Kerala State Co-operative Bank Limited vs Aravindhakshan Nair R & Ors.

[Per: Shreesha Merla, Member (Technical)]

Aggrieved by the Impugned Order dated 05/07/2023 passed in IA(IBC)/122/KOB/2023 in TIBA/08/KOB/2019, by the ‘Adjudicating Authority’, National Company Law Tribunal, Kochi Bench, Kerala State Co-operative Bank Limited, the Applicant in IA(IBC)/122/KOB/2023 preferred this Appeal under Section 61 (1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code). The ‘Adjudicating Authority’ has dismissed the Application preferred by the Appellant herein observing as follows:

The Learned Counsel for the Appellant submitted that the Corporate Debtor Company is under Liquidation, ordered by the ‘Adjudicating Authority’ on 15/10/2020 in IA/160/KOB/2020. It is submitted that the Appellant had filed a Claim of Rs. 59,80,63,541/- as a Secured Financial Creditor which was admitted by the Liquidator; that the Corporate Debtor Company was engaged in the business of managing an ‘Ayurvedic Hospital’ and its assets comprised of lands including 8.47 acres and 4189 sq. m. building and another 395.59 sq.m. cottages situated therein; that the Corporate Debtor had possessory rights over 4.50 acres of land and is holding a total extent of 12.97 acres; that the Liquidator did not include these areas of land in the Liquidation estate and arrived at the Liquidation value of Rs. 6,38,00,000/- and the value of 8.47 acres of land was Rs. 7,10,00,000/-

The Learned Counsel for the Appellant submitted that the Liquidator proceeded to conduct the auction at a ‘Reserve Price’ of Rs. 7,10,00,000/-, but there was no buyer for the property and there after the Liquidator reduced the price mechanically and settled at a price of Rs. 3,80,00,000/- and conducted the last auction on 29/12/2022, wherein the 2^nd Respondent became the Successful Bidder for a meagre sum of Rs. 4,05,00,000/-. It is argued by the Learned Counsel for the Appellant that the value in 2004 itself was Rs. 12,00,00,000/-and the valuation done by KSIDC in 2014 was Rs. 18,00,00,000/-, which shows that the property was not required to be sold at this distress rate. Merely because the Liquidation period was ending, it cannot be a ground for reducing the ‘Reserve Price’. Rather than reducing the price to a paltry sum, the Liquidator ought to have consulted the Stakeholders Consultation Committee for an alternate viable option for value maximisation. The Liquidator ought to have given an option to the Secured Creditors to reassign the assets or exercise any other option under the Regulations instead of ‘mechanically’ reducing the price.

The Learned Counsel for the Appellant vehemently argued that in the Meeting held on 12/11/2021, the Liquidator informed about the extension until 15/01/2022 and proceeded to reduce the ‘Reserve Price’ by an additional 10 % leading to an auction on 17/12/2021 without the consent of the Appellant. Subsequently, in a Meeting held on 24/01/2022, the Liquidator revealed that he had received a Notice from the Sub Court concerning 110 cents of land, previously mortgaged to the Appellant, without the Appellant’s knowledge. The Stakeholders Consultation Committee recommended the Liquidator’s intervention at the Sub Court and release of the Property in favour of the Corporate Debtor, but the Liquidator had failed to disclose these facts before the ‘Adjudicating Authority’. In the Meeting held on 22/11/2022, the Liquidator had unilaterally reduced the price of 110 cents of land without boundary demarcation, by Rs. 44,23,000/-, setting the ‘Reserve Price’ at Rs. 3,80,000/-, despite the Appellant’s 72.85 % voting right in the Stakeholders Consultation Committee.

It is the main case of the Appellant that the Liquidator had proceeded with independent decisions overlooking the matters of maximising the value of the assets and had sold the assets at a diminished ‘Reserve Price’ without obtaining the requisite approval from the Appellant and did not adhere to prescribed modes of sale as mandated by Regulations 32 and 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process), Regulations, 2016.

The Learned Counsel for the 1^st Respondent submitted that the ‘Reserve Price’ of the property was higher than the guideline value of the Liquidation asset; that seven rounds of e-auction were conducted by the 1^st Respondent allowing the same said procedure in valuation; that the Appellant had provided consent to the earlier auctions and is therefore, estopped from challenging the 8^th auction on the ground of irregularity. It is also contended that the Appellant has not challenged the Meeting dated 22/11/2022 or the procedure in which the Meeting was conducted despite having a six week period to do so.

The Learned Senior Counsel appearing for the 2^nd Respondent / the Successful Auction Purchaser submitted that the Appellant had participated in the Stakeholders Committee Meetings and that the Appellant had kept silent for a long time even after the decision was taken by the Liquidator to conduct the 8^th auction in the revised ‘Reserve Price’. The Learned Counsel for the second Respondent drew our attention to the recommendation of the Stakeholders Consolidation Committee held on 18/08/2021, wherein it was recommended that the ‘Reserve Price’ may be reduced by 10 % for the land and building and 25% for the furniture and to conduct the e-auction again. It is submitted that in this Meeting, it was categorically proposed that the next auction was to be held on 17/12/2021with this revised ‘Reserve Price’. It is also argued by the Learned Senior Counsel for the 2^nd Respondent that the Appellant has failed to plead and prove through any material documents that the impugned e-auction is vitiated by fraud or even against provisions of law. To the contrary, the Appellant has itself admitted that the sale is within the purview of the relevant provisions of law namely in accordance with Clause 4 of Schedule I of the IBBI (Liquidation Process) Regulations, 2016; and that the Hon’ble Supreme Court in the matter of ‘Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited & Anr.’ reported in [(2021) SCC OnLine SC 707] had observed that proceedings under Insolvency & Bankruptcy Code, 2016 are to be completed within a fixed timeline, and permitting any intervention after the expiry of such timeline would be against the intent and purpose of the Code.

