Union Bank of India Vs. Mr. Rajender Kumar Jain, RP of M/S Kudos Chemie Ltd. & Ors - “ Thus, what amount is to be paid to different classes or sub-classes of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.”

NCLAT (20.07.2022) in Union Bank of India Vs. Mr. Rajender Kumar Jain, RP of M/S Kudos Chemie Ltd. & Ors.[Comp. App. (AT) (Ins.) No. 665 of 2022] held that;

• “ Thus, what amount is to be paid to different classes or sub-classes of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.”

 

Excerpts of the order;

20.07.2022: Heard Learned Counsel for the Appellant.

 

# 2. This Appeal has been filed against the order dated 17.03.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, by which order the Application I.A No. 333 of 2021 filed by the Appellant- a Financial Creditor of the Corporate Debtor seeking following two directions has been rejected:-

• “i. To direct respondent No.1 to distribute an amount of Rs.17.26 Crores under the Resolution Plan Amount to the applicant as per option No.3 i.e. if CDR was never implemented and in accordance with Section 53 of the Code;

• ii. To pass any other order(s) as this Tribunal may deem fit in the given facts of the present case.”

 

# 3. Learned Counsel for the Appellant submits that the Resolution Professional has given four options for distribution of amounts to the Financial Creditors. He submits that the Appellant has opted for option 3 but in view of the fact that Appellant is a minority CoC member holding only 2.31% voting share, the Option-3 was voted out and CoC decided to make the payment as per Option-1 i.e. as per the claim accepted by the Resolution Professional. The Adjudicating Authority considered the Application of the Appellant and has rejected the same taking the view that CoC by majority has decided for distribution as per Option-1. In paragraph 11 of the order, all four options have been captured, which is to the following effect:-

• “11. Thereafter in 21st CoC Meeting dated 21.01.2021, the members of the Committee of Creditors deliberated upon the distribution of Resolution Plan amount in Agenda Item No. 21.04. On the request of the members of the Committee of Creditors. Respondent No.1 shared the consolidated sheet of distribution chart (Annexure A-8), wherein the Resolution Professional, made the calculations as per four different scenarios which are mentioned below:-

• 1) Plan amount as per claims accepted by RP;

• 2) Plan amount as per security interest by assuming WCTL and FITL as part of Term Loan;

• 3) Plan amount if CDR package was assumed to have not been implemented; and

• 4) Plan amount if CDR package was assumed to have been implemented.”

 

# 4. The objection was raised by the Appellant Bank and it wanted that distribution should be done as per the Option-3. The CoC by majority having taken decision to distribute the amount as per Option-1 by 97.61% vote, we see no reason to take a different view from one which has been taken by the Adjudicating Authority. The Adjudicating Authority in paragraph 40 has made following observations:-

• “40. Both these contentions of learned counsel for the applicant are not tenable because the distribution of the amount was made by the Committee of Creditors resting on total dues of voting share of individual creditors which is neither whimsical nor arbitrary in any manner. Although the applicant gave a dissenting vote for approval of the Plan, based on the reason that distribution of resolution fund was discriminatory against it and despite the plea that it was entitled to the equal share in regard to the distribution of the resolution fund on the value of the assets of the corporate debtor as security. However, the committee of creditors, deciding to go with option no.1 i.e. distribution of plan amount as per claims admitted, has approved the resolution plan by 97.61% votes.”

 

# 5. The decision of the CoC regarding the distribution of amount is in its commercial wisdom which we cannot question or be questioned by the Appellant. The Adjudicating Authority has rightly referred the judgment of the Hon’ble Supreme Court in “India Resurgence Arc. Pvt. Ltd. Vs. M/s. Amit Metaliks Ltd. & Anr.- Civil Appeal No. 1700 of 2021” where in paragraph 13.1, the Hon’ble Supreme Court has held that what amount is to be paid to different classes or sub-classes of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest. Paragraph 13.1 of the judgment is as follows:-

• “13.1. Thus, what amount is to be paid to different classes or sub-classes of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.”

 

# 6. The above judgment of the Hon’ble Supreme Court is fully attracted in the facts of the present case and we do not find any error in the order of the Adjudicating Authority rejecting the Application relying on the above judgment of the Hon’ble Supreme Court. There is no merit in the Appeal. The Appeal is dismissed.

