2025 (8) TMI 1074 - AT - IBC

CoC resolution approval upheld; Regulation 35 third valuer's report valid for liquidation value under Section 30(2)(b)

Central Bank of India Versus Bijendra Kumar Jha & Ors.

NCLAT upheld the CoC's approval of the resolution plan and dismissed the appeal. The Tribunal held the Adjudicating Authority correctly appointed a third ... Appointement of third registered valuer - computation of the value of the Corporate Debtor as computed in the earlier two valuation reports - Regulation 35 of the CIRP Regulations - HELD THAT:- From the fact which has been brought on the record, it is clear that the Resolution Plan was approved by the CoC on 31.03.2023. The Appellant- Central Bank of India which have 11.83% voting share did not vote in favour of the plan. Appellant- Central Bank of India is only Dissenting Financial Creditor. A Dissenting Financial Creditor is entitled for amount as per Section 30(2) (b), thus, as a Dissenting Financial Creditor, Appellant can claim amount as per Section 30(2)(b) and the liquidation value of the Corporate Debtor becomes relevant for finding out the minimum amount which is to be paid to the Dissenting Financial Creditor. It was on the objection raised by the Appellant to the valuation reports which were earlier obtained that Adjudicating Authority on 21.01.2025 directed for appointment of third valuer. Regulation 35 of the “IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016” (“CIRP Regulation”) provides for appointment of registered valuers. The third valuer report is higher in the fair value as well as in the liquidation value as compared with the first and second valuer. Counsel for the Appellant has contended that the third valuation report has not valued the assets of the Corporate Debtor which were earlier valued by the first valuer. Counsel for the Appellant for reference has referred to third valuation report which according to the Appellant has not valued the working flats handover to KDMC and value of working flats handover to Barter. It is submitted that the third valuer has not taken into consideration the aforesaid two assets, the valuation report by third valuer is liable to be rejected and does not depict the correct assessment of the value. From the statement made by third valuer, it is clear that the MoU and allotment letter for 66 units was noticed by third valuer. It is clear that against the outstanding amount to be paid to various contractors involved in the construction the Flats have been given in lieu of the outstanding payments which is clearly noticed above in the report of the third valuer. The above was reason given by third valuer that due to above reason, the above flats are not valued in the value of the Corporate Debtor. There are no infirmity in the said observations of the third valuer, when the said units were given in the lieu of outstanding payments to be paid to them by the Corporate Debtor, the Corporate Debtor was not to receive any amount of the said units and addition of the value of the units in the value of the Corporate Debtor was not found acceptable by the third valuer. The above approach by the third valuer cannot be said to be perverse or unacceptable. The present is a case where CoC in its commercial wisdom has approved the Resolution Plan. The valuation report as required by Regulation 35 of the CIRP Regulations is shared with all members of the CoC. All members of the CoC have deliberated on the valuation report and approved the plan. As held by the Hon’ble Supreme Court in K. Sashidhar v. Indian Overseas Bank & Ors. [2019 (2) TMI 1043 - SUPREME COURT], the commercial wisdom of the CoC in approving the Resolution Plan is not to be interfered with in exercise of judicial review by the Adjudicating Authority or by this Tribunal. There was no error in the process of obtaining valuation report and Regulation 35 of the CIRP Regulations was followed by the Resolution Professional in obtaining two valuation reports and even third valuation report was obtained under the orders of the Adjudicating Authority. The mere fact that Appellant is not satisfied with the valuation report given by third valuer cannot be a ground to interfere with the commercial wisdom of the CoC approving the Resolution Plan. As noted above, Appellant is a dissenting Financial Creditor who has not approved the plan. A dissenting financial creditor cannot be allowed to achieve indirectly which he could not achieve directly, despite he has not voted for the plan, the plan has been approved with requisite majority. The third valuation report which has been obtained by the order of the Adjudicating Authority is relevant for determining the liquidation value which is relevant for determining pay out to which Appellant is entitled as per Section 30(2). Two proximate liquidation value i.e. liquidation value has to be taken as per Regulation 35 and there being three valuation reports, the first and the third valuation report being proximate, the average of two closest estimate of the value need to be taken i.e. average of two closest estimate i.e. report of first valuer and third valuer for the liquidation value. There is no substance in the submissions of the Appellant in challenging the impugned orders dated 21.01.2025 and 25.03.2025. There are no grounds made out to interfere with the approval of the Resolution Plan which is based on approval by the CoC in exercise of its commercial wisdom. There is no merit in either of the Appeals. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority correctly directed appointment of a third registered valuer under Regulation 35 upon objection to the first two valuation reports and whether that direction was legally sustainable. 2. Whether the third valuation report, which excluded certain units (barter flats and KDMC flats) from valuation on account of set-off against contractors' dues, was vitiated by failure to value assets and therefore liable to be rejected. 3. Whether a dissenting secured financial creditor may, after a resolution plan is approved by the Committee of Creditors (CoC) and by the Adjudicating Authority, challenge valuation to defeat or unwind the commercial wisdom of the CoC. 4. Whether the Adjudicating Authority and this Tribunal may interfere with CoC's commercial wisdom in approving a resolution plan, including assessment of fair value and liquidation value under Regulation 35 and Section 30(2)(b). