Shri Madhukar Shetty vs Bank Of Baroda & Ors.

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’ in short) by the Appellant arises out of the Order dated 20.12.2023 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench-I in IA-1177/2021 and IA-1768/2021 in CP (IB) No. 2445 of 2019. By the impugned order, the Adjudicating Authority approved the resolution plan of the Successful Resolution Applicant (‘SRA’ in short) filed by the RP vide I.A. 1177/2021 and dismissed the I.A. 1768 of 2021 filed by the ex-Director of the Corporate Debtor objecting to the approval of the resolution plan of the SRA. Aggrieved by this order, the present appeal has been preferred by the ex-Director of the Corporate Debtor-Appellant.

Coming to the factual matrix of the present case, it has been brought to our notice that the Corporate Debtor-Genesis Resorts Pvt. Ltd. had availed a loan of Rs.149.05 cr from the Financial Creditor-Bank of Baroda during the years 2012 to 2014. The loan facility had been granted for construction of a hotel on a plot of land at Vile Parle near the Mumbai Airport. The Corporate Debtor applied for restructuring of the credit facilities which was allowed by Financial Creditor-Bank of Baroda on 18.02.2015. However, the Corporate Debtor failed to repay the outstanding loan to the Bank of Baroda leading to classification of their account as NPA on 30.11.2016. The Bank of Baroda thereafter approached the Adjudicating Authority for initiating Corporate Insolvency Resolution Process (‘CIRP’ in short) of the Corporate Debtor for realisation of a total debt amounting Rs.231.09 cr comprising of Rs.149.05 cr as principal and Rs. 82.04 cr as interest. The Adjudicating Authority admitted the Section 7 petition on 11.12.2019 admitting the Corporate Debtor into CIRP.

Carrying the CIRP process forward, the Resolution Professional (‘RP’ in short) invited EOI by issuing a public notice in Form-G on 28.01.2020 in terms of Regulation 36A(1) of the IBBI (Insolvency Process Regulations for Corporate Persons) Regulations,2016 (‘CIRP Regulations’ in short). The timelines for submission of EOI got extended from time to time with the approval of the Committee of Creditors (‘CoC’ in short) till January, 2021. The RP also appointed Registered Valuers for valuation of the assets of the Corporate Debtor and the first CoC meeting held on 10.01.2020 had approved the appointment of these valuers. Basis their valuation reports dated 09.07.2020, 08.09.2020 and 09.10.2020, the average liquidation value of the Corporate Debtor was determined as Rs.83.52 Cr. and the fair value fixed at Rs.118.88 Cr.

Pursuant to the issue of Form-G, 17 EOIs were received. However, only two resolution plans were finally received by the RP. M/s Finquest Solutions Pvt. Ltd.-SRA submitted its plan which was approved by the CoC in its 10^th meeting with 100% vote share following which the RP filed IA No. 1177 of 2021 on 05.04.2021 before the Adjudicating Authority for approval of the Resolution Plan. The Appellant - ex Director of the Corporate Debtor filed I.A. No. 1768 of 2021 before the Adjudicating Authority objecting to the approval of the resolution plan of the Corporate Debtor as submitted by the SRA. The Adjudicating Authority rejected I.A. No. 1768 of 2021 filed by the Appellant and approved the resolution plan of the SRA. Assailing the impugned order, the present appeal has been preferred by the Appellant - ex Director of the Corporate Debtor.

We have heard Mr. Siddhartha Chowdhury, Learned Counsel for the Appellant who while making his submissions stated that the resolution plan submitted by the RP suffered from major irregularities. One such major irregularity according to the Appellant is the under-valuation of the assets of the Corporate Debtor. It was submitted that the RP had published an incomplete Information Memorandum which failed to capture the correct value of the assets of the Corporate Debtor. This led to arriving at a very low liquidation value. Thus, it was contended that the RP had conducted the CIRP process without ensuring maximization of the value of assets of the Corporate Debtor which goes against the grains of IBC.

Pointing out another alleged grave irregularity, it is submitted that the SRA is a non-banking non-deposit financial company on which the Securities and Exchange Board of India (‘SEBI’ in short) had imposed fine. It was also pointed out that the SRA is a company under the umbrella of M/s Finquest Group promoted by one Sh. Bharat Patel who had failed to make necessary disclosure under the prohibition of insider trading norms on several occasions. Thus, when the Bharat Patel Group had violated the norms set out under the SEBI Act and had been debarred from transacting in the market, the RP had failed and neglected in carrying out necessary steps to ascertain the eligibility of the present SRA while accepting their resolution proposal.

It has also been contended by the Appellant that the RP had conducted the entire CIRP Process without taking into confidence the Appellant and without seeking documents/permissions obtained by the Corporate Debtor for running its business activities.

We have heard Mr. Abhijeet Sinha, Learned Sr. Advocate representing the RP and Ms Pooja Mahajan representing the CoC and Bank of Baroda as the sole member of the CoC. Mr. Kaustubh Prakash, Learned Counsel for SRA was also heard. Since their line of arguments overlap, for reasons of convenience, we are clubbing them together. Refuting the contentions raised by the Appellant, the Learned Counsels for the Respondents submitted that the IBC provides a well-defined mechanism to be followed for valuation of the Corporate Debtor as laid down in the CIRP Regulations. The RP adhered to the relevant CIRP Regulations and got the valuation duly conducted by IBBI registered valuers for determining an estimate of fair value and liquidation value of the Corporate Debtor as on the insolvency commencement date.