 

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Sumat Kumar Gupta, RP, M/s Vallabh Textiles Company Ltd. Vs. M/s Vardhman Industries Ltd. - CIRP Regulation 12 does not lay down any specific embargo on a creditor who on having failed to satisfy the Resolution Professional with respect to the claims submitted by him under Regulation 12(1) from refiling his claim under Regulation 12(2) as long as it is done on or before the ninetieth day of the insolvency commencement date.

 NCLAT 27.07.2022) in Sumat Kumar Gupta, RP, M/s Vallabh Textiles Company Ltd. Vs. M/s Vardhman Industries Ltd. [Company Appeal (AT)(Insolvency) No. 762 of 2022] held that;

• It therefore does not stand to reason why any Financial Creditor who submits his claim under Regulation 12(1) within the stipulated time line but fails to satisfy the Resolution Professional can be denied the benefit of availing the extended time period available under Regulation 12(2) to substantiate his claim. 

• If this benefit is denied, it will disincentivize creditors from submitting claims under Regulations 12(1) as it gives them a shorter window of time to substantiate their claims thereby running the risk of their claim being disregarded for want of time.

• CIRP Regulation 12 does not lay down any specific embargo on a creditor who on having failed to satisfy the Resolution Professional with respect to the claims submitted by him under Regulation 12(1) from refiling his claim under Regulation 12(2) as long as it is done on or before the ninetieth day of the insolvency commencement date.

• Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr.’ Vs. Union of India & Ors. – Writ Petition (Civil) No. 99 of 2018 wherein it held that Resolution Professional has no adjudicatory power and that he is “really a facilitator of the resolution process, whose administrative functions are overseen by the CoC and by the Adjudicating Authority.”

• In view of the above, the Appellant/Resolution Professional by summarily rejecting the belated claims at his own level without presenting the complete facts to the CoC has misconstrued his role, duties, and responsibilities.

 

Excerpts of the order;

The present appeal, filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’) by the Appellant/Resolution Professional, arises out of order dated 24.05.2022 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, Chandigarh) in IA 568/2019 in CP (IB) No.391/Chd/Pb/2018. By the Impugned Order, the Adjudicating Authority directed the Appellant/Resolution Professional to reconsider and evaluate the claims of the Financial Creditor afresh; reconstitute the Committee of Creditors (‘CoC’ in short) for fresh Corporate Insolvency Resolution Process (‘CIRP’ in short) and, inter-alia, made certain observations against the Appellant/Resolution Professional on the manner in which he conducted the CIRP proceedings. The instant Appeal has been filed by the Appellant/Resolution Professional, in his personal capacity, with a prayer to expunge the said observations on the ground, that being adverse, it has the effect of damaging the reputation and dignity of the Appellant as Insolvency Professional.

 

# 2. The brief facts of the case, as stated and argued by the Appellant, is that he was appointed initially as Interim Resolution Professional (‘IRP’ in short) and later confirmed as Resolution Professional of the Corporate Debtor, M/s Vallabh Textiles Company Limited which was admitted for CIRP. It is further stated that the Appellant/Resolution Professional made public announcement inviting claims on 13.04.2019 with the last date of filing claims fixed as 26.04.2019. Following the public announcement, M/s Vardhman Industries Ltd. filed claim as Financial Creditor for Rs. 10,77,47,444/- (Rupees Ten crores seventy-seven lakhs forty-seven thousand and four hundred forty-four only) on 26.04.2019 in Form C. The Appellant/Resolution Professional thereafter, sent an email to the Financial Creditor on 01.05.2019 seeking certain additional details and documentation by way of account statement of the Corporate Debtor in the books of the Financial Creditor for the period 2007 to 2019. The Appellant/Resolution Professional has further submitted that as he was required to decide the claims within seven days from the last date of the receipt of claims as stipulated by Regulation 13 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as CIRP Regulations), and as the additional details sought for were not received from the Financial Creditor, he rejected the claim of the Financial Creditor on 02.05.2019. The Appellant/Resolution Professional submitted that the claim was rejected on three grounds viz. (i) that the claim was filed on the basis of old authorization; (ii) that the claim should have been filed through the Resolution Professional; and (iii) that the account statement attached with the claim was not sufficient to authenticate the claim amount.

 

# 3. It has also been admitted by the Appellant/Resolution Professional that the Financial Creditor thereafter re-submitted the claim on 24.05.2019 in Form C under Regulation 8 of CIRP Regulations. However, the said claim was not entertained by him and the same was duly communicated to the Financial Creditor on 04.06.2019 stating that since the earlier claim, submitted on 26.04.2019, within the period prescribed by the public announcement had already been rejected on 02.05.2019, no belated claim can be filed.

