TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 398
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....enting 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, Shamrock and Intas) was approved by COC on 1.01.2019 and 72.25% majority....
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....ested 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 Rs. 80 crores. 8. The CD is a financially distressed company which has "going concern surplus' which has not been preserved at all as the busine....
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....f 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 CIRP valuers. Submissions of Resolution Professional: 1. The RP is not supporting any particular applicant, nor does he have anything against any other party to CIRP and is contesting the present MA on a limited issue of the allegations leveled against the RP. 2. Despite the valuation reports being shared well in advance, no member of COC inclu....
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....istered 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 companies and Delta valuers & appraisers LLP has conducted multiple Insolvency valuations. (a) There is no process specified in the CIRP Regulations on format and manner in which the valuation reports are to be received by the RP from the valuers. Before the 8th meeting of COC held on 19th October 2018, the valuers shared their reports in PDF form with the RP and this fact was duly intimated to the COC members during the 8th COC meeting held on 19th Octob....
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....fication 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. Submissions of Committee of Creditors (COC): 1. The COC is constituted under Sec.21 of the Code and comprises of all Financial creditors of CD. The COC is required to carry out decisions for working of CD through voting. 2. The most significant role of COC in Sec.30 in relation to voting on resolution under Sec30(2) requires COC to approve a plan by not less than 66% of voting share of financial creditors, after considering feasibility and viability. 3. COC is vested with the power to take decisions regarding the fate of a company undergoing CI....
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....ers 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 invested for any incoming investor has consequently declined. 4. The regulatory action by the drug authorities from developed markets has led to substantial loss in value of companies. Such actions impact existing sales and impacts further approvals. 5. The CD has filed Abbreviated New Drug Application (ANDA) in 201314 and are still awaiting approval from USFDA.The commercial potential of these drugs is limited. 6. USFDA had undertaken inspection of Bavla & Vapi units in March 2014 and thereafter issued a warning letters in 28.09.2015, there was re-inspection in 2015, which failed due to non-compliance. Second warning letter was issued in 2016. ....
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.... 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, therefore, Biopharmexhas blocked passwords of Building Management system and Process equipment. 11. Further, during the Diligence, there were certain observations which were made pertaining to the operation, land, sales of the Bavla unit which are as follows; (a) Normalized Working capital is not available, and the operating losses have to be funded by Intas to the tune of INR 25 crore, till the unit becomes fully operational and self-sustaining; (b) Additional capex of INR 30 crore was estimated by the Intas technical team to get the asset operational and able to supply to the regulated markets as pert GMP standards; (c) Out of the total Bavla land: - 10 % of the land has clear and marketable title; -37 % of the land has agricultural status; -53 % is under litigation....
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....ection 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 well as the Capex that will be invested in the unit are in line with the previous track record of the Corporate Debtor when the Corporate Debtor was doing well and hence these projections are very much possible, realistic and conservative. (vi) The successful Resolution Applicant plan ensures that the both units of the Corporate Debtor, i.e. Vapi and Bavla unit is revived and the business is maintained. Further, the jobs of the employees/ workmen in Vapi unit shall continue and the consenting employees /workman of Bavla Unit shall be transferred to Intas without any break or interruption in service and the same is specified in the said plan. 17. The applicant never raised any grievance pertaining to valuation or slump sale of Bavla unit during the COC meetings. 18. Intas is acquiring Bavla unit and that CD will execute business transfer unit in favor of Intas(BTA). The execution of BTA is beneficial for....
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....hority 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 with the provisions of the IBC. 10. There exists enough material on record to suggest that there is some amount of confusion as to the valuation of intangible assets of the CD and it cannot be prejudicial to any person / entity / stake holders if adjudicating authority exercises its discretion and jurisdiction to call for an independent valuers report in a sealed cover. Submissions of the Promoter: 1. The CD has two plants which are operative and the valuers have valued an entire Company's plant and machineries at Fair Market Value (Avg.) of Rs. 44 crores and Liquidation Value (Avg.) of Rs. 26 crores, which in the past valued by bank's (Joint Lender Form) appointed valuer consistently thrice (2013, 2015 and 2016) at Fair Market Value (Avg.) of Rs. 536 crores and Liquidation Value (Avg.) of Rs. 441 crores. 2. The present valuers may lack the expertise to value the Pharmaceutical plant for its tangible assets, technology approval, soft (IPR) assets etc. 3. The Carbapenem Sterile pla....
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.... Valuation Report and Methods Valuation report submitted by two registered valuers appointed by the Resolution Professional; Reports submitted by the Mr. Rakesh Narula and Company Current Assets; 1. The valuer has based their opinion on the information as available in peroxisomal financials as on 31.03.2018 and other details as provided by the management. The working valuation is tabulated as follows; Particulars Amount as per financials as on 31stMarch, 2018 Fair Value (Rs. Liquidation Value (Rs.) A. Intangible Assets 20,576.22 NIL NIL B. Non-current Investment 4.75 16.61 16.61 C. Long- Term Loans and advances 8,803.21 NIL NIL D. Other non-current assets 1,268.71 NIL NIL E. Inventories 3,564.98 611 550 F. Trade receivables 2,688.65 701.34 588.06 G. Cash and bank balances 337.27 94.36 94.36 H. Short term loans and advances 385.51 NIL NIL Total 37,629.3 1423.31 1249.03 Details of intangible assets provided financials as on 31st March, 2018 are as under; Sr. no. Particulars Amount as per financials as on 31st March, 2018 (Rs.) Realizable Value (Rs.) 1. Technical Know How 11.87 ....
