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The Adani bid reportedly offers  ₹33,000 crore, which is slightly more than the  ₹31,000 crore offered by Oaktree for the entire portfolio, DHFL’s liabilities being around  ₹86, 000 crore
The Adani bid reportedly offers 33,000 crore, which is slightly more than the 31,000 crore offered by Oaktree for the entire portfolio, DHFL’s liabilities being around 86, 000 crore

The unclear admissibility of Adani’s revised DHFL bid

Revised bids in the past have helped unlock value but our courts may have to decide how late is too late

The DHFL saga appears to have drawn the attention of India’s entire business world—both figuratively and literally. Out of four bidders for its assets, two are foreign entities, namely the US-based Oaktree Capital Management and Hong Kong-based SC Lowy, and two are Indian—the Adani and Piramal groups.

DHFL has already chalked up many firsts to justify such high interest. It is the first non-banking financial company (NBFC) to be subject to a corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, or the Insolvency Code. With Oaktree looking a potential winner, there was the usual excitement and discussion around India attracting foreign investment even in a distressed entity, till one of the domestic bidders pulled off a surprise with a revised bid. The submission of a revised unsolicited bid after the deadline by the Adani group led other bidders to cry foul. As Adani’s revised bid was slightly higher than that of Oaktree, the usual questions arose over whether the confidentiality of the latter’s bid had been compromised. Almost all the other bidders contended that Adani’s revised bid could not be considered, and the threat of legal action stalling the resolution process loomed large.

It may be recalled that the submission of revised bids has in the past helped unlock better value. For instance, in the case of Essar Steel, ArcelorMittal had bid 29,000 crore in the first round of bidding in February 2018, but later, in December 2019, a consortium of ArcelorMittal and Japan’s Nippon Steel and Sumitomo Metal Corp Ltd raised that bid to 42,000 crore. This helped the steelmaker’s lenders recover 92% of their total claims of 49,000 crore.

In DHFL’s case, the Adani Group has countered objections by arguing that its new bid offered superior value for the NBFC’s assets. It seems to be referring in this context to principles laid down by the National Company Law Appellate Tribunal (NCLAT) in the matter of Binani Industries Limited vs Bank of Baroda (Company Appeal (AT) (Insolvency) No. 82 of 2018), which were upheld by the Supreme Court in Rajputana Properties Pvt. Limited vs Ultratech Cement Ltd. & Ors (Civil Appeal No. 109988 of 2018. While overruling objections raised over a revised bid submitted by Ultratech for Binani Cement, the NCLAT held that the “The ‘I&B Code’ is for reorganisation and insolvency resolution of corporate persons... for maximisation of value of assets of such persons" and “to... balance [the] interests of all stakeholders". It also stated, “It is possible to balance [the] interests of all stakeholders if the resolution maximises the value of assets of the ‘Corporate Debtor’", and finally that Section 25(2)(h) of the Insolvency and Bankruptcy Code has to be read in conjunction with Regulation 36B of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate persons) Regulations, 2016. Regulation. Regulation 36(B)(6) thereof, in turn, is all-encompassing and lays down that the “resolution professional may, with the approval of the committee, extend the timeline for submission of resolution plans."

The Adani bid reportedly offers 33,000 crore, which is slightly more than the 31,000 crore offered by Oaktree for the entire portfolio, DHFL’s liabilities being around 86, 000 crore. The attention of the lenders that cried foul was drawn to Clause 39.1 of the Bid Documents, which reportedly vests them with the power “to extend the resolution plan submission date with the objective of unlocking maximum value while balancing interests of all stakeholders".

The obvious next step was to call all bidders to submit fresh bids for DHFL, given that SC Lowy threatened to walk out. At the time of writing this, fresh bids have been called from the four bidders, with a deadline of 10 December 2020. There was no escape from this.

Currently, it appears that no other rules apply so long as the bids of existing bidders are in compliance with the basic requirements of the Insolvency and Bankruptcy Code of 2016. However, the Adani bid seems riddled with procedural irregularities if we compare the case with Ultratech’s bid for Binani, in which objections were overruled. Not only was Adani’s revised bid unsolicited and submitted after the deadline, it also seems in violation of a stipulation that “bidders could submit revised bids only for the portion of business they themselves had previously bid for and not for any other portion of the business." Adani had earlier bid for only two books/businesses, but its revised bid is for the entire portfolio of DHFL.

Also, notably, the Ultratech bid was upheld not just because it was higher, but also because it was found to balance the interests of stakeholders better than a bid from Dalmia Bharat, which was deemed unfair to some lenders within the same class.

The key here is also whether the Resolution Professional has indeed, with the approval of DHFL’s Committee of Creditors, extended the timeline for the submission of resolution plans, or if one of the bidders has unilaterally put in a revised bid that could turn victory into a fait accompli. From what we know, Adani’s unilateral revised bid was not made in response to “an extension of the deadline by the Resolution Professional" and would thus appear to be in violation of the Insolvency and Bankruptcy Code. Given the many contentious issues, I have little doubt that this matter will reach the NCLAT, and finally the Supreme Court—which would have to consider how late is too late.

Mamta Tiwari is counsel, Fox Mandal & Co

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