 

# 4. Aggrieved by the rejection of their claim, the Financial Creditor filed an application before the Adjudicating Authority seeking for directions to be issued to the Resolution Professional to admit his claim and/or to verify his claim. The Adjudicating Authority after hearing both the parties directed the Resolution Professional to reconsider the claims including evaluating the claim to be classified as Financial Creditor and to reconstitute the CoC and in the process had made certain observations against the Resolution Professional in the discharge of his duties. Aggrieved by the Impugned Order, the Learned Counsel for the Appellant/Resolution Professional, however, submits that he is challenging the Impugned Order only in respect of certain adverse remarks made against him by the Adjudicating Authority which deserve to be expunged.

 

# 5. The two paragraphs of the Impugned Order to which the Appellant/Resolution Professional has drawn the attention to, is reproduced below and the relevant portion prayed for being expunged is as emboldened hereunder :-

• “10. In the present case, the issue that falls for our consideration is whether the claims of the applicant have been properly verified before the rejection of the same by the Resolution Professional. To reiterate, the applicant has submitted the relevant copies of the audited accounts of Vardhman Industries Limited (Applicant) in respect of Vallabh Textiles Company Limited (Respondent). We have closely perused the financial statement annexed as Annexure A-8 and A-9 with the application. From the correspondence between the parties, it is clear that no serious effort was made by the Resolution Professional to classify the debts into financial and operational debts of the applicant. There is no denying the fact that the Resolution Professional needs documents and supporting evidence to decide on the nature of a claim for the purpose of admission of the same. The documents brought on record have not shown any kind of non-compliance by the applicant to any query raised by the Resolution professional in this regard”.

• xxx xxx xxx xxx

• “12. In the result of the aforementioned discussion, this Bench is of the view that the Resolution Professional has failed in his duty to analyze the evidence placed before him regarding the nature of transactions of the applicant reflected in the books of the corporate debtor and present the complete facts regarding the admissibility of the claims made by the applicant before the CoC. The Resolution Professional in the present case was duty-bound to verify these transactions and put the same before the CoC with the complete factual and legal position rather than reject it summarily. In view of the foregoing, this Bench directs the Resolution Professional to reconsider the claims made by the applicant with reference to the evidence already before him. He may call for additional evidence if required and decide in the light of the discussions in the foregoing paragraphs. Based on the evidence before him, he is directed to also evaluate the claim of the applicant to be classified as a financial creditor and to reconstitute the CoC with the applicant as a member. With the above said observations, CA No. 568/2019 is allowed and disposed of accordingly”.

 

# 6. We have duly considered the detailed arguments advanced by the Learned Counsel for the Appellant and perused the records carefully. Respondent did not file any counter-affidavit.

 

# 7. We find that the general purport of the remarks contained in paragraphs 10 and 12 of the Impugned Order are broadly intertwined. Put in a nutshell, the two observations contained in the Impugned Order as brought before us for our consideration are summed up hereunder: –

• (i) Whether serious efforts were made by the Appellant/Resolution Professional in properly verifying the claim submitted before him by the Financial Creditor including classifying the debts into financial and operational debts.

• (ii) Whether the Appellant/Resolution Professional had failed in his duty to analyse the evidence placed before him regarding the nature of transactions made by the Financial Creditor reflected in the books of Corporate Debtor and presenting the complete facts before the CoC on the admissibility of the claims of the Financial Creditor.

 

# 8. The tenability of the above observations made by the Adjudicating authority about the Appellant/Resolution Professional can be best appreciated if we put in perspective the objectives of the IBC and the role and responsibilities of Interim Resolution Professional/Resolution Professional in furthering these objectives. The objective of the IBC is, inter-alia, to promote entrepreneurship, maximize value of assets, make available credit, and balance the interest of all stakeholders, in a time bound manner. As a natural corollary thereto, the statutory framework governing CIRP seeks to put in place an arrangement which can resolve insolvency in a timely, efficient, transparent, predictable manner.

 

# 9. The Bankruptcy Law Reforms Committee Volume I (November 2015) in Chapter 4 under the title ‘Institutional Infrastructure’ has focused on the role and responsibilities of Resolution Professional and the relevant excerpts are as under: –

• “Insolvency professionals form a crucial pillar upon which rests the effective, timely functioning as well as credibility of the entire edifice of the insolvency and bankruptcy resolution process.”

