binani Case Shows IBC Rules Need Tweaking, But Not This Time To Favour UltraTech

UltraTech Cement, the Kumar Birla-owned cement company that is keen on buying Binani Cement at the bankruptcy court, has upped its bid a second time, this time to just under Rs 8,000 crore. At this level, the offer is Rs 1,290 crore higher than its originally losing bid, where it lost out to a consortium led by Dalmia Bharat.

The problem with the UltraTech bid is a legal one: having lost in the formal bid, can it try and subvert the outcome by teaming up with the old promoters and entice the lenders with mouth-watering counter-offers that are simply too good to refuse?

The Binani case underlines the essential tension between two objectives of the Insolvency and Bankruptcy Code: providing a platform for a transparent resolution of bad loans, and providing the lowest haircut to lenders.

UltraTech is addressing the latter objective by improving its bids twice after the formal bidding closed; Dalmia Bharat is holding the resolution professional to the rules of fair play, since it won the bid fair and square. The Supreme Court, which last week declined to help UltraTech by forcing the bankruptcy court to consider its offer, has underlined the same thing. Rules cannot be changed mid-game.

So, two things are clear: UltraTech cannot get through the back door when it failed to get through the front door. However, this means the law itself needs tweaking so that the objective of giving lenders a better value for the asset is also met.

The law can be tweaked to make one simple change: whenever a bid takes place, and there is a possibility of the bidding war raising prices higher, the National Company Law Tribunal should be empowered to either call for rebids, or allow for an Sotheby’s-type open auction where the top bidders can keep raising their prices until a final victor is found.

This way no one can cry foul if their winning bids, which may get topped later, are discovered to be underbids. The same policy could presumably be used by the resolution professional to call for rebids in the Bhushan Power case, where Liberty House missed the deadline, but came in before the bids were opened. Some flexibility where bids have closed but no winner been decided could be useful as long as this does not lead to endless litigation.

It is time to tweak the rules. But not for UltraTech.