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TMI Blog2023 (4) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed by Pallavi Joshi Bakhru under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code"). The Appellant Nos.1 and 2 submitted their claim in Form-C to the Resolution Professional ("RP") on 18.07.2018. The claim of Appellant No.1 was admitted for an amount of INR 13,82,73,227/- and Appellant No.2 for an amount of INR 37,34,83,401/- Voting share allocated to Appellant No.1 was 1.59% and 4.27% to Appellant No.2 in the Committee of Creditors ("CoC"). 3. The RP appointed two Valuers namely - Adroit Technical Services Private Ltd. and Sapient Services Private Limited in August 2018. The RP invited Expression of Interest ("EOI") in Form-G. The RP shared the Valuation Report with Appellant Nos.1 and 2 vide email dated 27.07.2019. In response to fresh EOI issued by RP, six prospective Resolution Applicants including Welfare Association Consortium - Respondent No.2 submitted EOI. The 14th CoC Meeting was held on 01.11.2019 and the 15th Meeting was on 11.11.2019, in which Resolution Plan submitted by Welfare Association Consortium - Respondent No.2 was approved by 70.44% voting share. Both the Appellants voted against the Resolution Plan. 4. Pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prayed for a direction to the CoC to consider the Valuation Report submitted by the Registered Valuers while determining the valuation of assets of the Corporate Debtor and computing the liquidation value payable to the Appellant Nos.1 and 2. Paragraph 49 and 50 of the impugned order is as follows: "49. Now, in the light of position of law settled by the Hon'ble Supreme Court (Supra), we consider the contention of Mr. Sumant Batra, Advocate and we notice that the amount proposed to be paid in the Resolution Plan is approved by the CoC. Under Section 30(2)(b) of IBC read with Section 53 of IBC, 2016, it is the duty of the Resolution Professional to examine the Resolution Plan, whether the distribution to the Creditors is made in terms of the provisions of law and Regulations, thereafter the Resolution Professional shall place the same before the Committee of Creditors u/s 30(3) IBC 2016 for its approval. The COC after considering the feasibility and viability, the manner of distribution proposed, may approve the Plan by not less than 66% of voting share u/s 3(4) of the IBC 2016. It is the commercial wisdom of the CoC to determine what amounts are to be paid to different classes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016 (hereinafter referred to as the "CIRP Regulations") is a statutory valuation, which cannot be tinkered with by the RP or the Resolution Applicant. Allocation of Rs.3 crores to the Appellant in the Resolution Plan is not in accordance with the amount, which the Appellants were entitled as per their liquidation value, which is INR 23.09 crores. The Resolution Plan, thus, is not in accordance with Section 30, sub-section (2) and ought not to have been approved. It is further submitted that the liquidation value, which has been determined by the two Registered valuers cannot be interfered with by the Resolution Applicant or the CoC. The CoC under the Code, does not have power to re-examine the liquidation value of the assets of the Corporate Debtor. The role has been clearly assigned to the Registered Valuers. The Appellants have raised the issue of liquidation value attributable to them in the 14th Meeting of CoC, which objection was disregarded. Respondent No.2 relied upon a misplaced and incorrect premise that the entire area under the Universal Business Park has been sold and no asset remains with the Corporate Debtor. The Appellant Nos.1 and 2 collectively hold 46% charge ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Counsel for the RP and submits that the Resolution Applicant has rightly ascribed NIL liquidation value to the Appellants with regard to Universal Business Park. The entire area of the Pavilion has been given to the Appellants under the Resolution Plan, since the Appellants are only creditor with regard to Pavilion, from which it can realise its dues. As per the Scheme of the Code, the mortgage rights of the Financial Creditors does not have any relevance for the purpose of Resolution Plan submitted for the revival of the projects of the Corporate Debtor. The Appellants also have personnel Guarantee of the Promoters of the Corporate Debtor. The units mentioned under the Mortgage, which was executed by the Promoters in favour of the Appellants had already been soled through Conveyance Deed and BBA prior to execution of Mortgage Deed, hence, the liquidation value has to be treated as NIL. 10. We have considered the submissions of learned Counsel for the parties and have perused the records. 11. The main thrust of arguments of the Appellants relate to the liquidation value to which Appellants are entitled in the resolution process. The CIRP Regulations defines the 'liquidation va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been made on each floor therefore we cannot ascertain the exact location of the areas on each floor under the ownership of the company. For the purpose of valuation, we have relied upon the information provided by the team of Resolution Professional via mail dated 2nd April 2019, 12:24 pm. As per the information provided to us, out of the total super built-up area, 83706.03 sq. ft. of area has been sold to the respective companies/ individuals; where the company has sold 18,500 sq. ft on 13,014 sq ft of area on 7th Floor. We believe that there is an error in the sold area statements. Hence for the purpose of valuation we have valued 89,025.97 sq ft of balance super built-up area left under the ownership of the company. (For details refer Title Description) It is advised that a legal opinion is taken thereto establish any legal encumbrances on the property. Any legal encumbrance, to the title, to part or whole of the property revealed upon scrutiny, may have detrimental effect on the value ascertained, which may lead to revision of our report." 