• xxx xxx xxx xxx

• “In performing these tasks, an IP acts as an agent of the adjudicator. In a way the adjudicator depends on the specialized skills and expertise of the IPs to carry out these tasks in an efficient and professional manner. The role of the IPs is thus vital to the efficient operation of the Insolvency and Bankruptcy Resolution Process.”

• xxx xxx xxx

• “In the case of Insolvency Resolution, a failure of the process may result from two main sources: collusion between the parties and poor quality of the execution of the process itself. Hence, it is important that the professionals responsible for implementing the insolvency resolution process adhere to certain minimum standards so as to prevent failures of the process and enhance credibility of the systems as a whole.”

 

# 10. Coming to the factual matrix, we find that it is an undisputed fact that the Financial Creditor submitted his claims under Rule 8 of CIRP Regulations in Form C well within the prescribed time limit in terms of the public announcement made by Appellant/Resolution Professional on 13.04.2019. The last date of submission of claims, as provided in the public announcement was 26.04.2019 and the Financial Creditor had submitted on 26.04.2019 his claim details along with supporting documents as also found in the Appeal Paper Book.

 

# 11. It is also an undisputed fact, that the Resolution Professional is entitled to seek substantiation of claims under Regulation 10 of CIRP Regulations which reads as follows:

• “10. “Substantiation of claims – The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim.”

 

Invoking CIRP Regulation 10, the Appellant/Resolution Professional sent an email on 01.05.2019 seeking additional information with respect to account statements spanning over a period of 12 years from 2007 to 2019 from the Financial Creditor. We entirely agree that the Appellant/Resolution Professional was well within his rights to exercise the discretion of seeking additional information from the Financial Creditor. What, however, merits consideration is the reasonability on the part of the Appellant/Resolution Professional to have allowed only just twenty-four hours to the Financial Creditor to submit additional information spanning order a period of 12 years (2007-2019) and the propriety of his action of rejecting the claim of the Financial Creditor soon thereafter on 02.05.2019 after having allowed only one day’s time to furnish such additional information which entailed voluminous documentation.

 

# 12. The Learned Counsel for Appellant/Resolution Professional while making his arguments pointed out that the Financial Creditor while filing the claims on 26.04.2019 should have filed separate claims for financial and operational debt and that it was incumbent on the part of Financial Creditor to have separated and bifurcated the transactions on account of supply of goods and services from the loan related transactions. He also argued that there was a difference between the closing balance as on 31.03.2009 and the opening balance as on 01.04.2009 of nearly Rs.6 crores and that the transactions were not properly verified.

 

# 13. As to whether serious efforts were made by the Appellant/Resolution Professional to verify the claims submitted by the Financial Creditor, from the documents available on record, we are inclined to agree with the Adjudicating Authority that there is not much evidence to validate that the Appellant/ Resolution Professional undertook adequate and credible effort on his part to deep-dive into the account statements to distinguish between the operational and financial transactions but for sending a bald and bare four-line mail requisitioning additional information pertaining to 12-year period. The conduct of the Appellant/ Resolution Professional stands out in sharp contrast to that of the Financial Creditor whose bona-fide in providing information at every stage to substantiate his claim cannot be doubted. The Adjudicating Authority after making an in-depth examination was justified in holding that Appellant/ Resolution Professional made no serious efforts to verify the claims of the Financial Creditor.

 

# 14. We have further noted that consequent upon rejection of his claim on 02.05.2019, the Financial Creditor again refiled his claims on 24.05.2019 with requisite supporting documents which included:

• I. Form C – the Financial Creditor Claim of Vardhman Industries Limited.

• II. Authority Letter authorizing Anil Kumar Surya (CFO – Vardhman Industries Limited) to file the claim on behalf of Resolution Professional for Vardhman Industries Limited.

• III. Order of Hon’ble NCLT New Delhi dated January 17, 2018 appointing the undersigned as the Resolution Professional.

• IV. Account Statement of Vallabh Textiles Co. Ltd in the books of Vardhman Industries limited since the inception of transaction.

• V. Certificate of Incorporation and PAN Number of Vardhman Industries Limited.

 

# 15. We therefore take cognizance of the fact that, prima-facie, there is no negligence, or inaction or lack of bona-fide on the part of the Financial Creditor to submit claim with proof to the Resolution Professional both on 26.04.2019 and 24.05.2019. The Adjudicating Authority therefore cannot be faulted for coming to the conclusion that there is no evidence of non-compliance on the part of the Financial Creditor on both occasions when he submitted his claims.

