TaxTMI 
TaxTMI 
2025 (5) TMI 840
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.... "RHCHM") by way of public auction in enforcement of the arbitral award dated 29.04.2016. 2. The auction was conducted on 21.12.2024 in which Fortis Healthcare Limited, (hereafter, referred to as 'FHL'), the auction purchaser was the sole bidder that participated in the auction and offered a bid price of Rs 200 Crores, to purchase the trade mark/brand "Fortis". 3. Pending confirmation of auction sale by this court, the RHCHM ("Objector") has filed its objections to the sale and has sought to dissuade the court from confirming the sale, alleging substantial undervaluation of the brand Fortis. 4. This order deals with the objections raised by the Objector to the purchase of the Trade Mark by FHL, for the price, which according to the Objector, is not a fair value of the asset. 5. Noticeably, RHCHM has not objected to the sale per se, but has restricted the challenge to the valuation. RHCHM has quoted the order dated 29.10.2024 to submit, the order, even though it had directed the sale of the trade mark Fortis by way of public auction, enabled the RHCHM to object to the valuation, and advised the court to decide the objections, if any, raised regarding the valuation of the....
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.... alleged to have valued the brand on the basis of restrictive mandate of the DH. (vi) RHCHM has submitted, that the valuer should have made its own assessment and known that royalty rate agreed to in an expired license agreement, could not have been made the basis of valuation, which depressed the actual and fair value of the asset. (vii) RHCHM has relied upon two reports i.e. a report dated 13.09.2017 by KPMG, where the trade mark is valued at Rs 650-750 Crores and another valuation report dated 05.12.2022, by Transique Valuation Advisers Pvt. Ltd., valuing the trade mark at Rs. 854-1205 Crores. (viii) RHCHM would argue that the two valuation reports filed by it, adopt the correct valuation methodology. It is argued that FHL has reported a healthy improvement of its EBITDA between the years 2017 to 2022, which should have been reflected in the valuation of the brand. With healthier EBITDA, the brand would command a higher royalty than @ 0.25% of the revenue, assumed in the valuation report relied upon by the DH. (ix) RHCHM has further submitted that the FHL is aware of the actual brand value since it has been using the brand "Fortis" for running....
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....the loan payable to FHL and FHSL. In effect, the hypothecated IP asset is lost in auction, and RHCHM is unable to use the sale proceeds to liquidate its debt. (xv) According to RHCHM, FHL has a serious conflict of interest in acquiring the brand Fortis, in a public auction in these execution proceedings. (xvi) Objector has further argued that in the Loan Agreement between FHL and the group companies of the Objector, there is a provision for impairment of security, wherein if the value of the charged asset falls below the loan amount, FHL could change the charge from floating charge to fixed charge. According to the Objector, FHL has not claimed impairment of security, which is a proof that the value of the brand Fortis has not eroded below the loan amount of Rs 490 Crores. (xvii) RHCHM had filed an application, registered as E.A No 1525 of 2023 seeking a valuation of the brand "Fortis "by a court appointed valuer and a direction to FHL to pay the outstanding license fee. This application is pending adjudication. Pending order on valuation by court in the said application, auction conducted is improper, since there was no bench mark or reserve price set in....
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....iscussed here. 12. Curiously, brand Fortis is already being used by FHL since 2015 on the basis of a license agreement dated 07.10.2015 between RHC Holdings Ltd and FHL, whereby the brand was licensed to FHL. Later, RHC Holdings Ltd assigned the brand to the Objector, its subsidiary, in the year 2017. Upon assignment, Objector became the licensor and FHL became the licensee of the brand Fortis. 13. Contemporaneously, in the year 2017, FHL advanced an aggregate loan of Rs 494 Crores approximately to one BHC Healthcare Pvt Ltd (BHC for short)-which is the holding company of the Objector. Being the holding company of the Objector, BHC claims to control the ownership of brand Fortis. In the loan agreements, shares held by BHC in the Objector company were pledged in favour of FHL as a security for the loans, on the basis of which FHL claims encumbrance on the brand Fortis. Even the Objector in its objections has admitted to FHL's charge on the brand Fortis and has objected to the purchase of security by FHL in auction. 14. FHL has filed a suit C.S (Comm) No 468/2019 titled as M/s Fortis Hospitals Limited vs. M/s Best Healthcare Private Limited & Others, against the BHC and two ....
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.... large outstanding loan amount of Rs 500 Crores approximately, which it claims is secured by shares pledged by the borrower held in the Objector Company. Objector and FHL are already engaged in seriously contested claims and counter claims against each other. This litigation precedes the order dated 29.10.2024. The dispute regarding the brand 'Fortis' definitely adversely impacts its valuation. This adverse circumstance is not engineered by DH or FHL's for manipulating the price at the auction but pre-exists the auction ordered on 29.10.2024. 20. It is not too improbable to assume that with prior encumbrance on the brand, and existing disputes around it, it is unlikely for the brand to attract buyers. This possibly explains the absence of any participants in the auction other than FHL. Certainly, FHL cannot be faulted for lack of participation of prospective buyers at the auction. Given the circumstances, the brand does not seem to have any market. 21. The other objection regarding the alleged conflict of interest that the FHL suffers from in acquiring the very brand that it is holding as security, it will be sufficient to say, it is for the court dealing with the suit filed ....
