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TMI Blog2024 (4) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... ord 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational Limited under Section 7 of the IBC, which was allowed vide order dated 08.05.2018 in CP No. (IB) 124/ALD/2018. Since the CIRP did not yield any fruitful outcome, the Committee of Creditors (for short CoC ) in its 4th Meeting on 12.10.2018 decided to initiate liquidation proceedings against the Corporate Debtor and the same was allowed vide order dated 28.02.2019. Appellant holds 43% share in the Corporate Debtor company and is the Ex-Director of the Corporate Debtor. 3. On 20.12.2021 the Respondent was appointed as a Liquidator and the Liquidation proceedings commenced from 20.12.2021. The first public notice for liquidation was issued on 04.06.2022, with a reserve price of Rs.66.35 Crores and the auction proceedings continued over a period of time and it could be finalised only in the 10th round of the auction. During the pendency of these liquidation proceedings the Appellant filed various IAs challenging the Liquidator the details of which are as follows: I.A. No. Date Prayer Disposal status 69/2023 04.02.2023 To allow the Applicant to dispose of the assets of the Corporate Debtor at fair value and to restrain the liquidator from conducting any further subsequent auction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible limits as permitted under the code, which is one of the primary violations in terms of Regulations 34 and 36 of Liquidation Regulations 2016. As per Regulation 32-A Liquidation Regulations 2016, the liquidator shall endeavour to sell the assets of the Corporate Debtor as a going concern and this regulation gives paramount importance to the commercial wisdom of the CoC. In the present case, the sole CoC member in 4th CoC Meeting had objected to such a steep reduction in reserve price in the 7th CoC Meeting on 26.12.2022. Respondent has failed to present any valuation report with the Stakeholder Consultation Committee (SCC) and thus the respondent never took the consent of the SCC, which is in violation of Regulation 32-A(1) of the Liquidation Regulations. The Respondent has failed to demonstrate the list of assets which were sold under the auction and what assets were sold under the slump sale method. By resorting to slump sale the Respondent has defeated the purpose of the Code which is value maximization of the assets of the Corporate Debtor. Any prudent person would not reduce the value of a land so drastically. The Respondent was willing to find buyers for the assets of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Appellant as a special invitee in all the meetings of SCC, and the other member of SCC was the sole Financial Creditor i.e., the Jammu and Kashmir Bank Limited. All the decisions regarding liquidation, including mode and manner of sale and the reserve price of auction were done with the approval of SCC. The Appellant remained absent in 4 out of 8 SCC meetings. Even that being so, all minutes of the meetings of SCC were shared with Appellant and he never raised any objection of the decisions taken in SCC meetings. Therefore, now he has no locus to file the present applications when all the decisions regarding reserve price were in his knowledge and he never objected to them earlier. 10. Further, the Appellant sought to sell the assets of the Corporate Debtor at a fair value in 2 months' time. There is no requisite provision in the IBC through which the shareholder of the Corporate Debtor can be allowed to sell assets of the Corporate Debtor after the initiation of the liquidation process. Therefore, the Appellant had no locus to file I.A. No. 69 of 2023. The sole intent of the Appellant was to buy time for OTS proposals. During the pendency of I.A. No. 69 of 2023, the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lizable value is the auction itself. In the present case, 8 auctions had failed. The 9th auction at the reserve price of Rs. 16.41 crores only was concluded. Therefore, if we consider market factors, that was the actual realizable value of the assets. 16. It is also submitted that the land assets of Corporate Debtor are not such parcels of land which can even fetch circle rates. Auction has been concluded at a price which will cover entire claim of creditors and will also cover substantial amounts to be paid to shareholders, including Appellant. 17. Lastly, it is submitted that, in case the auction is reversed it will deter all prospective buyers from participating in the auction. Heard Learned Counsel for both the parties and perused the records. Appraisal 18. The primary issue before us is whether there are any violations in the liquidation process as per Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and consequently whether the IA No. 69 of 2023 and 277 of 2023 filed by the Appellant are maintainable. 