2024 (4) TMI 304 - AT - Insolvency and Bankruptcy

CIR - Order of Liquidation - The appellant raised concerns about the liquidation process, arguing that prime assets of the corporate debtor were auctioned at a price significantly lower than their fair value - Whether there are any violations in the liquidation process as per Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and consequently whether application filed by the Appellant are maintainable? - HELD THAT - The Respondent / Liquidator obtained the approval of SCC meeting on 20.10.2022 for conducting E-auction on Slump Sale basis wherein certain assets like shares of Barnawa Agro Industries, vehicles, scrap etc. were excluded. The reserved price was fixed as per the valuation reports. It is on record that the Appellant was also present in the 6th SCC meeting as a special invitee. The changes in the prices over different auctions are noted in table in paragraph 28. Appellant has missed out on the provisions that Schedule I of Liquidation Regulations only lays down the manner of sale. If the mechanism of sale as specified in Regulation 32 is changed, the Schedule I will have to be followed afresh after every such change. Nowhere, therefore, it is found that the reductions are violative of the Liquidation Regulations. In the 10th e-auction dated 10.08.2023, the reserve price was Rs.16.41 crores and the realizable value was 29.41 crores, which was beyond the reserve price. It is also noted that Rs.29.41 crores was realized without the assets such as the shares in subsidiary of Barnawa Agro Industries Ltd., vehicles, scrap etc. which were not part of the sale. It is also noticed that Rs.29.41 crores will not only cover the claim of the Financial Creditors but substantial amounts will also accrue to the shareholders - The argument of the Appellant that presuming that the Respondent had continued with the same mode of sale and reduction of only 10% happened every time, even by that means, by the time of 9th auction the price would have been somewhere around 24 crores. And in the current auction done by the Liquidator realized value at Rs. 29.41 crores, without including some assets, is more than Rs.24 crores. Therefore, there are no merit in the allegations of the Appellant. There are no violation of the Regulations 32, 32-A, 33, 34 36 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. From the facts of the case, it can be noted that the Appellant / Exmanagement were not cooperating the Liquidator and providing full details of the assets of the Corporate Debtor. Liquidator has rightly proceeded ahead and no reasons found to question the liquidation proceedings in this ground - there are no justification in the argument of the Appellant that the Liquidator has not followed the Liquidation Regulations. The non-cooperation of the ex-management is clearly noted by the Adjudicating Authority in its order dated 28.02.2019. In the facts of the case, it is clearly made out that there appears to be no violation in the liquidation process as provided in various regulations of the Liquidation Process Regulations. In fact, the CIRP process could not proceed because of the non-cooperation of the ex-management. This ultimately led to the liquidation of the Corporate Debtor. Even during liquidation process, there was non-cooperation. Appeal dismissed.

Issues Involved:
1. Violation of liquidation regulations.
2. Maintainability of IAs filed by the Appellant.
3. Allegations against the Liquidator regarding the auction process and reserve price reduction.
4. Cooperation of ex-management during CIRP and liquidation process.
5. Legality of Appellant's prayer to sell assets of the Corporate Debtor.

Summary:

Issue 1: Violation of Liquidation Regulations
The Appellant raised concerns about violations of Regulations 32, 32-A, 33, 34, and 36 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The Tribunal found that the Liquidator adhered to these regulations. The reduction in reserve price was conducted as per Clause 4A and 4B of Schedule-I of Regulation 33. The Tribunal noted that the reductions were within permissible limits and were necessary due to the change in the mode of sale from a going concern to a slump sale basis. The Tribunal concluded that there were no violations of the specified regulations.

Issue 2: Maintainability of IAs Filed by the Appellant
The Tribunal addressed the maintainability of IAs No. 69 of 2023 and 277 of 2023 filed by the Appellant. It was noted that the Appellant, being a shareholder, had no locus to file these applications as the IBC does not provide for shareholders to sell assets post the initiation of liquidation. The Tribunal found that the Appellant's intent was to delay the liquidation process through multiple OTS proposals, which were all rejected by the Financial Creditor.

Issue 3: Allegations Against the Liquidator Regarding the Auction Process and Reserve Price Reduction
The Appellant alleged that the Liquidator auctioned assets at a lower than fair value and reduced the reserve price beyond permissible limits. The Tribunal found these claims to be factually incorrect and misleading. The auction process and reserve price reductions were conducted in compliance with the regulations, and the realized value of Rs. 29.41 crores in the 10th auction exceeded the reserve price of Rs. 16.41 crores, covering the claims of the Financial Creditors and providing substantial amounts to shareholders.

Issue 4: Cooperation of Ex-management During CIRP and Liquidation Process
The Tribunal noted that the ex-management, including the Appellant, was non-cooperative throughout the CIRP and liquidation process. They failed to provide necessary information and comply with orders, leading to prosecution under Section 19(2) of IBC. The non-cooperation was a significant factor in the liquidation of the Corporate Debtor.

Issue 5: Legality of Appellant's Prayer to Sell Assets of the Corporate Debtor
The Appellant sought to sell the assets of the Corporate Debtor at a fair value within two months, which was not permissible under the IBC. The Tribunal found no legal basis for such a prayer and upheld the rejection of I.A. No. 69 of 2023 by the Adjudicating Authority. The Appellant's OTS proposals were significantly lower than the realized auction value, further justifying the continuation of the liquidation process.

Conclusion:
The Tribunal dismissed the appeal, finding no violations in the liquidation process and noting the non-cooperation of the ex-management. The realized auction value was sufficient to discharge the liabilities of the Financial Creditors and provide surplus to shareholders. The orders passed in I.A. No. 69 of 2023 were upheld, and the liquidation process was deemed proper and justified. The appeal and connected IAs were closed with no orders as to cost.

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