Valuation discrepancies lead to plan rejection. Average value to determine payments. Adherence to regulations crucial.

The tribunal set aside the resolution plan due to discrepancies in the valuation process. The third valuation was deemed unjustified, and the tribunal directed to consider the average of the first two valuations for creditor payments. The importance of adhering to regulations in the valuation process was emphasized. The failure to consider a forensic audit report and pending applications involving significant amounts impacted the resolution plan. The Committee of Creditors' approval based on flawed valuation was criticized. The tribunal ordered the revision of payments based on the average valuation and disposal of pending applications within two months, with parties bearing their own costs.

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Issues Involved:
1. Validity of the third valuation of liquidation value.
2. Adherence to the Insolvency and Bankruptcy Code (IBC) and CIRP Regulations in the valuation process.
3. Impact of the forensic audit report on the resolution plan.
4. Consideration of pending applications involving recovery of significant amounts.
5. Commercial wisdom of the Committee of Creditors (CoC) in approving the resolution plan.

Issue-wise Detailed Analysis:

1. Validity of the Third Valuation of Liquidation Value:
The third valuation report was challenged on the grounds that it was not conducted according to the stipulated procedure in the CIRP Regulations. The first two valuations, conducted by M/s. Jagdish Mistry and M/s. Parag Seth, estimated the liquidation values at Rs. 126.30 crores and Rs. 121.01 crores respectively. The third valuation estimated the liquidation value significantly lower at Rs. 52.69 crores. The tribunal found that the third valuation was not justified and was significantly different from the first two valuations. The tribunal concluded that the third valuation should be discarded, and the average of the first two valuations (Rs. 123.66 crores) should be considered for determining the payments to creditors and stakeholders.

2. Adherence to the Insolvency and Bankruptcy Code (IBC) and CIRP Regulations in the Valuation Process:
The tribunal noted that the appointment of registered valuers and the process of obtaining valuations should strictly follow Regulations 27 and 35 of the CIRP Regulations. The CoC's decision to obtain a third valuation without following the stipulated procedure was found to be improper. The tribunal emphasized the importance of adhering to the regulations to ensure the accuracy and fairness of the valuation process, which forms the basis for the resolution plan and payments to creditors.

3. Impact of the Forensic Audit Report on the Resolution Plan:
The forensic audit report, which highlighted several irregularities, was not presented before the Adjudicating Authority. The tribunal found that the forensic audit report, available on 20.1.2021, should have been considered before approving the resolution plan. The report could have potentially impacted the resolution plan by revealing additional assets or irregularities that needed to be addressed, thereby affecting the payments to creditors and stakeholders.

4. Consideration of Pending Applications Involving Recovery of Significant Amounts:
Three pending applications (CA Nos. 235/2018, 236/2018, and 237/2018) involving claims totaling approximately Rs. 85 crores were not appropriately adjudicated by the Adjudicating Authority. The tribunal noted that these applications should have been decided before finalizing the resolution plan, as their outcomes could have significantly impacted the resolution plan's structure and payments to creditors.

5. Commercial Wisdom of the Committee of Creditors (CoC) in Approving the Resolution Plan:
The tribunal acknowledged the importance of the CoC's commercial wisdom in approving the resolution plan. However, it emphasized that the CoC's decisions must be based on accurate and fair valuations and comply with the IBC's provisions. The tribunal found that the CoC's approval of the resolution plan, based on the flawed third valuation, was not in line with the IBC's requirements.

Conclusion:
The tribunal set aside the impugned order and the resolution plan to the extent it related to the allocation of payments to stakeholders and creditors. It directed the Successful Resolution Applicant (SRA) to revise the payments based on the average liquidation value of Rs. 123.66 crores and seek approval from the CoC within two months. The tribunal also directed the Adjudicating Authority to dispose of the pending applications within the same period and consider any additional amounts recovered in the revised payments. The appeals were disposed of with these directions, and the parties were to bear their own costs.

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