19. The Appellant and the ex-management of the Corporate Debtor had given multiple One Time Settlement (OTS) proposals which have been captured a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess) Regulations, 2016) 1. AUCTION XXX (4A) Where an auction fails at the reserve price, the liquidator may reduce the reserve price by up to twenty-five percent of such value to conduct subsequent auction. (4B) Where an auction fails at reduced price under clause (4A), the reserve price in subsequent auctions may be further reduced by not more than ten percent at a time.] 23. When we look into the auction details, we get the correct picture as to whether there is any violation of the mode of Sale. It is the claim of the Appellant that Liquidator has reduced the reserved price beyond the limit permissible under Schedule-I mode of sale. The Appellant claims that the liquidator may reduce a price by up to 25% to conduct subsequent auction. In case, where the auction fails even at the reduced price the liquidation shall reduce the price not more than 10% every time, but in this case, the liquidator has been reducing the price by the maximum permissible limits and on some occasions the liquidator has even reduced the reserved price beyond the permissible limit, which is against the essence of IBC Code. He has also produced the details of auction in a tabular form, which is at page 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) or (f) of regulation 32 shall maximise the value of the corporate debtor, he shall endeavour to first sell under the said clauses. (2) For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern. (3) Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee. (4) The liquidator may sell the assets of the corporate debtor under clause (e) of regulation 32 exclusively only at the first auction. Explanation: For the purpose of this sub-regulation, it is hereby clarified that the sale of the corporate debtor under clause (e) of regulation 32 cannot be offered as the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... morandum, the reasons for the same; (e) the person to whom the sale is made; and (f) any other details of the sale. 28. Without going specifically into each Regulation, we go on to see the overall circumstances in which the Liquidation process was completed and whether any of the above provisions have been violated or not. 29. Liquidator had appointed 2 IBBI registered valuers for the purpose of conducting valuation under Regulation 35 of the Liquidation Regulations. Regulation 35 mandates that the realizable value has to be determined under clauses (a) to (f) of Regulation 32 of Corporate Debtor. In the instant case, after obtaining the valuation reports, since the land assets of Corporate Debtor were marred with various issues, the Respondent/Liquidator, after obtaining approval of SCC decided to try auction by putting the entire corporate debtor on sale as a going concern i.e., under clause (e) of Regulation 32. 30. Accordingly, the first 3 auctions were attempted on sale of corporate debtor as going concern which included all the assets of the Corporate Debtor. 31. The Respondent / Liquidator obtained the approval of SCC meeting on 20.10.2022 for conducting E-auction on Slump S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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, we do not see any merit in the allegations of the Appellant. 36. In all, we do not find any violation of the Regulations 32, 32-A, 33, 34 36 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. 37. The Appellant had also sought to sell the assets of the Corporate Debtor at a fair value in two months time when the Liquidator is already in place as per the IBC. There is no requisite provision in the IBC through which the shareholder of the Corporate Debtor can be allowed to sell assets of the Corporate Debtor after the initiation of the liquidation process. We do not see how such a prayer could have been legally allowed in I.A. No. 69 of 2023 and has been rightly rejected. During the pendency of these I.A. No. 69 of 2023, the Appellant and suspended management have already given three OTS proposal to the Financial Creditor but each time with a decreasing value. It appears that the sole intent of the Appellant was to buy time for OTS proposals. 38. Even the OTS proposal under this I.A. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 fact, the Adjudicating Authority has clearly brought out in detail the circumstances problems existing during the CIRP process while finally ordering for Liquidation as extracted below in CA No.265/2018 and CA No 281/2018 in CP No. (IB) 124/ALD/2018 : 19. A perusal of the progress report filed by the RP no doubt shows that there is no preparation of information memorandum, there is no invitation for expression of interest. It is also a fact that there are no resolution plans, there is no expression of interest given by any of the prospective Resolution Applicant and in fact there is no Resolution Applicant that filed the resolution plan. The controversy is, whether the RP had not taken up all the steps that are required to be taken in the CIRP, is on account of his lapse or on account of non-cooperation of the Suspended Directors of the Corporate Debtor. According to the RP, it was on account of the non-cooperation of the Suspended Directors of the Corporate Debtor. According to the Suspended Directors of the Corporate Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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