NCLAT dismissed the appeal against the Liquidator due to lack of merit and non-cooperation by the Appellant.
The National Company Law Appellate Tribunal 9NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra & Arun Baroka (Technical Members) was hearing an appeal and noted that the liquidation process, including the auction and price reductions, complied with the Insolvency and Bankruptcy Code, 2016 and relevant regulations. The Bench dismissed the appellant's claims due to lack of merit and non-cooperation, affirming the liquidator's adherence to legal requirements and market conditions.
The appeal was filed against the NCLT Allahabad Bench's order dated 22.11.2023 in I.A. No. 69 of 2023 and I.A. No. 277 of 2023 under Section 60(5) of the Insolvency and Bankruptcy Code, 2016. The case involved the Corporate Insolvency Resolution Process (CIRP) initiated by Jammu & Kashmir Bank Ltd. against Kushal International Limited, which transitioned to liquidation due to unfruitful CIRP outcomes. The CIRP commenced on 08.05.2018, and the Committee of Creditors (CoC) decided on liquidation on 12.10.2018, which was ordered on 28.02.2019. The Liquidator was appointed on 20.12.2021, with the first public notice issued on 04.06.2022.
The Appellant, holding 43% shares and being the Ex-Director, challenged multiple auctions, alleging assets were sold below fair value. Various IAs were filed to halt auctions and alter auction outcomes. The main concerns included violations of regulations in the sale process and improper reduction of reserve prices. The Liquidator questioned the appellant's locus standi and maintained that all actions were within IBC regulations. The Liquidator highlighted the appellant's non-cooperation and rejected One Time Settlement (OTS) proposals. The auction outcomes were defended as reflective of market conditions, and compliance with liquidation regulations was asserted.
The NCLAT assessed the adherence to liquidation regulations and the conduct of the liquidation process. The validity of the appellant's claims regarding reserve price reductions and auction procedures was evaluated. The primary issue was whether there were any violations of the liquidation regulations and the maintainability of the applications filed by the appellant.
According to the Liquidator, the Appellant’s claim that the Liquidator reduced the price by 32% was factually incorrect. The reduction adhered to the relevant regulations, specifically Clause 4A and Subclause 4B of Clause 1, Schedule-I of Regulation 33. The first auction on 04.06.2022 had a reserve price of Rs. 66.35 crores, which was reduced by 25% on 30.06.2022 and an additional 10% on 19.08.2022. Despite multiple reductions in reserve prices, the three auctions yielded no results.
The liquidation process followed the regulations, specifically Regulations 32, 34, and 36 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Two IBBI registered valuers were appointed, complying with Regulation 35. Initial auctions attempted to sell the corporate debtor as a going concern, and subsequent auctions adjusted the strategy based on market response and regulatory compliance.
Approval for conducting e-auction on a slump sale basis was obtained on 20.10.2022, with the reserve price fixed according to valuation reports. The realized value from the 10th auction was Rs. 29.41 crores, exceeding the reserve price of Rs. 16.41 crores. The Appellant and the ex-management were found to be non-cooperative during both the CIRP and liquidation processes, leading to multiple IAs intended to delay proceedings. The IBBI launched prosecution against the ex-management for non-compliance, and the Appellant was involved in fraudulent transactions. The Appellant's OTS proposals were consistently low, with the final offer being Rs. 4.5 crores, significantly less than the realized auction value.
The NCLAT concluded that there were no violations of the liquidation regulations. The realized auction value adequately covered the liabilities of financial creditors and provided surplus to shareholders. The Appellant’s appeal and associated interlocutory applications were dismissed due to lack of merit and non-cooperation from the ex-management. The Company Appeal (AT) (Insolvency) Nos. 105 and 57 of 2024 were dismissed, and all pending interlocutory applications were closed with no orders as to cost.
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