It is significant to mention that the Appellant herein had attended this Stakeholder Committee Meeting on 12/11/2021 whereby and whereunder it was proposed that the ‘Reserve Price’ be reduced by 10 % and that of the furniture by 25%. The relevant portion is extracted below for ready reference.

The aforenoted Minutes of the Meeting shows that the Appellants herein were very much aware of the reduction of the ‘Reserve Price’ way back on 12/11/2021 itself. It is seen from the record that even in the Meeting dated 24/01/2022 the General Manager of KSCB was present and it was opined by the Liquidator in that Meeting that the Stakeholders Consultation Committee Members would have sanction to take commercial decisions in an emergency situation and promised another Meeting to finalise the e-auction details. It is seen from the record that in the 10^th Stakeholders Consultation Committee Meeting held on 07/02/2022, the Annual General Meeting of KSIDC approved the reduction and the e-auction procedure. Shri GM Jills mon jose of KSCB abstained since their Board approval for the above proposal of reduction in the ‘Reserve Price’ by another 10 % was not yet obtained. It is stated that the final decision of KSCB would be intimated by 11/02/2022. This record of the Minutes of the various Stakeholders Consultation Committee Meetings held from 21/11/2021 to 24/01/2022 establishes that the Appellant was very much aware of the various stages when the ‘Reserve Price’ was being reduced.

Regarding the contention of the Learned Counsel for the Appellant that Regulations 32, 33, 35 and 36 of the Liquidation Regulations, 2016 were not adhered to, is to be examined and for ready reference, the relevant Regulations are being reproduced as hereunder:

It is contended by the Learned Counsel for the Appellant that Regulation 32 mandates a clear and transparent process for liquidation of assets; that Regulation 33 clarifies the mode of sale; that Regulation 35 prescribes the valuation of assets intended to be sold and that Regulation 36 mandates the submission of Progress Reports to the ‘Adjudicating Authority’ encompassing the Liquidator’s actions and the status of the Liquidation process. It is vehemently argued by the Learned Senior Counsel for the Appellant that the scope and objective is maximisation of value of assets and this was not followed by the Liquidator at all. At this juncture, it is significant to reproduce Schedule- I, Mode of Sale under Regulation 33 of the IBBI Liquidation Process, Regulations, 2016:-

It is seen from the aforenoted Regulation and Schedule that the Liquidator can reduce the ‘Reserve Price’ by up to 25 % of such value to conduct the subsequent auction and where an auction falls at a reduced price under Clause 4A, the ‘Reserve Price’ in subsequent auctions may be further reduced by not more than 10 % at a time. It is seen from the record that there is no violation of the mode of auction as specified above. There is no documentary evidence to substantiate that there was any violation of Regulations 32, 33, 34 or 35 of the Liquidation Regulations, 2016.

There are no substantial grounds as to why the Applicant did not raise these issues when the Appellant himself attended the Stakeholders Consultation Committee Meetings from 12/11/2021 to 24/01/2022 and objected to the reduction. The Liquidator had included 110 cents of land from the auction after the dismissal of Application IA 330/KOB/2022 and sought leave of the ‘Adjudicating Authority’ to file an Application before the Sub Court, Kottarakara in EP No. 50/2012 dated 16/11/2022. The Court sale to the said land 1.10 acre was confirmed in favour of K.K. Johnson in the year 2012. It was based on this fact that the ‘Adjudicating Authority’ has observed that the exclusion of 110 cents of land from the auction is not a tenable ground to set aside the same.

It is seen from the record that the auction was conducted on 29/12/2022; the entire sale consideration of Rs. 4,05,00,000/- was received from the second Respondent / Successful Auction Bidder and most importantly, it is significant to mention that the Sale Certificate was issued on 04/02/2023. On a pointed query from the bench as to why the Appellant was silent and had filed this Application belatedly, it is submitted that the Appellant is a Co-operative Bank and each step requires prior approval of the Board and further submitted that the regulations do not satisfy any specific time limit to challenge the actions of the Liquidator. We do not find any merit in these submissions and keeping in view that the IBC is a time bound process and the Sale Certificate had already been issued on 04/02/2023 and specifically having regard to the fact that the Appellant had attended the Stakeholders Consultation Committee Meetings and was aware of the Proceedings and consequently, this Tribunal is of the view that the Liquidator had followed the ‘Mode of Sale’ as specified under Schedule – I of the Regulations, 2016.

For all the aforegoing reasons, this Company Appeal (AT) (CH) (Ins) No. 276/2023 is dismissed accordingly. No Order as to Costs. All Connected Pending Interlocutory Applications, if any, are closed.