Raghuram Hume Pipes Private Limited vs Pankaj Dhanuka & Anr.

Per: Justice Rakesh Kumar Jain:

The Respondent No. 1 (Liquidator for Lanco Kondapalli Power Ltd.) and Respondent No. 2 (Successful Bidder of M/s Lanco Kondapalli Power Limited) filed two applications bearing I.A. No. 830 of 2023 and I.A. No. 839 of 2023 under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) r/w Regulation 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016 (in short ‘Regulations’) and Rule 11 of the NCLT Rules, 2016 (in short ‘Rules’) for seeking the reliefs contained therein.

In so far as I.A. No. 830 of 2023 is concerned, the Respondent No. 1 sought the following reliefs:-

And in I.A. No. 839 of 2023 the Respondent No. 2 sought the following reliefs:-

Both the aforesaid applications were heard together and partly allowed by the impugned order dated 23.06.2023. The Adjudicating Authority granted waivers and concessions sought by the Successful Bidder in I.A. No. 839 of 2023 captured in Para 21 of the impugned order and the reliefs and concessions sought by the Liquidator vide I.A. No. 830 of 2023 are granted and captured in Para 23 of the impugned order, however, the Adjudicating Authority did not accept the request of the Successful Bidder to fix four months’ time from 30.07.2023 for removal of phase I to phase III assets from the premises of the Corporate Debtor without other conditions and in this regard, following order was passed in the impugned order:-

Thus, in the aforesaid manner, both the applications i.e. 830 and 839 of 2023 were partly allowed.

CA (AT) (Ins) No. 240 of 2023 is filed by Raghuram Hume Pipes Pvt. Ltd. (Operational Creditor) to challenge the order passed in I.A. No. 839 of 2023 and the same Appellant has filed CA (AT) (Ins) No. 241 of 2023 to challenge the order passed in I.A. No. 830 of 2023 by the Adjudicating Authority.

Since, the contents of grounds of appeal and the defence taken by both the Respondents in both the appeals are common, therefore, both the aforesaid appeals are being decided by this common order.

The brief facts of this case are that M/s Axis Bank Limited (Financial Creditor) filed an application under Section 7 of the Code bearing CP (IB) No. 678/7/HDB/2018 for the resolution of its debt against M/s Lanco Kondapalli Power Limited (Corporate Debtor) before the Adjudicating Authority (National Company Law Tribunal, Hyderabad Bench, Hyderabad) which was admitted on 23.04.2019. Pankaj Dhanuka (Respondent No. 1) was appointed as the Interim Resolution Professional (in short ‘IRP’) who was later on confirmed as the RP.

Since, no viable resolution plan was received, therefore, the RP filed an application bearing I.A. No. 750 of 2020 under Section 33 of the Code for the initiation of liquidation of the Corporate Debtor. The said application was allowed by the Adjudicating Authority on 16.04.2021. The RP gave his consent to act as Liquidator and was appointed as such.

The Appellant alleged to have submitted its claim for an amount of Rs. 2,85,45,873/- to Respondent No. 1 which is stated to have been confirmed vide email dated 29.01.2021 and in the list of the stakeholders, published by Respondent No. 1, on the website of the CD, it was mentioned as Operational Creditor.

According to Respondent No. 1, the valuation of assets of the Corporate Debtor were undertaken by the Liquidator in terms of Regulations with due consultation with the members of the Stakeholder Consultation Committee (in short ‘SCC’). The valuation of the CD was done on 23.04.2019, just after the order of liquidation was passed on 16.04.2021.

According to Respondent No. 1, two valuers registered with the IBBI i.e. RBSA Valuation Advisors LLP and Adroit Appraisers and Research Pvt. Ltd. were entrusted the job of valuation.

