TaxTMI 
TaxTMI 
2020 (2) TMI 398
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....: 1. This Application is filed by the Dissenting Financial Creditor aggrieved by the Approval of Resolution plan by the Committee of Creditors (COC) who failed to maximize the assets of the Corporate Debtor (CD) as there is a strark contrast in the value of assets (both tangible & intangible) shown in the balance sheet of the CD for the financial year 2017-18 and the valuations arrived at by the two Registered Valuers appointed by the Resolution Professional during the CIRP process. 2. The valuation of the Plant & Machinery being Rs. 241.63 and Intangible assets being Rs. 205.65 crores as on 31.03.2018, was reduced by Rs. 200 crores under the head Plant & Machinery and value of Intangible assets was assigned as zero, as per the two Valuation Reports submitted by the Valuers. 3. The CIRP process of the CD spring into action on 03.04.2018, by order of Hon'ble Bench of NCLT. The Financial Creditors claimed Rs. 1073 crores under the Resolution Process. The COC meeting dated 26.12.2018 recorded the liquidation value of Rs. 111 crores after deducting the CIPR cost of Rs. 13 Lacs. The Resolution Plan of RA (Consisting of consortium of ARCIL, Shamroc....
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....s is Rs. 123 crores. 5. The Resolution plan of successful resolution applicant proposes that Rs. 80 crores will be invested towards sale of 'Bavla' business undertaking of 'INTAS' as and by way of 'Slump sale' which is totally against the letter &spirit of IBC and the Vapi Unit is being offered Rs. 60 crores. But infact, the Bavla unit as per the valuation report dated 02.01.2016 of Anmol Shikri Consultants Pvt. Ltd., was valued at Rs. 486.86 crores (Bavla) and Rs. 274(Vapi). 6. Both the plants at Vapi and Bavla are operative and since operating plant & machinery value cannot be so deteriorated by CIRP valuers. Only 6 plants in the International market for manufacturing Carbapenem exist worldwide and the unit of CD is one of them. Carbapenem is a complex technology and high growth product. There is no question of having such a low value for the plant & machinery and the Intangible assets could never have been valued at zero value. 7. One of the members of RA (being INTAS had expressed their intention to buy Bavla Unit for Rs. 150 crores saddled with all statutory dues/debts/out standings and now the value ascribed for both units being ....
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.... Liquid Value (Avg.): 25.93 Crs. FMV (Avg.): 44.20 Crs. 14. The extract of Minutes of meeting of COC dated 01.11.2018 wherein technical advise was sought regarding deterioration of value of ANDAS if the warning letters were not cleared. From COC minutes dated 19.10.2018 and 13.08.2018 state that members consented to make payment of USD 245600/- towards GDUFA fee to retain license for export to US & Europe for which license retained for export to 63 countries. Still the Intangible assets were not given any value. 15. There are several key factors for valuating pharmaceutical companies such as follows; a) Discounted cash flow b) Forward P/E Ratio c) Strategic Exit Factors d) Biosimilar v/s Generics e) Risk-Adjusted Net Present Value (NPV) 16. In a pharmaceutical company, if the Intangible assets are not valued, the entire valuation of the said pharmaceutical company will be drastically affected. 17. No proper explanation offered for the inordinate delay in submission of valuation reports of both CI....
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.... (c) the average of the two closest estimates of a value shall be considered the fair value or the liquidation value, as the case may be. (2) after the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form...." 6. Hence the valuation exercise was undertaken by the registered valuers in accordance with internationally accepted valuation standard after physical verification of inventory and fixed assets of the CD. After receipt of the resolution plans, the RP has to provide the fair value and liquidation value to COC. If two estimates are significantly different, the RP can appoint another registered valuer so that the average of the two closest estimates can be considered as fair liquidation value. 7. The role of RP is limited to share the values with COC members. The valuers to be appointed shall be registered valuers and regulated by IBBI as notified by the Code. 8. The COC ratified the appointment of two Valuers. M/s Rakesh Narula & co. has conducted valuation in more than 100 c....
