RESOLUTION PLAN SET ASIDE BY NCLAT
“A VALUATION CONSISTING OF MERE NAKED VALUES WITHOUT A DETAILED REPORT IS NOT VALID. IT IS A SETTLED PROPOSITION THAT THE VALUATION EXERCISE IS CONDUCTED TO FACILITATE THE COC’S DECISION-MAKING PROCESS.”
PHYSICAL VERIFICATION IS A MUST-BE UNDER IBC, AND THAT TOO BY ONLY BY RV ….NOT BY AN ASSOCIATE WHO IS NOT RV.
The appeals had been filed in the NCLAT against a common impugned order, passed by the NCLT, Chennai Bench, whereby the AA had approved the Resolution Plan for the revival of Appu Hotels Limited (the “corporate debtor”) and had passed an order initiating the corporate insolvency resolution process (CIRP).
The Appellant stated that the estimate of the Fair Value and Liquidation Value of the CD was computed without physical verification of the CD’s assets and the Resolution Applicant is disqualified under Section 164 (2) (b) of the Companies Act 2013 hence ineligible under Section 29 A (e) of the IBC to submit a Resolution Plan.
IMPORTANT FOR ALL VALUERS TO UNDERSTAND ABOUT THIS CASE STUDY
SOME IMPORTANT HIGHLIGHTS ARE :
16. The CoC was not adequately appraised of the actual value of the Corporate Debtor’s assets to evaluate the Resolution Plan. The Valuer was based out of Tamil Nadu and had little knowledge of the prevailing real estate market conditions in Tamil Nadu. Moreover, the Valuer lacked adequate experience with the hospitality industry. As a result, only the core assets of the Corporate Debtor were valued, and the non-core assets have thus not Company Appeals (AT) (CH) (Ins.) Nos. 164, 176, 218 & 219 of 2021 10 of 111 been appropriately valued. In the 7th CoC meeting dated 29.12.2020, RP informs that the Valuation of non-core assets was being done and that the draft valuation figures will be available by 30.12.2020.
However, the valuation summary was finalized on 02.12.2020 and shared with the former MD vide Email dated 26.12.2020. It is thus evident that the non-core assets have not been appropriately valued, and the RP has chosen not to explain the same to date. Therefore the Valuation of the non-core assets is not in compliance with Regulation 35(1)(a) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Person) Regulation 2016.
17. It is stated that due to strict lockdown, quarantine and travel restrictions, the appointed valuers could not conduct the Valuation and their agents at or near Chennai who are not registered valuers and lacked the expertise to conduct the exercise on their behalf. Further physical verification of the assets by the registered Valuer is indispensable, and the Respondent has ignored the same before furnishing the Valuation to the CoC. The IRP never visited any of the sites of the corporate debtor, not even the registered office or any of the hotels. The IRP at no stage took control of the assets and operated the business as a going concern and has contravened sections 18(f) and 25(2)(a) of the I&B Code.
18. It is contended that one of the ‘registered valuers’ appointed during the CIRP viz, Mr Vikas Agarwal is not a registered valuer as seen from the official website of IBBI. The purported Registration No. IBBI/RV/07/2019/12228 belongs to Mr Sajay Suresh Ranade, who is unconnected to the instant case. It is thus evident that the entire valuation process is tainted with fraud and Company Appeals (AT) (CH) (Ins.) Nos. 164, 176, 218 & 219 of 2021 11 of 111 malice.
42. The Appellant further states that Valuers were appointed from Delhi while the properties of the Corporate Debtor were situated in Tamil Nadu. It is learned that these Valuers did not physically verify the properties. Instead, three different valuations were done. Without prejudice, the Appellant submits that the Valuation made in the Resolution Plan is very low even compared to the valuations obtained from the valuers. The total Resolution Plan value is Rs.423 Crores, while their liquidation value is Rs.565 Crores.
While the commercial wisdom of the CoC cannot be questioned, the process by which they undertook the decision and the fact that maximization of asset value was not the objective of the process is grounds for challenging the Resolution Plan.
77. The Appellant contends that the approved Resolution Plan is in contravention of section 30 (2) and Sec 61(3) of the Insolvency and Bankruptcy Code 2016. The Appellant raises the following points to show the violation of the statutory provision of Section 30(2) & 61(3)of the Code.
A. Objections about Valuation of the Corporate Debtor Company Appeals (AT) (CH) (Ins.) Nos. 164, Dr. Periasamy Palani Gounder vs Mr. Radhakrishnan Dharmarajan on 17 February, 2022 Indian Kanoon – http://indiankanoon.org/doc/97186653/ 19 176, 218 & 219 of 2021 30 of 111
The Appellant’s contention about the valuation report is as under;
(a) The Valuation Process conducted by the IRP and the RP is contrary to various statutory provisions and, consequently, has directly impaired the commercial wisdom of the Committee Creditors.
