Imp. Rulings; Sharing of IM’s, Resolution Plan & Valuation Reports,

Imp. Rulings; Sharing of IM’s, Resolution Plan & Valuation Reports, 

Index;

A. Sharing of IM’s (Information Memorandum)

1. NCLAT (10.10.2023) in Vinay Kumar Singhal RP Vs. Mahesh Bajaj [Comp. App. (AT) (Ins) No. 645 of 2023 & I.A. No. 2602, 2141 of 2023, (2023) ibclaw.in 705 NCLAT]

B.  Sharing of Resolution Plan with BOD.

2. NCLT Hyderabad (2024.02.06) in Prasada Raju M.R.V Vs. Sri. Vamsi Kambhammettu, RP. [I.A. No. 78 of 2023 in I.A. No. 1468 of 2022, in CP (IB) No.682/07/ HDB/ 2018 ]

3. SCI (2019.01.31) in Vijay Kumar Jain vs Standard Chartered Bank  [CIVIL APPEAL NO.8430 OF 2018]

C. Sharing of Valuation Reports with BOD.

4. NCLT Ahmedabad-2 (30.03.2022) in Hemant Shantilal Shah s Anr.  Vs. Care Office Ltd.  [LA No. 434 of 2020 IN CP (IB) 602 of 2018 ]

D. Sharing of Valuation Reports with OC.

5. NCLAT (23.09.2022) in Rahul Khilnani Vs. Sh. Atul Kumar Jain Resolution Professional [Company Appeal (AT) (Insolvency) No. 586 of 2021]

E. Sharing of Valuation Reports with SCC - BOD

6. 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 ]

-------------------------------------------------

1. NCLAT (10.10.2023) in Vinay Kumar Singhal RP Vs. Mahesh Bajaj [Comp. App. (AT) (Ins) No. 645 of 2023 & I.A. No. 2602, 2141 of 2023, (2023) ibclaw.in 705 NCLAT] held that;

• From the aforesaid two provisions and the fact that the Code and Regulations are totally silent about the supply of the information memorandum to the participant, it has to be inferred that the legislature has made a provision for providing a copy of the information memorandum to the member of the CoC and the Resolution Applicant but not to the participant of the meeting of the CoC such like the present Respondent.

• Thus, in view of the aforesaid discussion, the question framed in the beginning is hereby answered to the effect that the Operational Creditor being a participant in the meeting of the CoC has no right to seek a copy of the information memorandum.

[ Link Synopsis ]

-----------------------------------------

2. NCLT Hyderabad (2024.02.06) in Prasada Raju M.R.V Vs. Sri. Vamsi Kambhammettu, RP. [I.A. No. 78 of 2023 in I.A. No. 1468 of 2022, in CP (IB) No.682/07/ HDB/ 2018 ] held that;

• It is contended that the CD being MSME, the Applicant, who was a promoter/director of the CD, was permitted to submit a Resolution Plan. Therefore, he was participating in CoC meeting in dual capacity as part of the suspended management and also as a Resolution Applicant.

• However, the role of the Applicant as ‘Resolution Applicant’ is circumscribed. Under section 30(5) of IBC, “the resolution applicant may attend the meeting of the committee of creditors in which resolution plan of the applicant is considered”. It clearly follows that a Resolution Applicant can attend CoC meeting only in respect of the plan that was submitted by him, and will have no access to the Resolution Plans submitted by others. 

• The cited case law of Vijay Kumar Jain Vs. Standard Chartered Bank also does not support the Applicant's argument. That case dealt with the eligibility of a former director who, being an unrelated financial creditor of the CD, sought access to CoC meetings and Resolution Plans submitted by Prospective Resolution Applicants. The Apex Court decision in that case affirmed the right of such individuals to attend CoC meetings and access Resolution Plans. However, that judgment will not apply to a suspended promoter/director who is also a Resolution Applicant. 

• In the present case, not only the Applicant is related to the CD, being a promoter/director, he is also a Resolution Applicant. The CD being the MSME, he was permitted to submit a Resolution Plan. However, he was rightly kept out by the CoC from the proceedings of examination and evaluation of the Resolution Plans submitted by other Resolution Applicants. 

• Clearly the ‘conflict of interest’ for the Applicant, who was part of the CoC in the dual capacity did not end with him being rejected as Resolution Applicant. His capacity to be an impartial observer of the CoC’s deliberations was compromised and his views on the Resolution Plan submitted by any other Resolution Applicant would necessarily have a potential of bias even after he was out of the race.