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....It is precisely to resolve this valuation dispute that the court deemed fit to opt for public auction for price discovery. According to this court, there is no infirmity in the sale proclamation notice by consciously omitting to set a reserve price for the auction. 25. Looking at the two valuation reports cited by the Objector, it can't be concluded that they accurately estimate the brands value. The reports do not capture the circumstances under which the auction is held and the distress that the brand has been under due to litigation around it. KPMG report is dated 2017, when there were no disputes around the ownership of the brand Fortis. The claim made by FHL on the brand on the basis of charge created under the loan agreement was not in existence. The valuation is made based on general prospects of the health industry and financial performance of FHL. Projections have been made assuming no change in circumstance either in the financial performance of FHL or surrounding circumstances. However, since the report in 2017, serious disputes have arisen between the parties concerning the ownership of the brand. The assumption made in the report has turned out to be otherwise rende....
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....ion, must be assumed to be the fair value of the brand at the time of auction, unless fraught with material irregularities. The auction is meant to give finality to the valuation disputes between the parties. Price discovery through auction is a tried, tested and legally recognisable method. 32. An auction conducted in terms of the sale proclamation notice must be honoured unless the auction itself is manipulated by interested parties. As stated above, there is no reason to believe that the auction was manipulated by the DH or auction purchaser to manipulate the price of the asset. 33. For this reason, reference to valuation reports by the Objector is of no avail once the court has chosen to adopt price discovery through public auction. Although, the court in its order dated 29.10.2024 permitted the Objector to raise objections regarding valuation, if any, however, since the court deemed it fit to adopt public auction as the means of price discovery, the objections to valuation need to be necessarily confined to any manipulation, if practiced in the auction to artificially control the price. 34. For the reasons stated above the auction has taken place according to the sale....
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.... if the allegations regarding the valuation are valid before confirming the sale. 39. In Varghese v. Jewel Rock Hire Purchase Kuries (P) Limited, 2018 SCC OnLine Ker 1728, the court was examining the allegation of fraud related to auction. There was an allegation of rigging of auction between the decree holder and auction purchaser. Also, auction purchaser did not deposit the bid price within 15 days of the auction which was held to be in violation of Order XXI Rule 84 of CPC. It was on these specific allegations that the court refused to confirm the auction. However, in the present case, there is no fraud alleged between the DH and auction purchaser to rig the auction to prevent other bidders from participation. As discussed above, a mere circumstantial advantage enjoyed by a party in auction does not qualify as fraud or manipulation of auction. The ratio laid down in the judgment is very much beyond debate but the facts on hand are distinguished. 40. In Rajiv Kumar Jindal v. BCI Staff Colony Residential Welfare Assn., 2023 SCC OnLine SC 507, the court was dealing with an auction conducted under SICA 1985, where under there was a specific provision for obtaining a valuation ....
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....the ground that the auction purchaser was not willing to pay in accordance with the payment schedule laid down in the notice of sale. Even the valuation report relied upon was found to be suspicious since it failed to include the value of the land. Like other citations, this judgment too is applicable for general propositions of law but doesn't apply to facts of the case. 45. In Desh Bandhu Gupta vs. N.L. Anand, (1994) 1 SCC 131, the Court did not confirm the sale since it was found that no notice for settlement of sale proclamation terms was issued to the Judgment Debtor. The court found the auction to be in violation of Order 21 Rule 66 (2) (e). The applicability of the judgment to the facts of the present case is not made out. 46. In Navalkha & Sons v. Ramanya Das, (1969) 3 SCC 537, the court did not confirm the sale because from the facts it appeared that the auction was conducted in a manner that it was not a public auction but confined to two participants by design. In the present case, there is no allegation to the auction being manipulated to ensure single bidder participation. The only allegation is that publication in a newspaper with a wider circulation would have ....
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....espectfully disagree with the FHL. Under Section 92 of the CGST Act, where the estate of a taxable person is in control of the Court of Wards, Administrator General, the Official Trustee or any receiver or manager who manages the business under an order of the court, tax payable could be recovered from such person. There is a fundamentally incorrect assumption that the Fortis trade mark is in custody of a court appointed receiver or is in the custody of this court or court auctioneer. The court has only appointed an officer to conduct the public auction for the sale of asset in execution. Court auctioneer is not a manager contemplated under Section 92 tasked with a duty to manage the business of Objector. 53. There is no parity of judicial powers and authority of managers mentioned in Section 92 and that of Court Auctioneer. For this reason, Section 92 has no applicability in the present case. 54. In view thereof, auctioneer can't be made liable under Section 92 to pay GST to the authorities and the liability remains that of the seller, or buyer, as the case may be under the GST Act and Rules. This Court is not competent to decide the issues of GST liability on the sale, much....