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 despite appellant's claims of undervaluation and liquidator's initial lack of physical share certificates. Court found shares were properly valued by IBBI registered valuer and sold above book value on "as is where is" basis. Liquidator's authority to auction shares as part of liquidation estate was upheld, and adjudicating authority's direction for share certificate handover was deemed sufficient. Pending right issue challenge had no bearing on completed auction sale.

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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.

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