• Once the CoC has endorsed a Plan by requisite percentage of voting share, it is only for this Authority to adjudicate thereon and approve it under the provisions of IBC.

[ Link Synopsis ]

-----------------------------------------

3. SCI (2019.01.31) in Vijay Kumar Jain vs Standard Chartered Bank  [CIVIL APPEAL NO.8430 OF 2018] held that;   

• This statutory scheme, therefore, makes it clear that though the erstwhile Board of Directors are not members of the committee of creditors, yet, they have a right to participate in each and every meeting held by the committee of creditors, and also have a right to discuss along with members of the committee of creditors all resolution plans that are presented at such meetings under Section 25(2)(i).

• It is also important to note that every participant is entitled to a notice of every meeting of the committee of creditors. Such notice of meeting must contain an agenda of the meeting, together with the copies of all documents relevant for matters to be discussed and the issues to be voted upon at the meeting vide Regulation 21(3)(iii).

• Obviously, resolution plans are “matters to be discussed” at such meetings, and the erstwhile Board of Directors are “participants” who will discuss these issues. The expression “documents” is a wide expression which would certainly include resolution plans.

• Therefore, a combined reading of the Code as well as the Regulations leads to the conclusion that members of the erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of the committee of creditors, must be given a copy of such plans as part of “documents” that have to be furnished along with the notice of such meetings.

• As a result of the aforesaid discussion, the arguments of the respondents that “committee” and “participant” are used differently, which would lead to the result that resolution plans need not be furnished to the erstwhile members of the Board of Directors, must be rejected.

• Therefore, the contention that a director simplicitor would have the right to get documents as against a director who is a financial creditor is not an argument that is based on the proviso to Section 21(2), correctly read, as it refers only to a financial creditor who is a related party of the corporate debtor. For this reason, this argument also must be rejected.

[ Link Synopsis ]

--------------------------------------------------

4. NCLT Ahmedabad-2 (30.03.2022) in Hemant Shantilal Shah s Anr.  Vs. Care Office Ltd.  [LA No. 434 of 2020 IN CP (IB) 602 of 2018 ] held that;

• Also, under Regulation 38(1)(a), a resolution plan shall include a statement as to how it has dealt with the interest of all stakeholders, and under sub clause 3(a), a resolution plan shall demonstrate that it addresses the cause of default. This Regulation also, therefore, recognizes the vital interest of the erstwhile Board of Directors in a resolution plan together with the cause of default. 

• It is here that the erstwhile directors can represent to the committee of creditors that the cause of default is not due to the erstwhile management, but due to other factors which may be beyond their control, which have led to nonpayment of the debt. 

• Therefore, a combined reading of the Code as well as the Regulations leads to the conclusion that members of the erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of the committee of creditors, must be given a copy of such plans as part of "documents" that have to be furnished along with the notice of such meetings.

• As a result of the aforesaid discussion, the arguments of the respondents that "committee" and "participant" are used differently, which would lead to the result that resolution plans need not be furnished to the erstwhile members of the Board of Directors, must be rejected.

• Resolution plan is a highly confidential document but when such document is required to be given to the most affected parties being erstwhile members of the Board of Directors of the corporate debtor, then the valuation report in our view which is an important document having bearing onto the fate of corporate debtor must be supplied to ex-management. 

• There is no specific provision to not to share 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 by the Predecessor Bench.

• We are of the opinion that Resolution Professional shall provide a copy of the valuation report to the suspended management of the corporate debtor subject to an undertaking from members of the suspended management, to maintain confidentiality. 

• The source of this power is Regulation 7(2)(h) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, read with paragraph 21 of the First Schedule thereto. 

[ Link Synopsis ]

---------------------------------

5. NCLAT (23.09.2022) in Rahul Khilnani Vs. Sh. Atul Kumar Jain Resolution Professional [Company Appeal (AT) (Insolvency) No. 586 of 2021] held that;

• In fact, the confidentiality is to be maintained regarding the Fair Value and Liquidation Value lest it should cause any undue claim to itself or any third party. This Tribunal is of the earnest view that as per the provisions of the Code, the Appellants (Operational Creditors) are not required to know the Liquidation Value.

[ Link Synopsis ]

---------------------------------------

6. 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. 

[ Link Synopsis ]

-------------------------------------------

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.

 

----------------------------------------------