14. The Report indicates that the Valuers noticed that total super built-up area of 83,706.03 sq. ft. has been sold and for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject property is as per the revised drawings and suggest for a legal opinion on its requisite approvals and clearances from appropriate local authorities and complies with local development control regulations. * Any matters related to legal title and ownership are outside the purview and scope of this valuation exercise. Further, no legal advice regarding the title and ownership of the subject property has been obtained while conducting this valuation exercise. The client/ bank is hereby advised to take an appropriate legal opinion on the matter while taking any decision based on this report." 18. Similarly, Sapient in paragraph 2.10 'Legal Title' has stated as follows: "2.10 Legal Title We have assumed that the ownership of the subject fixed belongs to the client and is free from all encumbrances. We cannot accept any responsibility for its legal validity." 19. The Valuation Report of both the Valuers, thus, indicate that they have valued the super area available in the project Universal Business Park excluding the area which was covered by Conveyance Deed. The Valuers proceeded on the assumption that areas, which have been conveyed no title is left with the Corporate De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sold through conveyance deed 89,706 Sq. Ft. Net remaining area 89,025 Sq. Ft. 13. The Respondent No.1 has although averred that the conveyance deed in favour of the allottees aggregated to 89,706 Sq. Ft., however, no documentary evidence has been presented by the Respondent No.1 with the CoC members to end the controversy, in absence of any documentary evidence, the liquidation value payable to the Appellant No.1 and the Appellant No.2 cannot be treated as 'NIL' as claimed by the Respondent No.1 and Respondent No.2. 14. Further the Appellant No.1 and the Appellant No.2 holds 46% percent charge over the Universal Business Park Project, therefore, any alleged conveyance deed that has been issued by the Corporate Debtor shall not include the 46% percent of the charged assets belonging to the Appellant No.1 and the Appellant No.2. Furthermore, without in any manner admitting the averments made by the Respondent No.1 in respect of liquidation value of the Appellant No.1 and the Appellant No.2, if the working sheet provided by the Respondent No.1 is taken into consideration, in any event 89,025 Sq. Ft. area available with the Corporate Debtor has not been legally transferred as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through Conveyance Deed has also been given, which areas have already taken note by the Valuers. The stand taken by the RP and Resolution Applicant is that liquidation value of the Appellant has been treated as NIL, since on the date, the valuation was done, there was no super area left, which could be monetized for the Corporate Debtor. The Corporate Debtor has sold excess area both by Conveyance Deed and BBA. We are satisfied that by the BBA, executed prior to September 2010, when the charge and mortgage was created by Promoters in the project Universal Business Park, all areas were sold. The Valuers, technically were right in taking a view that those areas, which has been conveyed by Promoters, they do not have ownership, however, the Valuers proceeded to take into consideration the areas with regard to which no Conveyance Deed was executed to be the assets of the Corporate Debtor. 24. When we look into reality, which is apparent from the materials on record, it is clear that with regard to Universal Business Park, entire area was sold by Conveyance Deed and by BBA to the allottees and the Promoters have received the money through the Conveyance Deed and BBA and after executio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be permitted to be taken away by builder or secured creditors in an illegal manner. The provisions of Section 17 of the Registration Act no doubt provide that a document of title requires compulsory registration, no doubt registered document has to be executed that also has to be taken care of by the Court so as to protect the interest of homebuyers." 26. In the above case before the Hon'ble Supreme Court, the Banks, who had security interest contended that they have agreements with the Promoters. In reference to the claim of the Banks regarding mortgage, Hon'ble Supreme Court had observed that in the facts and circumstances of the case, rights or interest of the allottees are not affected by the mortgage created by the Bankers. In paragraph 136 of the judgment, following has been held: "136. The learned Senior Counsel on behalf of Bank of Baroda submitted that the provisions of Section 11(4)(h) of RERA provides that the promoter, after he executes an agreement for sale for any apartment, plot or building, cannot mortgage or create a charge on such an apartment, plot or building, as the case may be, and if any such mortgage or charge is made or created then it shall not affect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the summary of the Resolution Plan in its order. In paragraph 41 of the impugned order, following has been observed: "41. So far as the Kotak Mahindra Bank Limited and Kotak Mahindra Prime Limited are concerned, they are proposed to be paid Rs.3 crores on the ground that the entire area under the Universal Business Park project has been sold and there are no assets belonging to the Corporate Debtor left under this project. Accordingly, the liquidation value of the assets belonging to the Corporate Debtor under this project is shown as Nil in the Part-I of the Resolution Plan. It is also mentioned that they have mortgage right over the land, on which the project namely, "the Pavillion" is situated in Sector 70A, Mauza Palra, Tehsil & Distt. Gurugram, Haryana. As shown in the Part-II of the Resolution Plan, the project is yet to be started and they will get realization of the amount in the manner as stated in Part-II of the Plan." 29. We have also noticed the caveats given by the Valuers in their Report. The valuation of the different projects including project Universal Business Park was with the caveats as noted above. The Valuers did not enter into issue of encumbrance over ..... X X X X Extracts X X X X X X X X Extracts X X X X
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