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....dicial review and appoint an independent valuer to conduct fresh valuation of Intangible assets of CD? 2. Whether there is any error apparent on the face of valuation reports submitted by the two registered valuerscontrary to the accounted balance sheets of the CD for the year 2018? 1. Scope of Judicial Review The scope of judicial review is drawn from Sec.30, Sec.31 read with Sec.60(5)(c) and the ratio laid down by Hon'ble Supreme Court in its recent judgement in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. (2019 SCC Online SC 1478) Section 30: Submission of resolution plan: (6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority." Section 31 of the IBC as follows: 31. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, 3[including the Central Government, a....
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.... arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code." It will be noticed that the non-obstante clause of Section 60(5) speaks of any other law for the time being in force, which obviously cannot include the provisions of the Code itself. Secondly, Section 60(5)(c) is in the nature of a residuary jurisdiction vested in the NCLT so that the NCLT may decide all questions of law or fact arising out of or in relation to insolvency resolution or liquidation under the Code. Such residual jurisdiction does not in any manner impact Section 30(2) of the Code which circumscribes the jurisdiction of the Adjudicating Authority when it comes to the confirmation of a resolution plan, as has been mandated by Section 31(1) of the Code. A harmonious reading, therefore, of Section 31(1) and Section 60(5) of the Code would lead to the result that the residual jurisdiction of the NCLT under Section 60(5)(c) cannot, in any manner, whittle down Section 31(1) of the Code, by the investment of some discretionary or equity jurisdiction in the Adjudicating Authority outside Section 30(2) of the Code, when it comes ....
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....ers including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal." Therefore, upon conjoint reading of Sec.30, Sec.31 with Sec 60(5)(c) of IBC and the ratio laid down in the judgement cited supra, I am of the opinion that the adjudicating authority has the jurisdiction of judicial review and appoint an independent valuer to conduct fresh valuation of Intangible assets of CD. 2. Four essentials factors to be relied upon while considering whether the valuation of Intangible assets needs to be ordered: a. The balance sheet of the CD for the year 2017 and 2018. The accounted balance sheet for the CD for the year en....
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.... root cause of the failing impurity test results was an.(b)(4) during manufacturing, even though your own records indicated that this batch was manufactured at the same (b)(4) as other batches that had passing results and were released. Similarly for batch #(b)(4) you attribute e failing test result to a (b)(4) step, even though your own investigation report lacked evidence to demonstrate that this was the assignable cause for the failure. Your response acknowledges that your investigations into these and other out-of- specification (OOS) results are deficient, and indicates steps you have taken to improve your investigations. However you have not provided a corrective action and preventive action plan (CAPA) that adequately resolves the specific OOS results discussed above, nor have you demonstrated how your broader investigation procedure improvements will address similar root cause analysis deficiencies in the future. For more information about the proper handling of out-of-specification resifts and documentation of your investigations, please refer to FDA Guidance for Industry: Investigating Out-of-Specification POS) Test Results for Pharmaceutical Production at http:/....
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....growth promotion test failure. 3. Failure to maintain training records of employees involved in the manufacture of intermediates or API. Our investigator found training records contained numerous discrepancies that raise doubts regarding their authenticity. For example, the inspection documented that 10 of 1 1 training records contained identical handwritten responses. Our investigator also found incomplete training assessment forms for two employees. The forms indicated that the employees had not been evaluated as required in your procedures. yet the employees' training files stated that they had been evaluated as "very good ' for the skills in question. In response to this letter, provide a corrective action and preventive action plan to address your poor documentation practices end oversight of training activities. Include an updated training plan describing how you will ensure that all employees are adequately qualified to perform their assigned responsibilities in the manufacturing and laboratory operations. 4. Failure to properly keep buildings and facilities used in the manufacture of API in a clean condition. Among other observations, our investigato....
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....ecify what you have done since our inspection to correct your deviations and to prevent their recurrence. If you cannot complete corrective actions within 15 working days, state your reasons for delay and your schedule for completion. Send your electronic reply to [email protected] or mail your reply to: Rafael Arroyo, Compliance Officer Rebecca Parilla, Compliance Officer U.S. Food and Drug Administration White oak Building 51, Room 4359 10903 New Hampshire Ave. Silver spring, MD 20993 d. Observations Regarding COC Minutes of Meetings: 1. The minutes of the meeting of the COC dated 01.11.2018 have captured the following observations: "The members of the COC enquired whether ANDA submitted with USFDA has been considered while submitting a Resolution plan to which Mr. Rikin Sanghvi, replied that the company has filed for ANDA and approval is awaited and company has also received warning letters from USFDA, resolving warning letter will take time hence the approval of ANDA will get delayed till the resolution of warning letter. Further, he enquired whether the valuers have taken the aforesaid criteria with respect to receiving of war....
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....that the compliances with CGMP, FDA may withhold approval of any new applications or refusing admission of articles manufactured by CD at Bavla and Vapi units. No record has been placed that these bans were actually imposed and in the absence of the ban, the value of the Intangible assets cannot be zero. The warning letters were only pertaining to drugs export to US and the CD has been exporting drugs to other countries worldwide. It is not the case that CD is exporting the drugs manufactured only to US. The reasoning of the two registered valuers in assigning a NIL value to the intangible assets of CD is absolutely untenable. The Valuation exercise was conducted on certain assumptions that warning letters negate the value of such assets. There was no reasoning provided by the Valuers whether these warning letters prescribe the risk factors and are subject to certain remedy or curative measure/precautionary steps envisaged to be carried out by the proposed Resolution applicant. The Valuers has not referred to any method of valuation in their report, no comparison was drawn of valuing the intangible assets of other Pharmaceutical Companies particularly in relation to the Domestic an....