 

# 16. The refiled claim dated 24.05.2019 was again rejected by Appellant/Resolution Professional on 04.06.2019 on the ground that since the claim submitted by Financial Creditor was already rejected earlier, he cannot file a belated claim again. The Appellant/Resolution Professional took the stand that Regulation 12(2) of CIRP Regulations can be availed for submission of claims only by such creditors who fail to submit claim with proof within the time stipulated in the public announcement. This brings before us the question whether the Appellant/Resolution Professional was correct in holding that Regulation 12(2) of CIRP Regulations places an embargo on resubmission of claims by such Financial Creditors who have earlier submitted their claims under CIRP Regulation 12(1) before last date mentioned in the public announcement but their claim was rejected for want of authentication or substantiation.

 

# 17. For better understanding, it would be desirable to examine CIRP Regulation 12 which is as reproduced below:

• “12. Submission of proof of claims-

• (1) Subject to sub-regulation (2), (emphasis added) a creditor shall submit claim with proof on or before the last date mentioned in the public announcement.

• (2) A creditor, who fails to submit claim with proof within the time stipulated in the public announcement may submit the claim with proof to the interim resolution professional or the resolution professional, as the case may be, on or before the ninetieth day of the insolvency commencement date.

• (3) Where the creditor in sub-regulation (2) is [a financial creditor under regulation 8], it shall be included in the committee from the date of admission of such claim:

• Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion.”

 

# 18. It is amply clear from a plain reading of the above CIRP Regulations that Regulation 12(1) is subject to Regulation 12(2) as expressed in the opening sentence of Rule 12(1). Furthermore, Regulation 12(2) clearly permits a creditor who has failed to submit his claim with proof within the stipulated time of the public announcement to avail extended time period to submit such claims on or before the ninetieth day of the insolvency commencement date. It therefore does not stand to reason why any Financial Creditor who submits his claim under Regulation 12(1) within the stipulated time line but fails to satisfy the Resolution Professional can be denied the benefit of availing the extended time period available under Regulation 12(2) to substantiate his claim. If this benefit is denied, it will disincentivize creditors from submitting claims under Regulations 12(1) as it gives them a shorter window of time to substantiate their claims thereby running the risk of their claim being disregarded for want of time.

 

# 19. Be that as it may, CIRP Regulation 12 does not lay down any specific embargo on a creditor who on having failed to satisfy the Resolution Professional with respect to the claims submitted by him under Regulation 12(1) from refiling his claim under Regulation 12(2) as long as it is done on or before the ninetieth day of the insolvency commencement date. CIRP is a largely creditor driven process and therefore a claim submitted by a creditor deserves to be handled with due care and seriousness to ensure successful resolution of insolvency. Thus, CIRP Regulations need to be viewed in a purposive manner so as to advance the cause of insolvency resolution while safeguarding the interest of all the stakeholders. The Appellant/Resolution Professional, therefore, ought not to have summarily rejected the claim refiled by the Financial Creditor on the stand-alone ground that his earlier claim under Regulation 12(1) having been rejected, he cannot file a belated claim. This narrow and pedantic interpretation of the CIRP Regulations 12 by the Appellant/Resolution Professional has stymied the bona-fide efforts on the part of the Financial Creditor to substantiate his claims.

 

# 20. Section 18 of the IBC lays down the various duties of the IRP in respect of handling claim proposals. Section 18(1)(b) lays down that IRP shall “receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15.” As regards the role of the Resolution Professional in this regard, Section 25(e) of the IBC lays down that he shall “maintain an updated list of claims.” The Resolution Professional while examining claims is therefore expected to act in a manner which inspires confidence in the Financial Creditor so as to ensure the credibility of the insolvency process. In the present matter, therefore, the question before us is therefore whether a Resolution Professional is competent to decide or reject the claims of the Financial Creditor by himself without presenting the complete facts before the CoC on the admissibility of the claims. This aspect has already been settled by the Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr.’ Vs. Union of India & Ors. – Writ Petition (Civil) No. 99 of 2018 wherein it held that Resolution Professional has no adjudicatory power and that he is “really a facilitator of the resolution process, whose administrative functions are overseen by the CoC and by the Adjudicating Authority.” The Resolution Professional has been vested with administrative as opposed to quasi-judicial power. In view of the above, the Appellant/Resolution Professional by summarily rejecting the belated claims at his own level without presenting the complete facts to the CoC has misconstrued his role, duties, and responsibilities.