The Learned Counsel for Respondents also vehemently contended that the SRA was not disqualified under Section 29-A of IBC. It was pointed out that the allegation made by the Appellant that the SRA was ineligible for making submission of Resolution Plan owing to imposition of penalty by SEBI against the promoters of SRA was misconceived. The alleged imposition of ban by SEBI on the promoters of the SRA lacks basis and does not hold good because the Securities Appellate Tribunal had set aside the orders of the SEBI. It has also been stated that the RP had conducted an independent due diligence of the SRA before coming to the conclusion that the SRA was eligible to submit the resolution plan for the Corporate Debtor. It has also been pointed out that the Adjudicating Authority has taken note of the fact that the resolution plan of the SRA has been successfully implemented and the CIRP of the Corporate Debtor has been closed.

We have duly considered the arguments advanced by the Learned Counsels for both the parties and perused the records carefully.

The first point for our consideration is whether the CIRP process got marred by irregularities on account of incorrect valuation exercise allegedly conducted by the RP. It is the case of the Appellant that the assets of the Corporate Debtor have been under-valued. A property which could have fetched more than Rs.200 cr in the current market situation is being sold at a much lower valuation causing loss of public money. It was added that the Bank of Baroda had conducted valuation of the said property on two earlier occasions in 2015 and 2019. In 2015, the valuation conducted by A.V. Shetty & Associates showed the realisable value as Rs.413.02 cr, while in 2019 the valuation conducted by Kakode & Associates showed the market value of the property to be Rs.142.49 cr as on 22.01.2019. It is also submitted that the valuation of the said property in the Balance Sheet of the Corporate Debtor for 2018-19 stood at Rs.210.10 cr. Even as per the Ready Reckoner Rate of the Registrar’s Office, which is otherwise deemed to be the minimum rate of property transactions notified by the Government, the price of the said property was valued at Rs.260 cr. Furthermore, keeping in view the prime location of the said property, the valuation should have been much more than what had been stated by the SRA. It was incumbent upon the RP to consider the balance sheets of the Corporate Debtor and the earlier valuation reports obtained by the Bank of Baroda before confirming the valuation obtained from the two registered valuers appointed by the RP. It is their contention that the RP conducted the CIRP process in a mischievous and arbitrary manner with a view to sell the assets of the Corporate Debtor at an under-valued price.

At this juncture, we need to analyse as to whether the process of valuation contemplated under the relevant CIRP Regulations were duly followed or not by the RP. CIRP Regulation 27 requires the RP to appoint two registered valuers to determine the fair value and liquidation value of the Corporate Debtor in accordance with CIRP Regulation 35. We may quickly run our eyes through CIRP Regulation 35 which is to the effect:

From a plain reading of the above CIRP Regulations, it is clear that only the valuation conducted by IBBI registered valuers appointed post the admission of Corporate Debtor into CIRP is required to be considered by the CoC. Any valuation conducted in the past by any entity for whatever purposes prior to the initiation of CIRP does not have any relevance for the purposes of CIRP of the Corporate Debtor.

The Learned Counsel of the Respondent No.1 has contended that claim of the Appellant that the real value of the assets is higher is only a ruse to derail the CIRP of the Corporate Debtor and placed reliance on the judgement of the Hon’ble Supreme Court in M.K. Rajagopalan v. Dr. Periasamy Palani Gounder & Or (2024) 1 SCC 42 to contend that once the members of CoC are satisfied with and have endorsed the process of valuation, allegations of irregularities in the valuation of assets raised by the ex-Director of the Corporate Debtor needs to be discounted. The relevant extracts of the Gounder judgment supra in the context of valuation process undertaken under CIRP Regulations 27 and 35 is as below:

When we apply the ratio of the Gounder judgment supra in the present facts of the case, we find that the CIRP Regulations 27 and 35 have been scrupulously followed in that two registered valuers were appointed to compute the value of the assets in accordance with internationally accepted valuation standards. Paragraph 22 of the impugned order has also noted that the 1st CoC meeting held on 10.01.2020, approved the appointment of three registered valuers viz. Kakode Associates Consulting Pvt. Ltd. for Plant & Machinery, Land & Building and Financial Assets; Mr. Farag Sheth for Plant & Machinery and Land & Building; and Pinakin Shah & Company for Financial Assets. The Registered Valuers submitted their reports on 09.07.2020, 08.09.2020 and 09.10.2020 respectively basis which the average liquidation value of the Corporate Debtor was determined as Rs.83.52 cr and the average fair value of the Corporate Debtor was determined as Rs.118.88 cr. The valuation report was also shared with the CoC by the RP. When we see the findings of the Hon’ble Supreme Court in the Gounder judgement supra, we are inclined to hold the view that the findings therein are squarely applicable in the present factual matrix and that the allegation of irregularity raised by the Appellant lacks merit. Once a valuation report is submitted by the RP to the CoC and the CoC is satisfied with the same, the Adjudicating Authority cannot go into the question of valuation of the assets conducted by the RP during the CIRP. The perception of the Appellant as to real value of the Corporate Debtor cannot be a yardstick or a factor to reject the resolution plan which has been approved by the CoC with 100% voting share. Hence, the reliance placed by the Appellant on pre-CIRP valuations conducted by Bank of Baroda in the past is misconceived and misplaced.

