2024 (9) TMI 6 - AT - Insolvency and Bankruptcy

NCLAT upholds liquidator's auction sale of 77,500 Alliance Broadband shares despite undervaluation claims

NCLAT Principal Bench dismissed appellant's challenge to liquidator's auction sale of 77,500 shares in Alliance Broadband. Tribunal held auction was valid ... Auction sale of the shares - Appellant has right to challenge the auction of shares or not - submission which has been much pressed by the Appellant is that shares, which have been sold, have been sold undervalued, without proper valuation by the Liquidator and the shares have been sold only on the book value of the shares, whereas value of shares were much more - HELD THAT:- Challenge to right issue, issued by the Alliance Broadband is pending before the Adjudicating Authority, the challenge to right issue can have no effect on the auction sale of the shares, which shares were sold on ‘as is where is basis’. The submission of the Appellant that physical shares were not in possession of the Liquidator, hence, Liquidator ought not to have put the shares for auction. The Liquidator has also filed an Application seeking a direction to the Alliance Broadband to handover physical shares. The shares have become part of the liquidation estate as per operation of law. It is relevant to notice that Adjudicating Authority has already in paragraph 10 of the order passed on 12.01.2024 has directed Alliance Broadband to handover the Certificate in original to the Liquidator within a week. It has been pleaded on behalf of the Respondent that Alliance Broadband has already handed over the physical Certificate in original to the Liquidator, which in turn has been handed over to the Successful Auction Purchaser - there are no substance in the submission of the Appellant that auction sale is illegal on this ground. The Liquidator has already indicated in the sale notice that physical shares are not with the Liquidator and steps are being taken to acquire the physical shares. The Corporate Debtor being shareholder of the Alliance Broadband, which shares were put on auction sale by the Liquidator, consequent to the liquidation order, thus, no exception can be taken to the process adopted by the Liquidator in putting the shares for auction. The sale of 77,500 shares, held by the Corporate Debtor of the Alliance Broadband, which are sold through auction, were not undervalued and the same was done after valuation by the IBBI Registered Valuer and the shares were sold on much more than the book value of the shares. The challenge to right issue as filed by the Appellant in IA No. 847 of 2021, which is pending consideration, has no consequence on the auction sale held on 14.02.2023 - there are no error committed by the Adjudicating Authority in order dated 12.01.2024 rejecting IA No.334 (KB) 2023 filed by the Appellant. There are no merit in the Appeal(s) filed by the Appellant(s) - appeal dismissed. Issues Involved:1. Delay in filing the appeals.2. Validity of the liquidation process and e-auction of shares.3. Valuation and sale of shares held by the Corporate Debtor.4. Right issues and their impact on share value.5. Possession and transfer of physical share certificates.6. Appellant's right to challenge the auction process.Detailed Analysis:1. Delay in Filing the Appeals:Interlocutory Application Nos. 2504 and 2507 of 2024 were filed to condone the delay of 3 days and 14 days, respectively, in filing the appeals. The Tribunal found sufficient cause and condoned the delays.2. Validity of the Liquidation Process and E-Auction of Shares:The appeals were filed against the common order dated 12.01.2024 by the NCLT, Kolkata, which rejected IA No.334 of 2023 (filed by the Appellant) and allowed IA No.497 of 2023 (filed by the Liquidator). The Appellant, a Suspended Director of the Corporate Debtor, challenged the liquidation process and the subsequent e-auction of 77,500 equity shares. The Tribunal noted that the liquidation order was previously upheld by both the Tribunal and the Hon'ble Supreme Court.3. Valuation and Sale of Shares Held by the Corporate Debtor:The Appellant argued that the shares were sold undervalued without proper valuation. The Liquidator had fixed the reserve price based on the IBBI Registered Valuer's report, which valued the shares at Rs.9.21 crores (average fair value) and Rs.4.61 crores (average liquidation value). The shares were sold for Rs.9.61 crores, higher than the reserve price. The Tribunal found no error in the valuation process, noting that the book value of the shares was only Rs.54.85 lakhs.4. Right Issues and Their Impact on Share Value:The Appellant contended that the right issues issued by Alliance Broadband on 30.09.2019 and 07.09.2021 reduced the shareholding of the Corporate Debtor. The Tribunal observed that the right issues were already under challenge in separate proceedings and had no bearing on the auction sale conducted on an 'as is where is' basis. The auction sale price of Rs.1240 per share was higher than the right issue price of Rs.1155 per share.5. Possession and Transfer of Physical Share Certificates:The Appellant argued that the Liquidator could not sell the shares without physical possession. The Tribunal noted that the Adjudicating Authority had directed Alliance Broadband to hand over the physical share certificates to the Liquidator, which was subsequently done. The shares were then handed over to the Successful Auction Purchaser.6. Appellant's Right to Challenge the Auction Process:The Liquidator and the Successful Auction Purchaser contended that the Appellant, as a Suspended Director, had no right to challenge the auction process. The Tribunal agreed, stating that the Appellant had consistently tried to obstruct the liquidation process. The auction sale was conducted transparently, and the shares were sold at a fair value based on registered valuation.Conclusion:The Tribunal dismissed the appeals, finding no merit in the Appellant's arguments. The auction sale of the shares was upheld as valid and properly conducted. The orders of the Adjudicating Authority rejecting IA No.334 of 2023 and allowing IA No.497 of 2023 were affirmed. Both appeals were dismissed with no order as to costs.