 

# 21. The Resolution Professional is an important instrumentality in the insolvency resolution process and his role is crucial and critical to fulfill the objective of the IBC. It is therefore incumbent upon him to discharge his responsibilities with the highest standards of professional excellence, dexterity, integrity, rectitude, and good faith. The Adjudicating Authority based on the facts and documents presented before it, found lack of professionalism on part of the Appellant/Resolution Professional in analyzing the admissibility of claims before him. We find no reasons to disagree with the Adjudicating Authority and affirm the findings that there has been failure of duties on the part of the Appellant/Resolution Professional.

 

# 22. In view of the above discussions, facts, and circumstances, we are of the considered opinion that there are no convincing reasons to interfere with the Impugned Order. We are, therefore, unable to accept the contention of the Appellant that the adverse remarks made by the Adjudicating Authority in Paragraphs 10 and 12 of the Impugned Order be expunged. In the result, the appeal having no merit is dismissed.

 

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Kulwinder Singh Makhni, Suspended Director Vs. Mr. Sanjay Kumar Aggarwal, Liquidator - the copy of the valuation report needs to be shared with the applicant i.e. Member of Stakeholders’ Consultation Committee, as the same would be crucial in determining the reserve price of the asset of the corporate debtor.

NCLT Chandigarh (08.07.2022) in Kulwinder Singh Makhni, Suspended Director of M/s Punjab Basmati Rice Ltd. Vs. Mr. Sanjay Kumar Aggarwal, Liquidator of M/s Punjab Basmati Rice Ltd.  [IA No.46/2022 in CP (IB) No.340/Chd/Pb/2018 ] held that;

• This Bench holds that to enable a Member of Stakeholders’ Consultation Committee to meet the mandate under Regulations 31-A(1) and as laid down in 31-A(5), the copy of the valuation report needs to be shared with the applicant i.e. Member of Stakeholders’ Consultation Committee, as the same would be crucial in determining the reserve price of the asset of the corporate debtor. 

 

Excerpts of the order;

This is an application filed under Section 60(5) of the IBC, 2016. In the present application, Kulwinder Singh Makhni, Suspended Director of M/s Punjab Basmati Rice Ltd. is the applicant, and Mr. Sanjay Kumar Aggarwal, Liquidator of M/s Punjab Basmati Rice Ltd., is the respondent. 

 

# 2. In the present application, the applicant prays that the Liquidator may be directed to supply the copy of valuation reports submitted by respondent/Liquidator in pursuance of order dated 09.11.2021 passed by Hon’ble Adjudicating Authority in IA No.550/2021 to the applicant being a member of SCC, in accordance with Regulation 31A of LP Regulations. 

 

# 3. The brief, the facts as outlined in the application are that the Applicant has filed an IA No.471/2021 challenging the mode and manner of the sale in the e-auction sale notice dated 13.08.2021 issued by the Liquidator. The main objection of the Applicant is that the assets of the corporate debtor are highly undervalued, and the Applicant sought direction to get a fresh valuation of the assets of the corporate debtor from the appointed valuers as encroachment has been removed from the property. Thereafter, IA No.550/2021 has been filed by the Applicant seeking a stay of the e-auction of sale notice dated 23.10.2021, wherein the reserved price of the assets of the corporate debtor is fixed at Rs.23.25 Crores, including plant and machinery at Rs.11.50 Crores and all land and building at Rs.11.75 Crores. This Adjudicating Authority by order dated 09.11.2021 directed the Liquidator to conduct a fresh valuation of the complete land and building and deferred the e-auction, which was fixed for 10.11.2021. When the matter was heard on 06.12.2021, the respondent submitted that a compliance report had been filed by Diary No.00222/2015 dated 29.11.2021 in pursuance of the order dated 09.11.2021. However, the Applicant has not been supplied a copy of the valuation report conducted by the Liquidator from the two appointed valuers. 

 

# 3.1 It is submitted that the Applicant is a member of the Stakeholders Consultation Committee (SCC) and is entitled to a copy of valuation reports got conducted by Liquidator from two appointed valuers under the provisions of Regulation 31A(1) and 31A(5) of the IBBI (Liquidation Process) Regulations, 2016. Before proceeding further with e-auction, it is mandatory for the Liquidator to supply a copy of fresh valuation reports to the ex-Director (applicant) and other members of SCC. 

