Insolvency process: Bhushan Power case faces issues over bid secrecy

The legal battle that has broken loose in the insolvency resolution process of Bhushan Power & Steel underlines the importance a confidentiality clause in bidding or deals involving mergers and acquisitions. The two bidders, Tata Steel and Liberty House, seem to know each other’s offer price and have been throwing that as an argument supporting their claim for bailing out the troubled lenders to the steel company.

Abhishek Manu Singhvi, the Tata Steel lawyer, last week stated in the National Company Law Tribunal that Liberty House's bid was higher by "only Rs 10 billion". The Liberty offer, he argued, came after it was informed that the Tata Steel bid was the highest. He said the Liberty offer should not be considered on this ground.

London-based Liberty House, too has been claiming its bid is higher than that of the Tata's. While there seems to be no contradiction in the statements by the two sides, other stakeholders are questioning the breach of confidentiality in the whole process.

“It’s a sealed bid. I do not know where Tata Steel got this information. I am surprised how Tata Steel can make such statement. I don’t wish to comment more on this matter,” Rajiv Bajaj, executive director, Business Development (Asia), Liberty House, told Business Standard.

Calls and text messages to Singhvi and his office did not get any response, while questions emailed to Tata Steel remained unanswered.

Pavan Kumar Vijay, founder, Corporate Professionals, and an expert in the Insolvency and Bankruptcy Code said the law provided for confidentiality but it was not being seriously implemented earlier. “All persons involved, whether resolution professional, valuer or those representing creditors, are now made to sign a confidentiality agreement. This is required not only for the money part but all aspects of the resolution process.” He said action should be taken against those breaching it.

Sanjeev Gupta-led Liberty House had filed a petition with the NCLT against the rejection of its bid to acquire debt-ridden Bhushan Power & Steel, which owes nearly Rs 450 billion to its lenders. The Committee of Creditors had rejected Liberty House’s resolution plan, saying the bid was submitted after the deadline. The parties would now be heard on March 5.

Under the rules for resolution process, the resolution professional (RP), the suitors for the company, and the committee of creditors that eventually decides on the offer are required to maintain confidentiality. The required secrecy is similar to the process involving mergers and acquisition between companies that sign such confidentiality clause to avoid external influence on valuation. Interestingly, the two rivals in the Bhushan Power & Steel case, Tata Steel and Liberty House, have been in deal talks earlier when the Indian steelmaker sold its UK speciality business to Liberty House. Since Liberty House’s offer came after Tata Steel's bid, the committee of creditors rejected it. Liberty House challenged the decision, stating, “Our bid is superior in every way, why would the creditors reject a higher offer?” This, however, meant that even they were aware of the Tata offer.

While Tata Steel is said to be the aggressive bidder for both Bhushan Steel and Bhushan Power & Steel, leaving behind Sajjan Jindal-led JSW Steel, the $6.8 billion Liberty House claims to have a track record of turning around nearly two dozen businesses. It has plans to invest $10 billion in India over the next five years if it succeeds to take over the stressed assets. Liberty House, which bought Tata Steel's two mills in Britain last year, has already managed to turnaround the units.