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.... not a registered valuer. 13. The valuation by ICICI Securities is not a valuation report but a presentation to attract investor for the Company. 14. Information available online regarding acquisitions in Pharma space can never be determint of what should be the liquidation value of the company in CIRP. 15. Valuation is not exact science and based on estimates and perception of experts who are in the business of valuation. 16. It is incorrect to dismiss the reports of registered valuers. 17. The rectification of warning letters required a capex around Rs. 20 crores. 18. Only two Resolution Plans were received for CD. The liquidation value or fair value conducted by valuers was never revealed to the bidders (except Omkara ARC who was part of COC and had access to valuation reports. 19. The Minutes of COC dated 01.11.2018, 14.11.2018, 04.12.2018 & 24.12.2018 recorded the discussion of rationale of valuation, the bidders provided justification of providing a certain value to the CD based on their diligence and risk perception such as the market for carbepenem becoming very challenging and price of carbepenem having fallen.....
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....ets' under development which includes investment carried out towards ANDA and DMF approval. Therefore, it is not the value of the Intangible Asset which can be equated with the liquidation value. The COC had reviewed the valuation reports in their commercial wisdom. 13. The valuation is not exact science and the technical expertise cannot be challenged before the courts without strong evidence. Submissions of Successful Resolution Applicant: 1. Jurisdiction of the Tribunal under Sec.30(6), the plan as approved by COC has to be placed before the Tribunal for approval under Section 31 of the Code. 2. It is within the four corners of Sec.31 that this Hon'ble Tribunal exercises jurisdiction in deciding whether to approve or reject the plan. 3. Valuation of CD is dependent on the potential commercial profit/cash flow that can be earned by commercializing the products manufactured in that unit. The end products manufactured by the CD has seen a decline in commercial potential over the last few years due to increasing competition in the market, thus affecting pricing and ability of players to take market share. Hence the potential return on capital inve....
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.... was undertaken. The brief findings of the technical team of Intas are as follows; (a) all research and Development and Analytical Development activities have stopped at the Bavla unit; (b) several quality control instruments, stability chambers are under breakdown condition; (c) currently all sites of the Corporate Debtor are under FDA's warning letter. (d) Cephalosporins and Non-cephalosporins API units are in total shutdown condition and the utilities are very old and in a non- operational condition. (e) Bavla Unit needs changes as committed to MHRA (Medicinesand Healthcare regulatory Agency- UK) like modifications in filling line to add Glove ports, interlocking of doors and extension of LAF (Class A) in 2-3 areas. This will require a period of 12 months to restart the facility for manufacturing as the required modification is to be completed and requalification of the area, water systems, calibration, media fill is required to be undertaken. (f) Formulation facility in the Bavla unit was designed and executed by Biopharmex, Israel based company as Turnkey project. Project of approximately INR 4-5 crores is pending, therefor....
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....submitted by the Successful Resolution Applicant was commercially viable as: (i) the Successful Resolution Applicant is investing capex and working capital and hence return of such investments would only be by operating the facility by reviving it. (ii) The successful resolution Applicant has shared financial projections of 3 years to COC and Resolution Professional which justifies the cash flows and entire feasibility of the acquisition and this also covers the interest cost of ARCIL which is already taken into account. (iii) In case of Shamrock and ARCIL, Shamrock has provided required security as well as given personal guarantee which speaks about the positive revival and turnaround of the Corporate Debtor and the unit. (iv) Shamrock and Intas are already in the field of Pharmaceuticals and have experience and expertise to revive both the units. (v) Business projection for the next 3 years is given in detail and sets out of projections for the ongoing products in concern their sales, volumes etc., based on which the projections have been made and arrived at. These projections are in line with the existing assets on 'as is' basis as we....