 

# 4. The Respondent/Liquidator, in his reply filed by Diary No.00602/01 dated 09.02.2022, has stated that there is no provision in the Code to challenge the decision of the Liquidator on valuations conducted during the CIRP period in terms of Regulation 35 of Liquidation Process Regulations. The Applicant has no locus standi to challenge the reserve price fixed for the sale of assets of the corporate debtor or to seek copies of the valuation reports. The purpose of valuation reports is not Res-Integra and has been settled by the Hon'ble Supreme Court. The Law is settled that valuation being a question of fact cannot be challenged. Answering respondent is conducting the liquidation process in accordance with provisions of the Code and underlying Regulations. It is further stated that the applicant participated in the Stakeholders Consultation Committee and cannot question the fixation of reserve price subsequently and that the time is of the essence of the Code. 

 

# 5. Subsequently, the Applicant has filed written submission by Diary No.01048/3 dated 30.05.2022, reiterating that non-disclosure of valuation reports to the applicant being SCC member and other members of SCC is violative of Regulation 31-A(1) and 31-A(5) of Liquidation Process Regulations. It is further stated that Regulation 31-A(5) of Liquidation Process Regulations clearly mandate that the Stakeholders' Consultation Committee shall have access to all the relevant records and information as may be required to provide advice to the Liquidator under Regulation 31-A(1) on the matters relating to sale under Regulation 32, including mode and manner of sale and fixing of reserve price etc. Reliance has been placed on the decisions in the following cases:- 

• 1. The Hon'ble Supreme Court in the case of Vijay Kumar Jain Versus Standard Chartered Bank & Ors. cited at 2019(2) Scale Page 352/2019 AIR (SC) 2477 in para 12. 

• 2. NCLT, Ahmedabad Bench in case of Hemant Shantilal Shah and Anr. Vs. Care Office Ltd. through Resolution Professional Vikas Jain and Ors. cited at (2022) ibclaw.in 316 NCLT decided on 31.03.2022. 

• 3. The Hon'ble Supreme Court in the case of MSR Leathers Versus S Palaniapp Anr. cited at 22103 (1) SCC Page 177 (para 29). 

 

# 6. Similarly, the Respondent/Liquidator has filed written submission by Diary No.00851/2 dated 27.05.2022, inter alia placing reliance on the decisions in the following cases:- 

• 1. The Hon'ble NCLT Delhi vide order dated 26.08.2019 in the matter of Oriental Bank of Commerce V. Shekhar Resorts Limited in C.A. 260-261/2016 in C.P. (IB) No.22 of 2018. 

• 2. The Hon'ble Supreme Court in the matter of Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh & Ors. on 22.01.2020. 

• 3. The Hon'ble Supreme Court in the matter of State Bank of India Vs. Accord Life Spec Private Limited through director & Ors. vide judgement dated 28.02.2020. 

• 4. The Hon'ble Supreme Court in the matter of Duncans Industries Limited Vs. State of U.P. & Ors. (AIR 2000 SC 355). 

• 5. Order dated 09.12.2020 passed by this Adjudicating Authority in the matter of Satnam Agri Products Limited in I.A. 389/2020 in CP (IB) No.124/Chd/Pb/2018 wherein it has been held that the ex-director cannot question the fixation of the reserve price. 

 

# 7. The learned counsels for the Applicant and respondent-Liquidator have also filed short submissions by Diary No.0060/3 dated 23.06.2022 and Diary No.00060/4 dated 23.06.2022 respectively, citing the Regulations and judicial decisions relied upon. Both the parties have mostly repeated the contentions mentioned in their earlier written submissions. 

 

# 8. We have gone through the arguments along with the submissions filed by all the parties and have perused the records carefully. 

 

# 9. In the present application, the issue for adjudication before this Bench is whether the Liquidator is mandated under the Code to share a copy of the valuation report with the Applicant being an ex-director, shareholder, guarantor of the corporate debtor and member of stakeholders' consultation committee. 

 

# 10. In this context, the relevant Regulation of IBBI (Liquidation Process) Regulations, as amended on 30.09.2021,are extracted below:- "Regulation 31-A Stakeholders' Consultation Committee (as amended up to 30.09.2021): 

• The Liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31, to advise him on the matters relating to - 

• (a) xxx xxx xxx xxx 

• (b) Sale under regulation 32, including the manner of sale, pre-bid qualification, reserve price, amount of earnest money deposit, and marketing strategy. 

• Provided that the decision(s) taken by the Liquidator prior to the constitution of consultation committee shall be placed before the consultation committee for information in its first meeting." 