It was also submitted by the Learned Counsel for the Respondent No.1 that the value offered in the resolution plan is not required to be higher than the fair or liquidation value of the Corporate Debtor as has been wrongly asserted by the Appellant. In support of their contention, reliance has been placed on the judgement of the Hon’ble Apex Court in Maharashtra Seamless Ltd. vs. Padmanabhan Venkatesh & Ors. (2020) 11 SCC 467 which has held:

This brings us to a related submission made by the Appellant that the RP had avoided furnishing a copy of the resolution plan approved by the CoC to the Appellant in spite of requests made for furnishing copy of the resolution plan and relevant minutes of the meeting of the CoC. However, when we see the pleadings made by the Appellant in I.A. No. 1768 of 2021 filed before the Adjudicating Authority as placed at page 541-556 of Appeal Paper Book (‘APB’ in short) we find that the Appellant in para-8 therein has himself admitted that their request for getting a copy of the approved resolution plan was fulfilled by the RP on the directions of the Adjudicating Authority. Further in para-5 therein, it has also been submitted as here-under:

Admittedly therefore, the Appellant was provided copy of the resolution plan as well as minutes of the CoC meeting and even allowed to attend the CoC meetings. Hence, the allegations raised by the Appellant of the RP not inviting the Appellant to attend the CoC meetings and not being provided with the resolution plan is frivolous and self-contradictory and therefore deserves scant regard. It is clear therefore that the Appellant has unjustifiably claimed that there has been statutory violations and irregularities in the valuation process conducted by the RP.

Coming to the second limb of argument that the SRA attracted Section 29-A(f) of the IBC and was not eligible to be a resolution applicant, we find that this aspect has been holistically dealt at length by the Adjudicating Authority in the impugned order. It may be useful to notice the relevant paragraphs of the impugned order which are as extracted below:

(Emphasis supplied)

We find no reasons to disagree with the Adjudicating Authority that the alleged imposition of ban by SEBI on the promoters of the SRA does not hold good because the Securities Appellate Tribunal had set aside the orders of the SEBI. The RP had also appointed M/s Mazars India LLP for conducting an independent due diligence of the SRA. This independent third-party entity in its report had confirmed that the promoters of the SRA had complied with the orders of SEBI and that the SRA was eligible to submit the resolution plan for the Corporate Debtor. Thus, in our considered view even on this count the Appellant has hopelessly failed to validate their contention of alleged irregularity.

More importantly, we find that the CoC has approved the resolution plan with 100% vote share and prior to the approval of the plan, the valuation exercise conducted by the registered valuers were also brought to the knowledge of the CoC. All these facts have been duly noted and considered by the Adjudicating Authority as may be seen at paras 33 and 34 of the impugned order which is as reproduced below:

It is the case of the Respondents that it is not for the Adjudicating Authority to consider or evaluate on merits the rationale underlying the commercial decision of the CoC. While considering a resolution plan under Section 31 of the IBC, the jurisdiction of the Adjudicating Authority is circumscribed by Section 30(2) of IBC and it cannot analyse or evaluate or sit on judgment over the commercial decision of the CoC. We do not find any plausible grounds to differ with the Respondents in the light of the judgement of the Hon’ble Supreme Court in Ngaitlang Dhar v. Panna Pragati Infrastructure Private Limited in CA No. 3665-3666 of 2020 wherein it held: -

(Emphasis supplied)

When the CoC has approved the Resolution Plan by 100% voting share after considering its feasibility and viability, such decision of CoC is a commercial decision. There can be no fetters on the commercial wisdom of the CoC. It is settled law that commercial wisdom of CoC in approving the Resolution Plan is not to be interfered in the exercise of jurisdiction of judicial review either by the Adjudicating Authority or by this Tribunal in the exercise of its appellate powers. Ultimately it is the commercial wisdom of the CoC which operates to approve what is to be the best resolution plan. The Adjudicating Authority with the limited powers of judicial review available to it cannot substitute its views with the commercial wisdom of the CoC. The Adjudicating Authority can reject the resolution plan only when there is non-compliance of Section 30(2) of IBC. There are no adequate grounds shown or material placed on record by the Appellant as to how the plan does not conform to Section 30(2) of IBC.

Having regard to the foregoing discussion, we are of the view that the Adjudicating Authority did not err in approving the resolution plan of the SRA. We are also of the considered view that the Adjudicating Authority did not commit any error in rejecting the interlocutory application of the Appellant objecting to the approval by the CoC of the resolution plan of the SRA. In result, the impugned order does not warrant any interference. Appeal being devoid of merit is dismissed. No order as to costs.