(b) The two Valuers Appointed by the IRP did not physically verify the Corporate Debtor’s assets. Regulation 35 (1) (a) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 mandates explicitly that the estimate of Fair Value and Liquidation Value be computed after physical verification of the assets of the Corporate Debtor.
(c) The Non-Core assets have been valued only by One Valuer, which is against Regulation 35 (1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which mandates two registered valuers.
(d) The Valuation Report was never circulated either to the Appellant or to other members of the Committee of Creditors. Mere production of naked values without the detailed adjunct report would materially handicap the commercial wisdom of the Committee of Creditors.
(e) The provisions of Rule 8 of The Companies Act (Registered Valuers and Valuation) Rules, 2017, were not followed. The Rule mandates that any assistance can only be from Registered Valuers, Company Appeals (AT) (CH) (Ins.) Nos. 164, 176, 218 & 219 of 2021 31 of 111 and the details of such valuers must be produced. The Rule also mandates the production of a report and also details the
mandatory contents of such report.
(f) The Interim Resolution Professional had appointed two different valuers at the 2 Meeting of the Committee of Creditors. A perusal of the relevant minutes of the meeting shows that the Valuers were based out of Tamil Nadu and were appointed at the height of the Pandemic. The Valuers did not come to Chennai and did not physically verify the Corporate Debtor’s assets.
(g) The IRP and the valuers claim that they delegated their function to “local associates”, but the credentials of such persons is conspicuously absent. Furthermore, Regulation 35(1)(a) mandates explicitly that the Registered Valuer must physically verify the assets. It is an admitted fact that the same has not been done in the instant case.
(h) Assuming that the physical verification process can be delegated, Rule 8(2) of the Companies (Registered Valuers and Valuation) Rules, 2017 mandates that a Registered Valuer can only obtain inputs from other Registered Valuers. It further mandates that such inputs and particulars of the other Valuer must be mentioned in the Valuation Report.
84. The Appellant further contends that it has come to notice that one of the registered Valuers appointed during the CIRP viz, Mr Vikas Agarwal, is not a registered valuer, as seen from the official website IBBI. The purported Registration No. IBBI/RV/07/2019/12, 228 belongs to Mr Sanjay Suresh Company Appeals (AT) (CH) (Ins.) Nos. 164, 176, 218 & 219 of 2021 44 of 111 Ranadey, who is not connected to the case. The Appellant has also annexed the search result extracted from the official website of the IBBI in this regard. It is thus evident that the entire process of Valuation is tainted with fraud and mala fides.
86. Based on the above discussion, it is apparent that the two valuers appointed by IRP did not physically verify the corporate debtor’s assets despite that Regulation 35 (1) (a) of the CIRP Regulations mandates explicitly that the estimator fair value and liquidation value shall be computed after physical verification of the assets of the Corporate Debtor. It is further revealed that the valuation report was never circulated either to the Appellant or to other members of the COC. Mere production of naked values without the detailed adjunct report would materially handicap the commercial wisdom of the Committee of Creditors.
87. Further, Regulation 27 Regulation 35 mandates that two registered Company Appeals (AT) (CH) (Ins.) Nos. 164, 176, 218 & 219 of 2021 47 of 111 valuers value the Corporate Debtor’s assets. It is a Dr. Periasamy Palani Gounder vs Mr. Radhakrishnan Dharmarajan on 17 February 2022 Indian Kanoon – http://indiankanoon.org/doc/97186653/ 28 admitted fact that the two registered valuers appointed by the Resolution Professional did not value the non-core assets of the Corporate Debtor.
However, in view of the detailed valuation report, no member of the COC of the Appellant herein has any idea as to what was categorized as a ‘Non-Core Asset’ by the Resolution Professional or what its value could be. These are the blatant statutory violations and irregularities committed in violation of corporate debt assets.
176. A valuation consisting of mere naked values without a detailed report is not valid. It is a settled proposition that the Valuation exercise is conducted to facilitate the CoC’s decision-making process. Therefore, the existence of a valid and accurate valuation report is a sine qua non for the COC to exercise its commercial wisdom.
A natural sequitur to those above would be that a Company Appeals (AT) (CH) (Ins.) Nos. 164, 176, 218 & 219 of 2021 107 of 111 detailed valuation report is necessary for the CoC to exercise its commercial wisdom objectively.
ORDER
The Appellate Tribunal in view of the above observations allowed the appeals and stated that the approved Resolution Plan is in contravention of Section 30 (2) of the IBC, 2016.
Further, it set aside the resolution plan approved by AA and directed RP to proceed with the CIRP from the publication stage of Form ‘G’ for inviting Expression of Interest afresh as per CIRP Regulations and also directed to put up the Appellants Settlement proposal for consideration before the CoC.
NCLAT directed the RP to call the CoC within 15 days from the date of order and the settlement proposal should be put to the vote if approved with 90% vote share of the CoC, then proceeding for withdrawal of the CIRP under Section 12 A read with Regulation 30A of CIRP Regulation.
