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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 ..... solvency and Bankruptcy Code, 2016 (hereinafter referred to as "IBC"). Brief Facts 2. The Financial Creditor namely Jammu & Kashmir Bank Ltd. had initiated Corporate Insolvency Resolution Process (for short 'CIRP') against the Corporate Debtor Kushal International 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 Liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess) Regulations, 2016 [Liquidation Regulations]. The liquidator made various attempts to sell the assets of the Corporate Debtor as a going concern and subsequently after 4th auction, the sale was declared as a slump sale basis. The Liquidator reduced the price of the assets of the Corporate Debtor beyond the permissible 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consultation committee ("SCC") under Regulation 31A of Liquidation Regulations. The shareholders of Corporate Debtor never nominated their representative in the SCC but in good faith the Respondent/Liquidator made the highest shareholder i.e. Mr. Karan Veer Singh (father of the appellant) as the Shareholders' representative in the SCC and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction in reserve price is in consonance with the provisions of IBC and the Appellant has lost sight of the fact that there was a change in the mode of sale of the corporate debtor as going concern to sale of assets on slump sale basis during the 4th auction wherein various assets stood excluded. 15. Further, the Respondent / Liquidator also submits that the best indication of a realizable 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 32, 32-A, 33 [Mode of sale prescribed in the Schedule-I], 34 & 36 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. 22. For understanding the provisions of Mode of sale and other related provisions, we extract them from the Regulations as follows: "SCHEDULE-I MODE OF SALE (Under Regulation 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness(s) of the corporate debtor as a going concern: Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate.] 32A. Sale as a going concern. (1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (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, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from each member that such member shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person. 36. Asset sale report. On sale of an asset, the liquidator shall prepare an asset sale report in respect of said asset, to be enclosed with the Progress Reports, containing - (a) the realized value; (b) cost of realization, if any; (c) the manner and mode of sale; (d) if the value realized is less than the value in the asset memorandum, 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 valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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. 35. 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Corporate Debtor being marred with various issues which can never fetch circle rates, it appears to be a fair value and the grounds raised by the Appellant are not tenable. 42. 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 we cannot find reasons to question the liquidation proceedings in this ground. 43. Therefore, we do not find any 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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