According to Respondent No. 1, both the valuers relied upon diverse sources of information and documents before arriving at their respective valuation such as provisional financial statement as on 16.04.2021, audited financial statement as on 31.03.2020, bank statement, sale/lease deeds, recent land sale transactions/deals in the area concerned, details of inventory as on 16.04.2021, ownership documents for all land parcels, discussions with the personnel of the CD and the Liquidator, etc. As per the report of the valuers, the total average valuation of all the assets of the CD was determined at Rs. 445.21 Cr. whereas the final realizable value was arrived at Rs. 321.09 Cr. by excluding certain assets like cash and cash equivalents, unbilled revenue, trade receivables of less than ninety days, fixed deposit with Canara Bank and certain litigations.

According to Respondent No. 1, both valuation reports of the CD were presented by the valuers before the SCC in the meeting held on 09.09.2021 and draft valuation reports were also shared with the members of the SCC for their views.

The SCC of the CD includes a mix of stakeholders, including private banks, nationalized bank, and LIC, collectively representing the interest of the public. The valuation report received from the valuers, determined and considered, the average of the two valuation figures in terms of Regulation 35 of the Regulations, the asset memorandum was submitted before the Adjudicating Authority in accordance with Regulation 34(4) of the Regulations which was duly allowed vide order dated 07.10.2021.

According to Respondent No. 1, public announcement for each of the e-auction of the CD were published as per the applicable Regulations in the newspapers having wide circulation and on the websites of the CD and the IBBI. Besides that, he contacted a multitude of potential bidders, encompassing both domestic and international participants, spanning various categories such as strategic, financial and real estate bidders. The public announcement provided that the relevant process document for the respective sales, which contain terms and conditions of sale including the description and details of the assets can be assessed at the website of the CD, being publically accessible without any restrictions and it also provided contract details of the Liquidator to whom any potential bidder could contact for queries and further details regarding the e-auction sale. The process document contained detailed terms and conditions of sale, including schedule A that provides the detailed list of assets of the CD, including land parcel details incorporated in the going concern sale. For the purpose of due diligence by the qualified bidders before bidding for any particular parcel of assets of the CD, the qualified bidders were provided with access to the virtual data room (VDR) that contained all the relevant details and documents of the CD, including financials, documents and agreements pertaining to the land parcels and litigations. List of bidders who were provided with access to VDR and site visit as per their request was also provided.

In the first five round of e-auction conducted by the Liquidator/R1, the following assets of the CD were sold:-

The Liquidator issued public announcement on 12.01.2023, pursuant to the discussion in the 17^th meeting of SCC for the 6^th round of e-auction of the CD as a going concern and a process document dated 13.01.2023 was also issued. In terms of the process document, M/s Radha Smelters Pvt. Ltd. (in short ‘RSPL’) deposited Rs. 5 Cr. as Earnest Money Deposit (EMD) on 27.01.2023. The RSPL vide email dated 13.02.2023 submitted a proposal / business plan to Respondent No. 1 stating therein that it shall bid for the sale of the CD as a going concern in the e-auction. It was proposed that on the existing plant and machinery of the CD, if sold to it, it may set up any business unit on the land of the CD and a part of the land could be sold for setting up industry by others but Respondent No. 1 by his email dated 14.02.2023, informed that the e-auction was being conducted on ‘as is where is, as is what is, as is how is, whatever there is and on no recourse basis’. It was also clarified that bid was to be submitted without any pre-condition and strictly in accordance with the terms of the process documents.

The process document defines ‘category A’ asset which read as under:-

The process document also defines ‘parcel 1’ which read as under:-

The process documents also sets out certain additional conditions which read as under:-

The sale of the CD as a going concern to RSPL was conducted with exclusion of, inter alia, certain assets which is reproduced as under:-

The 6^th round of the e-auction process was conducted on 15.02.2023 and Respondent No. 1 received a bid from RSPL for sale of Category A-Parcel 1: Company as a going concern at the reserve price of Rs. 1,05,94,93,074/-. The description of the asset put up for sale is reproduced as under:-

