Share valuation challenge rejected in liquidation proceedings under Regulation 21A

The NCLT Kolkata rejected applicants' challenge to share valuation in liquidation proceedings. The tribunal found that shares were properly valued at Rs. 9.21 crores (average fair value) by IBBI registered valuers, not the disputed Rs. 9 crores book value claimed by applicants. The book value of 77,500 shares was actually Rs. 54.85 lakhs, with liquidation value at Rs. 4.61 crores. Under Regulation 21A, since the secured creditor failed to discharge obligations within 30 days of liquidation commencement, shares automatically became part of the liquidation estate. The creditor was directed to surrender original share certificates to the liquidator within one week.

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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.

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