One of the most popular templates in Bollywood love stories involves the street-smart protagonist outwitting the girl’s forbidding parents and winning her love against all odds, logic and social norms. Anyone following the bizarre events surrounding the takeover battle for Binani Cement playing out at the National Company Law Tribunal, Kolkata might recognise in them a distinctly cinematic, Mumbai flavour. The jilted suitor in this case is Ultratech Cement, a Birla Group company, which having had its Rs 6,000 crore+ bid for the insolvent Binani Cement rejected by the Committee of Creditors, decided that it could bypass the Committee completely, and sewed up a deal directly with the owners to buy their shares (at an enterprise value of Rs. 7,266 crores).

The owners of course, were more than willing to sell, and made an application in the NCLT to terminate the insolvency proceedings altogether, since all the secured creditors were being taken care of by Ultratech. Dalmia Bharat, which offered higher than Ultratech during the bidding process (but lower than Ultratech’s fresh proposal of Rs. 7,266 crores) is going to have to dish out more to its lawyers to see this new threat off.

The Insolvency Code provides in Section 31 that winning bids are binding on shareholders only once they are approved by the NCLT. So, the shareholders (now a proxy of Ultratech) need to get NCLT to somehow reject Dalmia Bharat’s bid. The NCLT, in turn, can only reject a bid if it is not in accordance with a set of conditions specified in Section 30, none of which seem to be applicable in the present case. It is safe to predict that the shareholders and Ultratech will lose and Dalmia Bharat will win.

As a matter of principle, though, should a bidder like Ultratech, that is willing to offer almost Rs. 1,000 crore more in a fresh bid, be allowed to compete with the winning bidder? I think not, for the following reasons.

• It will encourage deliberate ‘lowball’ first bids, especially in a two-horse race. Take the Binani Cement story. Ultratech’s first bid was about Rs. 6,200 crore, slightly less than Dalmia Bharat. It then offered Rs. 6,900 crore after Dalmia Bharat, exercising its right as the winning bidder, had negotiated with the creditors and submitted its final proposal. It has now offered Rs. 7,266 crore. If bidders are allowed to rest in the wings and watch what their opponents are doing, those opponents have no incentive to not rest in the wings themselves.

• The Insolvency Code provides for a time limit of a maximum of 270 days for finishing the resolution process, failing which the company is liquidated. This implies that the bidding process has to be short and conclusive, and not elongated and interminable.

• Creditors don’t want to find themselves in a position where they have to goad high bids as the time limit approaches and reckon with bidders playing with their fears of 270 days ending.

• All bidders are handed the same information memorandum about the company before they bid, and if they bid a certain amount as their first bid, any higher amount bid next must be based on pure speculation after glancing at what the competition has bid. A higher bid may even imply a strategy to kill rivals’ prospects and reduce market competitiveness.

Time will tell what the NCLT, followed by, inevitably, the Supreme Court, decide. All said and done, the Insolvency and Bankruptcy Code has offered us glimpses of high-adrenaline corporate warfare reminiscent of the 1980s hostile takeover frenzy in the US. It’s fascinating, cloak-and-dagger stuff, and everyone should be tuned in for the entertainment, if nothing else.