In the 18^th SCC meeting held on 21.02.2023, RSPL was declared as the Successful Bidder for sale of the CD as a going concern and informed the same to RSPL on 22.02.2023. Pursuant to which, RSPL deposited the performance security with Respondent No. 1 amounting to Rs. 52,97,46,537/- on 28.02.2023 and Respondent No. 1 issued the LOI to the Successful Bidder on 02.03.2023. The SPV was required to make the payment of balance sale consideration within 30 days from the issuance of the LOI i.e 02.03.2023. It was stipulated that in case the payment is not made within 30 days then the unpaid sum shall carry an interest of 12% per annum but in any case the entire sale consideration was to be paid on or before 90 days from the issuance of the LOI i.e. on 31.05.2023 and after receipt of the entire sale consideration, the certificate of sale was to be issued and the sum shall be distributed to the stakeholders of the CD in terms of Section 53 of the Code except an amount of Rs. 1,00,00,000 which was to be retained and earmarked by Respondent No. 1 for meeting any future contingencies in relation to the liquidation process and after the expiry of a period of 12 months, the Respondent No. 1 shall distribute any balance amount remaining out of the said earmarked amount of Rs. 1 Cr. to the stakeholders provided on such date no such litigation or claims against Respondent No. 1 and / or the liquidation of the CD are pending at the end of the 12 months and then the monies earmarked or so much thereof as is remaining shall be distributed only after all such litigation or claims against the Respondent No. 1 and / or the liquidation of the CD have finally been settled or disposed of.

The Adjudicating Authority, in the background of the aforesaid case, partly allowed the applications as mentioned in the earlier part of this order but orders passed in both the applications are being challenged in these appeals by the Appellant who is stated to be an operational creditor.

Counsel for the Appellant has submitted that e-auction has been conducted without following the principles of value maximization and is against the interest of the stakeholders as the assets have been grossly undervalued. It is submitted that the operational creditor is a part of the stakeholders of the CD, therefore, has the locus standi to raise the issues regarding e-auction as it would be directly affected by the process including recovery in respect of their claims. It is further submitted that in the 6^th round of e-auction, the most valuable asset of the CD i.e. land at Kondapalli and certain other assets is about 160 acres of valuable land, having the commercial value of about 7.75 Lac sq. yards for which the registration value is about Rs. 8,000/- per sq. yard and has the value of about Rs. 620 Cr. It is further contended that more than 200 Cr. of contingent assets as mentioned in Schedule A of the process document are also part of the sale as a going concern but Respondent No. 1 hastily undervalued the asset of the CD and conducted non-transparent and farcical e-auction process, declaring the second Respondent as the successful bidder although it is a sole bidder and the e-auction was not done in accordance with the object of the provisions of the Code. It is also his concern that the details of numbers of the land have also not been given in the advertisement. It is further submitted that the public announcement/auction notice was published on 12.01.2023 and the original date of auction was fixed on 08.02.2023 which is less than the mandatory requirement of 30 days’ notice period. Moreover, it is only by a subsequent corrigendum that the auction date appears to have been re-fixed as 15.02.2023 but the same was not widely published or circulated. It is thus submitted that Respondent No. 1 has committed a serious material irregularity in issuing corrigendum for extension of date and time for auction which vitiates the entire process.

