CoC, RP faced with grey areas in IBC as bidders hold-up plan implementation

At least seven resolutions at stake as bidders raise issues

At least seven companies under the Insolvency and Bankruptcy Code (IBC) are staring at a situation where preferred bidders have raised issues or are reluctant to implement the resolution plan, threatening the resolution of these cases.

Three out of four companies - Castex Technologies, ARGL, and Metalyst Forgings - are subsidiaries of Amtek Auto. Amtek Auto, Castex and ARGL were won by Liberty House Group, Metalyst by Deccan Value Investors. Both Liberty House and Deccan Value have not paid the creditors and raised valuation issues at the National Company Law Tribunal (NCLT). The same reason has been cited by Liberty in the case of Adhunik Metaliks as well.

Ingen Capital is yet to pay for Orchid Pharma and in the case of Ruchi Soya, Adani Wilmar, has written to the resolution professional (RP) and the committee of creditors that it is withdrawing its offer as the delay has led to a deterioration in asset value. Adani's plan was yet to be approved by the NCLT.

While non-serious bidders are a cause for concern, delay in resolution of cases has been as much a worry in this time-bound framework for resolution of stressed assets under the IBC. So much so that the ministry and the Insolvency and Bankruptcy Board of India (IBBI) would take up the matter next week.

"The ministry and the IBBI are concerned about cases dragging, then being resolved in a timely fashion. Senior government officials have a meeting scheduled next week on the subject," sources indicated.

Saurav Kumar, Partner, IndusLaw, pointed out, "There is a designated time under law and the RFP (request for proposal) within which to close a deal. From a bidder's perspective, a price is offered for a transaction which is to be completed in 270 days. If that crosses a significant number of days beyond the designated time, then the bidder should have the opportunity to walk away, subject to the delay not being on account of the bidder. " Kumar advises a number of resolution applicants.

Experts, however, say that the there is little clarity on the legal recourse for the committee of creditors if it feels that the bidder has not adhered to the resolution plan or if the preferred bidder withdraws from the resolution process before the 270-day period ends. The Code had probably not envisaged such a situation and there are grey areas here, they said.

"It appears that this aspect has yet not been conclusively tested by the court, hence it would be interesting to observe as to what judicial interpretation is rendered in this situation, more so, when the Code seems not to deal with such a situation," said Diwakar Maheshwari, Dispute Resolution Partner, Khaitan & Co.

In the case of Amtek Auto, the committee of creditors have sought to bar Liberty House from bidding for any insolvent company. In their application, seeking to invoke Section 74 of the Insolvency and Bankruptcy Act (IBC) against Liberty House, the CoC has said that there is "lack of bonafide" intent on part of the company to follow the terms of the resolution plans approved by the adjudicating authority.

Liberty House, on its part, has raised questions about the valuation. Section 74 (3) says that officials of successful resolution applicants can be imprisoned for a minimum of one year with a maximum tenure of five years, and fined a minimum of Rs 1 lakh with the maximum penalty of up to Rs 1 crore if they violate terms of the plan approved by the adjudicating authority under Section 31 of the IBC.

While Section 74 might be a deterrent against non-serious bidders, for the asset, the way forward, is a bit of a haze.

Maheshwari believes that in the given context, it would be appropriate for the CoC/RP to approach the NCLT to seek judicial guidance at the earliest to avoid any unwarranted delay in the CIRP going forward.

"Such a situation is yet to come before the courts. Thus, it will be difficult to say what will be the process going forward. The law is not very clear on it. That said, it should be the normal course of action for lenders as well as the resolution professional to approach the court and seek their guidance on it," another lawyer dealing in insolvency cases, said.

Sumit Binani, Founder Partner of KLASS Insolvency, on the other hand, said that if the 270-day timeline had expired then liquidation may be the only option but the CoC could move an application for liquidation as a going concern.   

Company	Preferred Bidder
Amtek Auto	Liberty House
Castex	Liberty House
ARGL	Liberty House
Metalyst Forgings	Deccan Value Investors
Orchid Pharma	Ingen Capital
Ruchi Soya	Adani Wilmar
Adhunik Metaliks	Liberty House

Source: reports, stock exchanges