2024 (1) TMI 780 - AT - Insolvency and Bankruptcy

Conflict Between IBC and Companies Act The contention was whether the IBC 2016 and its regulations should yield to Section 230 of the Companies Act 2013 regarding a scheme for compromise or arrangement. The Appellate Tribunal observed that these laws should be interpreted harmoniously to further the object of the IBC. Role and Actions of the Liquidator The liquidator's actions, particularly in the valuation of assets and the handling of the liquidation process, were under scrutiny. The Appellate Tribunal noted allegations of flawed valuation, especially regarding the property in Rayagada, and the failure to include this property in the Asset Memorandum. Valuation of the Rayagada Property A significant issue was the zero valuation ascribed to the Rayagada property by the liquidator, which was initially valued at a much higher rate. The Appellate Tribunal highlighted the importance of this property in the liquidation process and the need for its proper valuation. Section 230 Scheme Proponent Rights The Appellate Tribunal discussed the rights of a scheme proponent under Section 230 of the Companies Act. It was noted that a bidder in the liquidation process does not have a vested right to have their resolution plan considered or approved. Stakeholders' Consultation Committee's Role The role and decisions of the Stakeholders Consultation Committee were also a point of contention. The Appellate Tribunal noted that the approval of the secured creditors and consultation with stakeholders were essential in the process. Applicability of IBC Regulations The Appellate Tribunal emphasized the need to follow IBC regulations in the liquidation process, including the proper valuation of assets as per Regulation 35 and the inclusion of disputed assets as per Section 36(3)(e). Requirement for Fresh Valuation and Inclusion of Rayagada Property The Appellate Tribunal concluded that a fresh valuation of the assets, including the Rayagada property, was necessary. It was deemed crucial for maximizing the value of the assets and ensuring fairness in the liquidation process. Maintainability of the Appeal Finally, The Appellate Tribunal held that the appeal was not maintainable because the appellant, being a bidder, was not a stakeholder in the corporate debtor and thus not an aggrieved party as per the IBC. On going through the impugned order passed by the Adjudicating Authority/NCLT, Division Bench II, Chennai, in directing a fresh valuation of the assets of Corporate Debtor, including the Rayagada Property , as per Regulation 35(2) of the IBBI (Liquidation Process) Regulations, 2016 and consequently, to update the Asset Memorandum and thereafter, to invite the Schemes , from the Prospective Scheme Proponents , as per Section 230 of the Companies Act, 2013, are free from any legal flaws. Appeal dismissed.

Summary

Issues Involved:

1. Inclusion and Valuation of Rayagada Property in Liquidation Estate.
2. Compliance with Regulation 35 of IBBI (Liquidation Process) Regulations, 2016.
3. Approval and Process of Scheme under Section 230 of the Companies Act, 2013.
4. Confidentiality and Sharing of Valuation Reports.
5. Legal Standing and Rights of Appellant as H1 Bidder.

Summary:

1. Inclusion and Valuation of Rayagada Property in Liquidation Estate:
The Appellant argued that the Rayagada Property was included in the valuation report during the CIRP process but later valued at nil based on legal opinion and directions from the Committee of Creditors (CoC). The Tribunal noted that the Rayagada Property, with a market value of over Rs. 1000 crores, was initially valued at zero due to ongoing legal disputes and non-marketability as per legal opinion. However, the Tribunal emphasized that the property should be included in the Liquidation Estate and revalued.

2. Compliance with Regulation 35 of IBBI (Liquidation Process) Regulations, 2016:
The Appellant contended that the Liquidator followed the CoC's directions and revised the valuation considering COVID-19 impacts. The Respondents argued that the valuation process was flawed and not compliant with Regulation 35. The Tribunal found that the valuation was conducted separately for land and building and plant and machinery, which was against the procedure specified under Regulation 35. The Tribunal directed a fresh valuation of the assets, including the Rayagada Property.

3. Approval and Process of Scheme under Section 230 of the Companies Act, 2013:
The Appellant claimed that the scheme was based on the revised valuation and approved by the CoC. The Tribunal highlighted that the scheme under Section 230 requires approval from creditors with a voting share of not less than 75%. The Tribunal noted that the Liquidator had not taken the necessary approval and directed that the scheme process be conducted afresh after the fresh valuation.

4. Confidentiality and Sharing of Valuation Reports:
The Appellant argued that sharing valuation reports was necessary for transparency. The Respondents contended that sharing confidential valuation reports was against the regulations. The Tribunal agreed with the Respondents, stating that the Liquidator sharing the reports with potential resolution applicants was contrary to Regulation 34(4) and compromised the process's integrity.

5. Legal Standing and Rights of Appellant as H1 Bidder:
The Appellant claimed to be the H1 bidder and argued that the Tribunal's order affected its rights. The Tribunal concluded that the Appellant, as a prospective bidder, did not have a vested right or fundamental right to have its plan approved. The Tribunal emphasized that valuation issues are within the realm of stakeholders and not for the Appellant to contest.

Disposition:
The Tribunal dismissed the appeal, upheld the Adjudicating Authority's order for fresh valuation of the Corporate Debtor's assets, including the Rayagada Property, and directed the process under Section 230 of the Companies Act, 2013, to be conducted afresh. The Tribunal found no legal flaws in the Adjudicating Authority's order and emphasized the need for compliance with the IBBI regulations and the maximization of asset value.