In reply, Counsel for Respondent No.1 has raised a preliminary objection about the locus of the Appellant to file the present appeal under Section 61 of the Code. He has submitted that the appeal under Section 61 against an order passed by the Adjudicating Authority can be filed by a person ‘aggrieved’, therefore, the Appellant has to first prove that he is a person aggrieved who has suffered legal injury or infringement of any vested right so as to maintain the appeal. He has also placed reliance on the judgment of the Hon’ble Supreme Court in the case of Adi Pherozshah Gandhi Vs. H.M. Seervai, Adv. General of Maharashtra, Bombay, 1970 (2) SCC 484 and Jasbhai Motibhai Desai Vs. Roshan Kumar, Haji Bashir Ahmed & Anr., (1976) 1 SCC 671. It is further submitted that having filed its claim in the year 2021, the Appellant was aware of the ongoing liquidation process of the Corporate Debtor and the reserve price of the various assets of the CD all along yet it consciously elected not to challenge the valuation or the e-auction process before the Adjudicating Authority. It is further submitted that e-auction is based upon the valuation report and it is not the case of the Appellant that he was not aware of the earlier five rounds of auction, therefore, valuation of the land, in as much as, it formed part of the going concern sale of the CD was known to the Appellant from the first round of auction i.e. 11.01.2022 but the Appellant let all the six rounds of auction go by, allowed the proceedings before the Adjudicating Authority without any intervention and has now woke up to challenge the valuation of eighteen months after the first auction was held and twenty three months after the valuation reports were prepared and placed before the SCC of the CD. It is further submitted that the Appellant was aware of the entire resolution process as it was represented through GE International Inc. i.e. representative of the operational creditors, in terms of Regulation 31A(3) of the Regulations, in the SCC of the Corporate Debtor. It is further alleged that the Appellant has not approached the Court with bonafide intention because it chose to file the appeal after the sale stands completed for all intents and purposes because the Respondent No. 2 has made the entire payment of the sale consideration after approval of the sale by the Adjudicating Authority, the consideration has been distributed to the stakeholders of the CD and certificate of sale has been issued on 30.06.2023.

At this stage, it would be relevant to mention that the same objection has been taken about the locus standi of the Appellant by Respondent No. 2 as well on the ground that the Appellant is not a person aggrieved. It is submitted that the Appellant has 00.54 % share as an operational creditor and would fall much lower in the scale of Section 53 of the Code. The claim of the secured financial creditor of the CD is in excess of Rs. 5000 Cr. and even if the CD is to be sold at the reserve price proposed to be correct by the Appellant, the Appellant would stand to gain nothing as the entire amount realised from the sale would be exhausted towards clearing the admitted claims of the secured financial creditors which is 97% of total admitted claim, having much higher priority under Section 53 of the Code then the present Appellant who is an operational creditor. It is also submitted that none of the financial creditors who have been fully seized of the sale process have raised any doubts or objections concerning it.

Counsel for Respondent No. 1 has further submitted that valuation reports were shared with the SCC and accepted without any objection. Since it is the allegation of the Appellant that assessment of the asset is undervalued, it is submitted that the valuation has been done in terms of the Code and Regulations. Two valuers registered with the IBBI i.e. RBSA Valuation Advisors LLP and Adroit Appraisers and Research Pvt. Ltd. were appointed to make the valuation as per the provisional financial statement as on 16.04.2021, audited financial statement as on 31.03.2020, bank statement, sale/lease deeds, recent land sale transactions/deals in the area concerned, details of inventory as on 16.04.2021, ownership documents for all land parcels, discussions with the personnel of the CD and the Liquidator etc. The total valuation of all the assets of the CD was Rs. 445.21 Cr. given by the valuers, the final realizable value arrived at Rs. 321.09 Cr. after excluding certain assets like cash & cash equivalents, unbilled revenue, trade receivables of less than 90 days, fixed deposit with Canara Bank and certain litigation. The report of the valuers was presented before the SCC in the meeting held on 09.09.2021 and the draft valuation reports were also shared with the members of the SCC but no objection came to be filed by the members of the SCC which included the authorised representative of the operational creditor, therefore, the allegation of the Appellant that the valuation has not been done in accordance with the provisions of the Code and the Regulations or the property has been undervalued is a figment of imagination of the Appellant and contrary to the record.

It is further submitted that there has been no irregularity in the conduct of the e-auction at the reserve prices. It is submitted that the reserve price was set solely on the basis of the said valuation reports provided by the independent registered valuers and in consultation with the members of the SCC of the CD. The subsequent reduction of the valuation of the CD as a going concern was on account of exclusion of corresponding valuations of assets sold in parcels between the first e-auction till the fifth e-auction. It is also submitted that after the liquidation order dated 16.04.2021, vide which the Respondent No. 1 was directed to make endeavour to first sell the CD as a going concern, the Corporate Debtor as a going concern was put up for sale in the e-auction held on 11.01.2022 at the reserve price of Rs. 321.09 Cr. but despite receiving 10 EOI, no bids were received during the said e-auction, therefore, during the subsequent e-auction, the Liquidator put up the respective lots/parcels of assets of the CD for sale but in addition to the option of sale of the CD as a going concern.