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....inutes of the meeting held on 24.12.2018 record that it was only a draft valuation report. However, within an hour they agreed to handover the draft valuation report as final report despite not having any documents as sought for. 6. On the onehand the valuation report attributes nil value to the intangible assets of the CD, however, on the other hand the COC infuse money into the CD to renew his licensee. 7. The adjudicating authority while approving the Resolution plan under section 36 and 31 of the I and BC would have to satisfy itself that the Valuation repot prepared by the approved valuers were done after following the procedures set out in I and BC and the regulation therein. 8. The adjudicating authority cannot question the commercial wisdom of COC while approving the plan but the adjudicating authority has to come to an independent conclusion that the Resolution plan is not in violation in provisions of the IBC. 9. It is the duty of adjudicating authority to exercise the judicial powers and discretionary powers vested in it to call for any information as if may require to satisfy itself that any particular resolution plan is compliant wit....
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....intermediates of bulk drugs; d. Customers Approvals to source API and / or formulation from CDs; e. Market Penetration-as each country has different regulations for approval; Each component of above Soft (IPR) assets has an independent significant value, which should be given weightage and valueby the valuer; 7. The warning letters issued by the USFD authority on 28.09.2015 and 12.08.2016 is in respect of US market and no other foreign market. The CD is allowed to sell its products in the US market and 13 ANDA applications shall be cleared post curing of warning letters at a minuscule cost of Rs. 12-15 crores. 8. COC had appointed technical consultants Mr. Vijay L. Kriplani who advised them about the cost of curing. 9. In case of SDR process, E&Y External Consultant appointed by the banks' JLF (Joint Lenders' Forum) had mentioned Fair Value of Intangible Asset as Rs. 106 crores in its SDR Discussion Documents (Refer page no. 9) prepared for the banks. Hereto annexed and marked Exhibit "D" is SDR Discussion Document prepared by E and Y in February, 2016. The Valuation Evidence Valuation Report and Methods ....
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....ased on above details provided to us, in our opinion fair and liquidation value of intangibles of the company is NIL. Reports submitted by the Delta Valuers and Appraisers LLP Basis /Method of Valuation Intangible assets Intangible assets Fair Value (Rs) Liquidation Value (Rs) Intangible Assets - - Intangible assets under Development - - Total - - The intangible assets comprise of Technical Knowhow and Process knowhow amounting to Rs. 13.47 crores and R&Dcosts for molecules as Intangible assets under development amounting to Rs. 192.28 crores. However, the FV and LV have been considered as zero since the company has received a warning letter from USFDA authorities for its products and plants. The warning letter has kept approval of ANDAs on hold and has also adversely impacted the company's exports to regulatory markets. The USFDA authorities can issue IMPORT ALERT at any time due to noncompliance of WARNING LETTER. In such cases exports would stop instantly and USFDA approvals to plant and products will be affected for the next 3 to 4 years. In such a situation, it is not possible to make an assessment of comm....
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....iples and ratio cited in recent judgement of Hon'ble Supreme Court in In Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. (2019 SCC Online SC 1478) "Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar (supra). 43. However, Shri Sibal exhorted us to hold that K. Sashidhar (supra) missed a very vital provision of the Code which is contained in Section 60(5) of the Code. Section 60(5) reads as follows: "60. Adjudicating Authority for corporate persons xxx xxxxxx (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of- (a) any application or proceeding by or against the corporate debtor or corporate person; ....
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....decision to revive the corporate debtor, it must necessarily take into account these key features of the Code before it arrives at a commercial decision to pay off the dues of financial and operational creditors. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see 75 that the Committee of Creditors has ....
