2024 (1) TMI 1253 - Tri - Companies Law

Liquidation order - HELD THAT - The concern of the applicants that the shares can be sold for around Rs. 45-50 crores whereas the Liquidator is putting up the shares at 9 crores which is the book value is not sustained. The book value of the 77500 shares are Rs. 54.85 lakhs. The average fair value as per IBBI Registered Valuers is Rs. 9.21 Crores and average liquidation value is Rs. 4.61 Crores. The shares have been put up for auction Rs. 9.21 Crores i.e. at the average fair value hence valuation of shares and quoting of price cannot be faulted. Regulation 21A of the Liquidation Regulation says that if the secured creditor has not discharged its obligations within 30 days from liquidation commencement date 06.04.2022 the shares will automatically form part of the Liquidation Estate - Alliance is directed to handover the certificates in original to the Liquidator within a week from the date of pronouncement of this order.

Summary

Issues Involved:
1. Legality of the e-auction sale of 77,500 shares of the Corporate Debtor in Alliance.
2. Compliance with Liquidation Process Regulations.
3. Allegations of undervaluation and fraud in the auction process.
4. Rights and obligations of secured creditors regarding security interest.
5. Timeliness and procedural compliance in liquidation.

Summary:

Issue 1: Legality of the e-auction sale of 77,500 shares of the Corporate Debtor in Alliance:
The Applicants argued that the e-auction notice for the sale of 77,500 shares was in violation of the proviso to regulation 32 of the Liquidation Process Regulations, 2016, as the security interest had not been relinquished to the liquidation estate. The Liquidator countered that the shares were no longer pledged and thus part of the liquidation estate. The Tribunal noted that the sale was conducted on an "as is where is" basis and directed Alliance to hand over the certificates in original to the Liquidator within a week.

Issue 2: Compliance with Liquidation Process Regulations:
The Applicants contended that the sale was in violation of Regulation 33(3) and that no proper valuation was done. The Liquidator argued that the valuation was conducted by IBBI registered valuers and the reserve price was set at the average fair value. The Tribunal found that the valuation and quoting of the price were in compliance with the regulations.

Issue 3: Allegations of undervaluation and fraud in the auction process:
The Applicants alleged that the sale was at an undervalue and that the auction was vitiated by fraud. The Liquidator and the highest bidder, Kalyankari Texfab Private Limited, refuted these claims, stating that the sale was conducted transparently and in accordance with the law. The Tribunal dismissed the allegations of undervaluation and fraud, noting that the sale process was proper and the highest bidder had participated knowing all the risks.

Issue 4: Rights and obligations of secured creditors regarding security interest:
The Tribunal emphasized Regulation 21A, which presumes the assets to be part of the liquidation estate if the secured creditor does not inform the Liquidator of its decision within 30 days from the liquidation commencement date. Alliance failed to comply with this provision, and thus the shares were deemed part of the liquidation estate.

Issue 5: Timeliness and procedural compliance in liquidation:
The Tribunal noted that the liquidation process should be completed within a year, and any delay caused by frivolous litigation was not acceptable. The Liquidator was directed to proceed with the sale and complete the process without further delay.

Conclusion:
The Tribunal dismissed the application seeking to stay the auction process and allowed the Liquidator to proceed with the sale, ensuring compliance with the Liquidation Process Regulations and addressing the concerns raised by the Applicants.