It is further submitted that the allegation of the Appellant that the details of the numbers of the land etc. was not given in the advertisement is incorrect. It is submitted that the qualified bidders were provided to access VDR which contained all the relevant details of the documents of the CD including financial, document, agreement pertaining to the land parcel and litigation etc. and site visit on request were also provided. It is further argued that the allegation of the Appellant that the land has been sold to the sole bidder is also misplaced. It is argued that in the 6^th e-auction, four prospective bidders submitted EOI regarding the sale of the CD as a going concern but after accessing the VDR and undertaking site visits, only one bidder deemed it fit to submit its bid during the said e-auction. In this regard, it is submitted that the sale to a sold bidder at or above the reserve price is not illegal.

Counsel for Respondent No. 2 has also supported the arguments of Respondent No. 1 and submitted that the present two appeals filed at the instance of the present appellant are mischievous as it has no claim whatsoever in the entire process being a minuscule stakeholder of 00.54% and had been watching the entire proceedings since the beginning through its representative of the operational creditor.

Both counsel for Respondents have thus prayed that both the appeals may be dismissed with costs.

We have heard Counsel for the parties and perused the record with their able assistance.

We have given the facts of this case in detail in previous paragraphs, therefore, we do not want to repeat the same for the sake of brevity and to avoid repetition. The issue is very short and simple that the property in question has been sold as a going concern in the 6^th e-auction, the auction purchaser has been issued the sale letter, entire payment has been made by it and the sale consideration has already been distributed to the stakeholders. The preliminary objection raised by the Respondents that the appeal is not maintainable because the appeal under Section 61 of the Code can be filed by person aggrieved in which the term ‘aggrieved’ is prominent and important. The person aggrieved is a person who has suffered a legal injury or infringement of any of its vested rights. In the present case, the Appellant has been watching the entire proceedings starting from the order passed by the Adjudicating Authority initiating the liquidation and appointing the RP as the liquidator. The valuation report was prepared by Respondent No. 1 through two registered valuers of the IBBI who have collected the information from various sources, already mentioned herein before, and the report was submitted to the SCC in its meeting held on 09.09.2021. The draft valuation report was also shared with the members of SCC for their views. The Appellant was represented through GE International Inc. i.e. representative of the operational creditors appointed in terms of Regulation 31A(3) of the Regulations in the SCC of the CD. No objection to the draft report was filed by any of the members of the SCC of the CD and valuation reports were accepted. It is also pertinent to mention that the main stakeholders in the SCC are the financial creditors which includes the banks, LIC etc. having 95% share but they have not raised any objection about the valuation. Moreover, all the bidders were given access to the VDR which contained the entire description of the parcel of land put up for auction, therefore, the Appellant cannot agitate that the number of parcels of the land were not categorically mentioned. There was no objection by the Appellant to the sale which was conducted though first five auction and no effort was made by the Appellant to file any application for intervention even before the Adjudicating Authority when the present two applications were taken up for hearing and decided.

Thus, from the aforesaid facts and circumstances, by no means, the Appellant can be termed to be a person ‘aggrieved’ for the purpose of invoking Section 61 of the Code to present these appeals to challenge the impugned order especially when no other member of the SCC has challenged the same.

Although, we have held in the above paragraph that the Appellant has no locus standi to maintain the present appeals and their appeals deserves to be dismissed on this premise only but we would also observe that the sale which has been conducted by Respondent No. 1 is after following due process of law which we have described in the facts mentioned in the earlier part of this order and there is no error in selling the property in the e-auction to the sole bidder.

Thus, in view of the aforesaid facts and circumstances, there is hardly any merit in the present two appeals which requires any interference by this Court and the same are hereby dismissed though without any order as to costs.