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....n issue IMPORT ALERT at any time due to noncompliance of the same. c. The applicant filed warning letters issued to CD and the warning letter contemplates as follows: The U.S. Food and Drug Administration (FDA) inspected your manufacturing facilities: Vapi, Plot 41/42, Phase 1 -GIOC District Valsad Pardi, from May 18-22, 2015; and Belva, 300 Village Kerala, Bavla, Kerala Nalsarovar Road, Ahmedabad District, from August 3-14, 2015. This warning letter summarizes significant deviations from current good manufacturing practice (CGMP) for active pharmaceutical ingredients (API). Because your methods, facilities, or controls for manufacturing, processing, packing, or holding do not conform to CGMP, your drugs are adulterated within the meaning of section 501 (a)(2)(B) of the Federal Food, Drug, and Cosmetic (FD&C) Act, 21 U.S.C. 351(a)(2)(B). We reviewed your firm's June 12, 2015, and August 30, 2015, responses (for Vapi and Bavla respectively) in detail and acknowledge receipt of your subsequent correspondence. Our investigators observed specific deviations including, but not limited to, the following. Vapi Facil....
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....e you do not have stability data to demonstrate that your API meets specifications throughout its expiry period. Bavla Facility (FEI: 3008117347) 1. Failure to adequately investigate and document out-of-specification results and implement appropriate corrective actions. Your firm routinely re-tested samples without documented justification and deleted analytical data. Our Inspection found that you did not adequately investigate failing or atypical results. Although you obtained failing results in 2014, you did not initiate and document investigations for those failing results until July 2015. In addition, the conclusions of your investigations lacked supporting data. Your firm's response a tributed all unauthorized retesting of API batches to the lack of adequate training of your analysts. 2. Failure to ensure that test procedures are scientifically sound and appropriate to ensure that your AP! conform to established standards of quality and/or purity. During the inspection, our investigator reviewed your growth promotion test procedures and on August 6, 2015, observed a growth promotion test failure of the (b)(4) tested on ....
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....etter are not intended as an all-inclusive list. You are responsible for investigating these deviations, for determining the causes, for preventing their recurrence, and for preventing other deviations in all your facilities. If you are considering an action that is likely to lead to a disruption in the supply of drugs produced at your facility, FDA requests that you contact CDER's Drug Shortages Staff immediately, at [email protected], so that FDA can work With you on the most effective way to bring your operations into compliance with the law. Contacting the Drug Shortages Staff also allows you to meet any obligations you may have to report discontinuances or interruptions in your drug manufacture under 21 U.S.C. 356C(b) and allows FDA to consider, as soon as possible, what actions, if any, may be needed to avoid shortages and protect the health Of patients who depend on your products. until you correct all deviations completely and we confirm your compliance with CGMP, FDA may withhold approval of any new application of supplements listing your firm as a drug manufacturer. Failure to currect these deviations may also results in FDA refusing admissio....
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.... letter so far had deteriorated the value of the ANDAs and the company so much. The chairman took note of the same. 3. COC meeting dated 04.12.2018, further observed that the valuation report has been received from the valuers. The COC members took note on the same and requested the chairman to share the reports with them. 4. The COC meeting on 24.12.2018 and 26.12.2018 has also discussed about the valuation update as follows: - "the Chairman apprised the members of the COC that the Final Signed copy of the valuation report of Rakesh Narula and Co. has been received and soft copy of the same is circulated to the COC members. He added that the discussion on the value of the Current Assets in the valuation report of Delta Valuers is pending. Hence, he had called the representative of Delta Valuers to discuss in the meeting of COC. The Chairman invited and greeted Mr. Kushal Merchant, Mr. M B Brahmeya and Mr. Das representatives of Delta Valuers to discuss the valuation of the Current Asset specially the Bailor- Bailee transaction. Representatives from Delta Valuers were present at the meeting by invitation to put forth the issues before th....
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.... the Applicant conceded that there is no element of fraud but only compares the value assigned to the intangible assets in the financial statement for the year 2017 & 2018 with the Information Memoranda and claims that this is an error apparent on the face of it. I conclude that the Warning letters issued by the USFDA is curable and entails the steps for compliance therein. Be that as it may, the reasoning of the Valuers for ascribing the nil value is absolutely untenable in the interest of maximizing the assets of the CD. The value of Intangible assets of a going concern making profits even during CIRP cannot be stripped of under the premise of warning letters. No legal rights of any of the parties is affected if the exercise of fresh valuation is carried out, at best would assist the better valuation of CD as a going concern, though there were only two Resolution applicants willing infuse funds and revive the CD. Though the valuers whose report is being questioned are not made parties to this application, I am entitled to look at the report and try to ascertain just what they are saying, in order to determine the extent to which they assist in the relevant debate. In view o....
