Tribunal Orders Fresh Valuation of Intangible Assets to Ensure Fair Assessment of Corporate Debtor's Value

The Tribunal ordered a fresh valuation of intangible assets in a case where a dissenting financial creditor challenged the approval of a Resolution Plan, citing discrepancies in asset valuations. The Tribunal emphasized the importance of maximizing assets and balancing stakeholders' interests, directing a new valuation to ensure a fair assessment of the Corporate Debtor's value. It was concluded that the adjudicating authority has the jurisdiction to appoint an independent valuer for fresh valuation, in accordance with relevant legal provisions and judicial precedents. The Resolution Professional was instructed to engage a new valuer to reassess the intangible assets within a specified timeframe.

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Issues Involved:
1. Whether fresh valuation of intangible assets can be ordered due to dissenting judgment.
2. Whether the Resolution Plan failed to maximize the assets of the Corporate Debtor (CD).
3. Whether the valuation process was conducted appropriately.
4. Whether the interests of all stakeholders were balanced.
5. Whether the adjudicating authority has the jurisdiction to appoint an independent valuer for fresh valuation.

Detailed Analysis:

1. Fresh Valuation of Intangible Assets:
The application was filed by a dissenting financial creditor who was aggrieved by the approval of the Resolution Plan by the Committee of Creditors (COC), citing a stark contrast in the value of assets shown in the balance sheet and the valuations by the appointed valuers. The Judicial Member ordered a fresh valuation, while the Technical Member dissented. The Tribunal concluded that the adjudicating authority has the jurisdiction of judicial review and can appoint an independent valuer to conduct fresh valuation of intangible assets, as per Section 60(5)(c) of the IBC and the ratio laid down in the judgment of the Hon’ble Supreme Court in the case of Essar Steel India Limited.

2. Maximization of Assets:
The dissenting financial creditor argued that the Resolution Plan failed to maximize the assets of the CD, resulting in a significant haircut for financial creditors and undervaluation of assets. The Tribunal noted that the valuation of intangible assets was reduced to zero due to USFDA warning letters, which was deemed untenable. The Tribunal emphasized that the value of intangible assets of a going concern making profits even during CIRP cannot be stripped under the premise of warning letters. Thus, the Tribunal ordered a fresh valuation to ensure better valuation of CD as a going concern.

3. Valuation Process:
The Resolution Professional (RP) and COC defended the valuation process, stating it was conducted in compliance with the Code and CIRP regulations, and no concerns were raised by COC members during the process. However, the Tribunal found that the valuation reports did not provide a proper explanation for assigning a nil value to intangible assets and lacked a critical assessment of risk due to warning letters. The Tribunal concluded that there was an error on the face of the valuation reports, necessitating a fresh valuation.

4. Interests of Stakeholders:
The dissenting financial creditor contended that the Resolution Plan did not balance the interests of all stakeholders, including operational creditors and employees. The Tribunal referred to the judgment in Essar Steel India Limited, which emphasized that the COC must consider maximizing the value of assets and balancing the interests of all stakeholders. The Tribunal found that the COC did not adequately address the valuation of intangible assets, impacting the interests of stakeholders. Therefore, a fresh valuation was ordered to ensure a fair assessment of the CD's value.

5. Jurisdiction of Adjudicating Authority:
The Tribunal concluded that it has the jurisdiction of judicial review and can appoint an independent valuer for fresh valuation of intangible assets, as per Section 60(5)(c) of the IBC and the ratio laid down in the judgment of the Hon’ble Supreme Court in Essar Steel India Limited. The Tribunal emphasized that judicial review is limited to ensuring that the COC has taken into account key features of the Code, such as maximizing the value of assets and balancing the interests of all stakeholders.

Conclusion:
The Tribunal ordered the Resolution Professional to appoint a fresh valuer with a limited scope of valuing the intangible assets considering international standards of valuation of a pharmaceutical company. The fresh valuation report is to be submitted within two weeks, and the COC is directed to reconsider the valuation submitted by the third valuer. The Miscellaneous Application was disposed of with this direction.

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