Resolution professional valued Binani Cement assets improperly: NCLT

The Kolkata Bench of National Company Law Tribunal (NCLT), in its order, has upheld the allegations filed by the promoter of Binani Cement against the company’s resolution professional, Vijay Kumar Iyer, of conducting an improper valuation of the firm’s stressed assets as well as violating rules laid down by the Insolvency and Bankruptcy Board of India (IBBI), which resulted in escalating the cost of the resolution process.

In the order passed by Jinan K R and Madan B Gosavi, member – judicial, at the Kolkata Bench of the NCLT, the tribunal has noted, “A serious allegation is also raised submitting that the valuation of the assets of the company was not done properly. We find some force in the argument advanced on the side of the director of the corporate debtor.” 

According to the order, the liquidation value has been arrived at Rs 23 billion. “However, bidders showed readiness to take over the company offering more than double the amount of the liquidation value,” Jinan and Gosavi observed in the order.

After its latest revision of offer, UltraTech Cement is willing to shell out Rs 79.60 billion to acquire Binani Cement, while the Dalmia Bharat-led consortium, the H1 bidder, has agreed to pay over Rs 67 billion.

Braj Binani, promoter of Binani Cement, had alleged that while the company’s lenders had previously valued the company’s assets at over Rs 150 billion, during commencement of the insolvency proceedings against the company, the lenders, together with Iyer, had decreased this to less than Rs 30 billion. However, the resolution professional has refuted the charges.

The tribunal has also concluded that the cost of the resolution process could have been lower but the resolution professional, after securing the approval of the company’s committee of creditors (CoC) had “liberally and casually suggested the cost and the requisite fees by themselves” without any supporting data in respect of fixation of fees to the professionals. 

“It appears to us that neither the CoC nor the resolution professional has taken any care in the appointment of advisors and other categories of professionals and fixed the cost and fees without considering the volume of work and complexity of the work which had been entrusted to them,” the order stated.

Furthermore, according to the same order, Iyer had appointed 22 representatives for the management of Binani Cement besides advisors, legal professionals, a facilitator, and evaluators.

“Mostly all works (were) outsourced to a firm in which he admittedly (is) a partner and thereby violated the circular number IP/003/2018 issued by the IBBI… No doubt it adds an additional financial burden to a sinking company which is under resolution. If the resolution professional has taken too much care he could have very well avoided so many appointments,” Jinan and Gosavi noted, adding that most of the work was outsourced to interested persons.

A circular issued in January 2018 by the IBBI directs resolution professionals not to outsource their responsibilities.

According to the tribunal, a monthly amount of Rs 6 million was approved by the CoC to Iyer, while Rs 7.25 million was sanctioned by the CoC as insurance premium on a tailor-made insurance policy for the resolution professional. Another Rs 24 million has been sanctioned for Deloitte Touche Tohmatsu India LLP, which is the resolution professional facilitator, while Deloitte had charged Rs 6.5 million as pre-audit expenses and dispatch monitoring.

Iyer is associated with Deloitte as a partner.

An amount of Rs 7.15 million has also been sanctioned for Holtech and PwC, which are the valuers, and Rs 20 million has been spent on Alvarez & Marsal for evaluation of bids. Other expenses have also been incurred ranging from legal costs, forensic audit expenses, and security expenses to safeguard assets.

Based on the set of allegations put forward by the promoter of Binani Cement, the tribunal has also found Iyer to have managed the resolution process in an “unfair” manner by not allowing representatives of the company’s directors to attend the full course of meetings, which is also in violation of IBBI rules.

Sources said that the resolution professional and CoC will be issuing a notice to the Kolkata Bench of NCLT for certain clarifications on the order.

Repeated calls to Iyer went unanswered.

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