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....ated April 8, 2014, June 5, 2014, September 15, 2014, and November 28, 2014. We note that they lack sufficient corrective actions Our inves igato: observed specific CGMP deviations during the inspection, including, but not limited to, the following. 1. Failure to document production and analytical testing activities at the time they are performed. During our inspection, we found that test results and other entries in the production records were not entered while batches were in production. for example. a. The investigate observed (b)(4) batch (b)(4) production on March 18, 2014. The stars and stop times and (b)(4) for Step #(b)(4) were not recorded or signed in the batch record contemporaneously.. For your (b)(4) products returned due to the presence of extraneous threads, the investigater found many inconsistencies in your reprocessing batch records. Specifically, operators signed batch records for periods when they were not in your facility, indicating these activities were documented by personnel who did not perform them. During the inspection, and in your written responses, your managers admed that the batch records were created after the manufa....
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....s to ensure that your laboratory instruments and systems a fully complant by January 15, 2015 In response to this letter, provide a copy of your system qualification to demonstrate that your electronic data systems prevent deletion and alteration of electronic data. Describe steps you will take (e.g, installing belte: systems c software) if your qualification efforts determine that the current systems infrasuucture does not assure adequate data integrity. Explain the Document 3 archival process your firm has impleniented to address these issues and how you will evaluate the effectiveness of these corrections. Provide a detailed summary of the steps taken to train your personnel on the proper use of computerized systems. 3. Failure to maintain complete data derived from all testing, and to ensure compliance with established specifications and standards. Because you discarded necessary chromatographic information such as integration parameters and injection sequences from test records, you relied on incomplete records to evaluate the quality of your APIs and to determine whether your APIs conformed with established specifications and standards. For example: ....
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....ping entered from outside. The investigator observed what appeared to be a bird's nest near the ceiling. On March 18, 2014, the investigator saw bird feces on a rack and on a bag of (b)(4) in the general raw material warehouse #2. On the same day, the investigator saw a lizard in the general raw material warehouse #1. Your firm did not have written procedures for pest control. According to your responses, you performed corrective actions or the facility. However, you did not include any assessment of potential damage to your products.. Proper building design and maintenance, including operator training in prescribed cleaning and maintenance procedures are required elements of your facility's operations. In response to this letter, provide details of your pest prevention and control program and provide the results of your review of the effects of the presence of pests in your facility on API quality. Summary The examples in this letter are serious CGMP deviations. Your quality system does not adequately ensure the accuracy and integrity of data generated at your facility to support the safety, effectiveness, and quality of the drug products you manufact....
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....u on the most effective way to hang your operations into compliance with the law. Contacting the Drug Shortages Staff also allows you to meet any obligations you may have to report discontinuances in your drug manufacturing under 21 .S.C. 356C(a)(1) FDA must consider, as soon as possible, what actions, any, may be needed to avoid shortages and protect the patiems who depend on your products. In appropriate cases, you may be able to take conective actor hot interrupting supply, or to shorten any interruation, thereby avoiding or limiting drug shortages. Within 15 working days of receipt of this letter, please notify this office in writing of the specific steps that you have taken to correct and prevent the recurrence of deviations you connoi corapiele conective actions within 15 working days, state the reason for the delay and the date by which you will have completed the corrections. If you no longer manufacture or distribute the APIs at issue, provide the dates and reasons you ceased production. Please dentify your response wah FEI # 3005202703. Send your realy to: Xiaohui Shen Consumer Safety Officer c/o Ortion of Drug Quality Office of M....