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of appointment of third valuer under Regulation 35 Legal framework: Regulation 35 of the CIRP Regulations provides mechanism for determination of fair value and liquidation value by two registered valuers, and permits appointment of a third registered valuer where the two estimates are significantly different or upon proposal by CoC; the average of two closest estimates is to be taken. Precedent treatment: The Court relied on principles endorsing that valuation processes undertaken in accordance with Regulations 27 and 35 are to be respected and that valuers are experts whose reports are not lightly disturbed. Interpretation and reasoning: The Adjudicating Authority directed appointment of a third valuer after objection to the two initial valuations; no illegality or procedural infirmity in appointment of the third valuer was pointed out. The third valuer was appointed pursuant to the statutory regime and the direction was expressly within the power conferred by Regulation 35. Ratio vs. Obiter: Ratio - appointment of third valuer under Regulation 35 was appropriate where objection was raised and no procedural defect was shown; the tribunal upheld that such appointment falls squarely within regulatory mandate. Conclusion: The direction to appoint a third registered valuer was legally sustainable and not vitiated by error. Issue 2 - Validity of third valuer's exclusion of barter flats and KDMC flats from valuation Legal framework: Valuation must reflect assets that are beneficial to the corporate debtor as at the relevant valuation date; Regulation 35 requires valuers to compute fair value and liquidation value in accordance with internationally accepted valuation standards after due verification. Precedent treatment: The Court reiterated that valuation reports based on relevant material are not to be interfered with and that the tribunal cannot substitute its view for expert valuers. Interpretation and reasoning: The third valuer noted MOUs and allotment letters showing 66 barter flats were allotted to contractors by way of set-off against outstanding dues; since the corporate debtor would not receive proceeds from those units, the valuer excluded them from the corporate debtor's asset value. The Court found this approach reasonable and not perverse, as inclusion would double count assets not monetarily available to the corporate debtor. Ratio vs. Obiter: Ratio - exclusion of assets given in lieu of contractor dues from valuation is permissible where supporting documents demonstrate set-off and absence of monetary benefit to the corporate debtor. Conclusion: The third valuer's treatment of barter flats (and similar assets) was based on relevant material and not susceptible to rejection on the ground that those units were not valued. Issue 3 - Entitlement of dissenting secured financial creditor to challenge valuation after plan approval Legal framework: Section 30(2)(b) entitles a dissenting financial creditor to receive at least the amount it would receive in liquidation; liquidation value is therefore relevant to quantification of payout to dissenting creditors. Precedent treatment: Authorities emphasise deference to CoC's commercial wisdom (K. Sashidhar principle) and limit judicial interference with valuation where regulations are followed and valuers' reports are provided to CoC. Interpretation and reasoning: The CoC approved the plan with requisite majority; the dissenting creditor had avenue to object which resulted in appointment of a third valuer. The dissenting creditor cannot, after having participated and after concession recorded regarding setting aside a disputed amount, be permitted to nullify the commercial decision by re-litigating valuation in appellate proceedings. The third valuer's report, together with proximate earlier report(s), provides the requisite basis for determining liquidation value for payout calculations. Ratio vs. Obiter: Ratio - a dissenting financial creditor cannot use post-approval challenges to valuation as a means to overturn CoC's approved plan where valuation process complied with regulatory requirements and the creditor's objections were considered and addressed. Conclusion: The dissenting secured financial creditor was not entitled to upset the CoC's approval by re-challenging valuation after the statutory process (including appointment of third valuer) was followed; Section 30(2)(b) remedies are to be determined on the basis of proximate valuation reports as mandated by Regulation 35. Issue 4 - Scope for judicial interference with CoC's commercial wisdom and selection of liquidation value Legal framework: Courts exercise limited judicial review over CoC's commercial decisions; Regulation 35 prescribes taking the average of two closest estimates where three valuations exist; the adjudicating authority must ensure compliance with statutory process but should not substitute its assessment for commercial decisions. Precedent treatment: Reliance on decisions holding that valuation processes compliant with regulations and shared with CoC do not warrant interference and that CoC's commercial wisdom is sacrosanct except where mala fides, non-compliance or perversity is shown. Interpretation and reasoning: The two closest liquidation values (first valuer and third valuer) were proximate and their average is to be taken for liquidation value; the record showed valuation reports were shared with CoC, objections were considered, and the Adjudicating Authority independently examined the process before approving the plan. No material non-compliance, perversity, or illegality in valuation process was demonstrated to justify interference. Ratio vs. Obiter: Ratio - where Regulation 35 procedures are followed and CoC approves a plan after deliberation on valuation reports, courts should not interfere with the commercial wisdom of the CoC; liquidation value in presence of three reports is to be the average of the two closest estimates. Conclusion: Judicial interference with CoC's decision was unwarranted; the Adjudicating Authority correctly applied the regulatory scheme by recognizing proximate valuations and approving the plan subject to valuation-derived payouts for dissenting creditors. Overall Conclusion The appointment of the third valuer, the third valuer's methodology in excluding barter flats given as set-off, the CoC's approval of the resolution plan, and the Adjudicating Authority's decision to approve the plan after considering valuation reports were all found lawful and in conformity with Regulation 35 and Section 30(2); no ground for interference with the commercial wisdom of the CoC or with the impugned orders was established.