• ……xx…xx…..xx……xx… 

• 5. Subject to the provisions of the Code and these regulations, representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the Liquidator under sub-regulation (1) 

• 6. xxx xxx xxx xxx (emphasis supplied) 

 

# 10.1 It is apparent from the above extracts from the Regulations that the Member of Stakeholders' Consultation Committee(SCC) shall have access to all relevant records and information as may be required to provide advice to Liquidator on matters relating to the sale, fixing of reserve price etc. For advising on matters of sale and fixing the reserve price of assets of the corporate debtor, the critical record is their valuation reports. It is not easy to contemplate how without any access to valuation reports, the SCC Member can effectively advise the Liquidator on matters of sale as envisaged under Section 31-A(1). Denying the member of the SCC access to the valuation reports and other relevant documents will only defeat the very object for which the provisions have been framed. In this context, a reference is made to the decision of the Hon'ble Supreme Court in the case of MSR Leathers (Supra), wherein it was held that “one of the salutary principles of interpretation of statutes is to adopt an interpretation which promotes and advances the object sought to be achieved by the legislation, in preference to an interpretation which defeats such object. This Court has, in a long line of decisions, recognised purposive interpretation as a sound principle for the courts to adopt while interpreting statutory provisions. In this decision, the Hon'ble Apex Court also referred to its decision in the case of New India Sugar Mills Ltd. Vs. CST (AIR) p. 1213, para 8) wherein the Court observed as under: 

• "8……It is a recognised rule of interpretation of statutes that the expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuate the object of the legislature. If an expression is susceptible of a narrow or technical meaning, as well as popular meaning, the court would be justified in assuming that the legislature used the expression in the sense which would carry out its object and reject that which renders the exercise of its power invalid." 

 

# 10.2 We are also aware of the decision of our Coordinate Bench of NCLT, Ahmedabad Bench, in the case of Hemant Shantilal Shah (Supra), which made the following observations:- 

• "In the present case it is the valuation report which is in question. Whether it can be shared by Resolution Professional with ex-directors, specially when the ex-management alleges and apprehends that properties of the corporate debtor are being valued and offered at throw away price. In our view, the ex-management is the appropriate concerned party to comment on the valuation of properties of corporate debtor. The corporate debtor is the body of Ex-management and they were in control and handling the same till CIRP initiation. It would be prejudicial if they are not even allowed to view the valuation and point out the shortfalls in valuation if any. The intent of the Code being maximization of value while insolvency resolution process, all concerned should be given access to the document which will be crucial for deciding the worth of the corporate debtor which is intended to be given new lease of life. There is no specific provision to not to share a copy of valuation report with ex-directors, we hold that in the interest of Justice, the copy of valuation report needs to be supplied to ex-directors, as already directed the Predecessor Bench.” 

 

# 10.3 This Bench also observes that the decisions mentioned in para 6 above relied upon by the respondent, do not advance his case as the facts involved in these cases are entirely different from the facts of the present case. The decision in the case of Oriental Bank of Commerce (Supra), deals with the CIRP process in which the non- cooperative suspended Board was held to be acting in a malfide manner and liquidation process was not involved.. Furthermore,there was no occasion for NCLAT to deal with the interpretation of Regulation 31-A of LP Regulations, 2016 in this order. Similarly, the issue involved in the Maharashtra Seamless Limited (Supra) is whether the resolution plan value has to meet the liquidation value and whether the commercial wisdom of CoC during CIRP can be interfered with by the Adjudicating Authority. In the case of Duncans Industries Limited (Supra), the issue of challenge of valuation arrived at for the purpose of stamp duty was before the writ court. Lastly, Satnam Agri Products Limited (Supra) does not directly deal with the issue of sharing of valuation reports with the Members of Stakeholders’ Consultation Committee. 

 

# 11. In view of the above discussions, this Bench holds that to enable a Member of Stakeholders’ Consultation Committee to meet the mandate under Regulations 31-A(1) and as laid down in 31-A(5), the copy of the valuation report needs to be shared with the applicant i.e. Member of Stakeholders’ Consultation Committee, as the same would be crucial in determining the reserve price of the asset of the corporate debtor. Regarding confidentiality of the document, the Liquidator can take an undertaking from the applicant to maintain the same as per his powers under Regulation 7(2)(h) of Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, read with paragraph 21 of First Schedule thereto. This could be in the form of a non-disclosure agreement in which Liquidator could be indemnified in case information was not kept strictly confidential. 

 

# 12. Consequently, IA No.46/2022 is allowed and accordingly stands disposed of.

 

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