Mumbai: In a landmark decision, India’s bankruptcy appeals court ruled that the insolvency resolution process should aim to extract the maximum value from auctions of stressed assets as it approved UltraTech Cement Ltd’s revised 7,900 crore bid to acquire debt-laden Binani Cement Ltd.

A two-member bench of the National Company Law Appellate Tribunal (NCLAT) dismissed an appeal by Rajputana Properties Pvt. Ltd, owned by Dalmia Bharat Ltd, saying its offer for Binani Cement was “discriminatory" against some financial creditors.

“The objective of the Insolvency and Bankruptcy Code is resolution (and) the purpose of the resolution is for maximization of the value of assets of the corporate debtor," the tribunal ruled on Wednesday.

At the root of the dispute is the decision by Binani Cement’s committee of creditors to consider an improved bid from UltraTech after Rajputana Properties’ 6,930 crore bid was declared the highest bidder and filed with the Kolkata bench of the bankruptcy court for its approval.

Rajputana Properties had in July approached the Supreme Court challenging the committee of creditors’ decision to consider UltraTech’s revised proposal, which would entirely pay off all secured and unsecured financial creditors, as well as operational creditors.

The apex court referred the matter to NCLAT.

UltraTech’s revised proposal approved on Wednesday was an improvement from the 7,200 crore offer it made just after the deadline for bidding ended. Binani Cement has an accumulated debt of 6,500 crore.

“The NCLAT’s ruling shows that UltraTech’s offer is legal and upholds the interest of all stakeholders," an adviser to UltraTech said. “The UltraTech offer pays back not only secured lenders but operational creditors in full, along with interest accrued since the date the NCLT application was filed. This could become a precedent for future cases under IBC," he added.

The Aditya Birla group, which controls UltraTech Cement, declined to comment on the NCLAT verdict. A spokesperson for Dalmia Bharat also declined to comment on whether it will challenge the appellate tribunal order.

In its order, a copy of which was reviewed by Mint, NCLAT said that the resolution process under the IBC should consider the interests of even those creditors who are not part of the resolution process, such as operational creditors, while also maintaining the ability of the target company in continuing as a going concern. “The liabilities of all creditors who are not part of the committee of creditors must also be met in the resolution," the order read.

The NCLAT’s decision may influence the ongoing case of Essar Steel Ltd, where lenders to the stressed steel producer have approved ArcelorMittal as the highest bidder.

The former promoters of Essar Steel, the Ruia family, have since offered to pay back all outstanding debts totalling 54,389 crore to withdraw the company from insolvency.

A caveat filed by Standard Chartered Bank, one of the dissenting financial creditors unhappy with the ArcelorMittal deal, is pending at the Ahmedabad bench of the NCLT. As many as 28 operational creditors approached the bankruptcy court on Tuesday claiming settlement of their dues of more than 380 crore.

“The matter of Binani Cement decided by NCLAT will not directly affect the hearing or outcome of the Essar Steel matter as far as the ‘operational creditors’ are concerned because there is a fundamental difference in the treatment of operational creditors in the plan proposed by Arcelor Mittal and Ruias," said Ashish K. Singh, managing partner of law firm Capstone Legal. “In the case of Binani Cement, UltraTech Cement had proposed that operational creditors would not have to take any haircut."

In its order, the NCLAT also said an insolvency application once filed cannot be withdrawn at a later date merely because the promoter of the financially stressed company has offered to pay all outstanding dues.

The order read: “It is a settled law that once the ‘Corporate Insolvency Resolution Process’ is initiated by admitting the application under Sections 7 or 9 or 10, it cannot be withdrawn nor can be set aside except for illegality to be shown or if it is without jurisdiction or for some other valid reason. Merely because the promoter wants to pay all dues including the default amount cannot be a ground to set aside the Corporate Insolvency Resolution Process."

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