Decoded: Unravelling the legal tangle around revised bids for DHFL

The DHFL saga has put the spotlight on the legal ambiguity in accepting bids beyond stipulated deadlines

The DHFL saga, the first non-banking financial company to undergo Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, has put the spotlight on the legal ambiguity in accepting bids beyond stipulated deadlines.

Legal experts explain the issues involved.

Why is there legal ambiguity on accepting bids that come beyond announced deadlines or on submission of revised bids?

The ambiguity is over whether a resolution professional can accept Expression of Interest or resolution plans beyond the deadlines announced. The Code spells out model timelines to be followed with respect to each and every stage of the Corporate Insolvency Resolution Process. Experts point out that the essence of the Code is to ensure that the process is completed in a time-bound manner. At the same time, there is always an inherent need, under the Code, to find a resolution out of the insolvency situation. “This conflict has brought about an ambiguity in accepting bids that come beyond the announced deadlines,” says Poornima Advani, partner, The Law Point.

Is there legal jurisprudence in support of accepting -- or rejecting -- revised bids beyond a stipulated deadline?

There are several instances where revised bids from suitors have helped corporate debtors derive better value of assets from the insolvency resolution process. Regulations allow the Committee of Creditors (CoC) to identify the best resolution plan and approve it with modifications as they deems fit.

A case in point is that of Essar Steel. ArcelorMittal revised its offers for Essar Steel several times in course of the resolution process. Its initial offer was around Rs 29,000 crore in the early rounds. Subsequently, the winning bid by a consortium led by ArcelorMittal valued the assets at Rs 42,000 crore.

The other oft-quoted case is that of Binani Cement. The National Company Law Appellate Tribunal, while overruling objections raised over a revised bid submitted by Ultratech for Binani Cement, noted that the insolvency resolution process should extract the maximum value from auction of stressed assets.

Experts point out that there are judgments where Tribunals upheld the spirit of the Code over other things. There are instances where the Tribunal considered rejection of a Resolution Plan by the CoC on the grounds that it was submitted after the expiry of the stipulated time against the law and the Code.

On the contrary, there are few judgments where Tribunals had held that the alleged act of the Resolution Professional accepting the Resolution Plan after the expiry of the deadline for submission is arbitrary, and against the principle of natural justice.

In the DHFL case, legal experts expect bidders who lose out to approach the courts citing procedural irregularities in acceptance of the bids.

Does the Code give the CoC or the RP legal rights to seek better bids if they deem fit?

Not directly, say experts. “But the Code under Section 30 gives right to the CoC to decide upon the Resolution Plan,” says Daizy Chawla, senior partner at law firm, Singh & Associates.

Experts point out that the Code does provide for the CoC and RP to negotiate with the Resolution Applicants to seek better bids and revised bids if they deem fit. 

Such a power – giving legal right to negotiate on bids – if given, may have the risk of "misuse", says Advani.

Will an amendment in the Code or clarification from the regulator help clear the ambiguity in this matter?

Experts are divided over the issue. Satya Prasad T, director, FM Advisory Services at Fox Mandal & Associates, points out that the divided/contradictory decisions of the Tribunals exist due to facts of the case which are different from each other. “In the interests of principles of natural justice being applied, the Tribunals may come up with criteria/guidelines over a period of time, allowing Resolution Professional to accept bids beyond notified timelines,” he says.

Till now the regulator’s approach has been to let market forces evolve the jurisprudence behind the Code.

Key provisions of the IBC and regulations relating to bids and revised bids 

Provisions under The Insolvency Bankruptcy Code, 2016
Section 5(26)	Definition of Resolution Plan
Section 29A	Ineligibility to be a Resolution Applicant
Section 30	Submission of Resolution Plan, Contents of Resolution Plan and Approval of the plan by the Committee of Creditors (CoC)
Section 31	Approval of plan by the NCLT
Section 32	Appeal against the approval order on the grounds laid down under Section 61(3)
Section 61(3)	Grounds of appeal against approval order of Resolution Plan

Section 74(3)

Punishment for contravention of Resolution Plan 

Provisions under the IBBI(CIRP) Regulations, 2016
Reg. 36A	Invitation for Expression of Interest shall be published by the resolution professional (RP) in Form G, inviting any interested and eligible prospective resolution applicants to submit resolution plans
Reg. 36B	RP shall issue the Information Memorandum and Evaluation Matrix and shall request for resolution plans, within five days of the date of issue of the provisional list of prospective resolution applicants
Reg. 37	Resolution Plan shall provide for measures to maximise the value of assets of the Corporate Debtor.
Reg. 38	Mandatory Contents of Resolution Plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor, source of funding, the entire payment plan and its implementation thereof.

Reg. 39

Submission of Resolution Plan before NCLT at least 15 days before the maximum period of completion of CIRP proceedings along with Form H - Compliance Certificate 

Reg. 39(3)

The CoC shall evaluate the resolution plans received strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit