NCLT directs IBBI, lenders to investigate into the affairs of Lotus Auto Engineering – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/auto/auto-components/nclt-directs-ibbi-lenders-to-investigate-into-the-affairs-of-lotus-auto-engineering/articleshow/79956117.cms

SynopsisThe development is likely to set a precedent as an order to investigate into the conduct of the Resolution Professional (RP) and the Committee of Creditors (CoC) of the company to ascertain whether they have done their duty well.

MUMBAI: The bankruptcy court has asked the Insolvency & Bankruptcy Board of India (IBBI) and the CMD of Oriental Bank of Commerce to investigate into the drastic fall in the valuation of New-Delhi based Lotus Auto Engineering Ltd between the time of the Corporate Insolvency Resolution Process (CIRP) to liquidation.

The development is likely to set a precedent as an order to investigate into the conduct of the Resolution Professional (RP) and the Committee of Creditors (CoC) of the company to ascertain whether they have done their duty well.

In the matter, the RP had approached the Delhi-bench of the National Company Law Tribunal (NCLT) to seek the extension of 90 days for the liquidation of the company as going concern. When the tribunal inquired about the value of the resolution plans and reserve price of the company to sell as going concern, the lawyers for the liquidator informed the tribunal that those prices were about Rs 100 crore and Rs 40 crore respectively.

“No doubt it is in the realm of the CoC to approve or reject the plan, it is also in the realm of liquidator to determine the value of the asset based on the valuation come before him, but when such huge variation has come with regards to the value of the asset, the liquidator should have made an inquiry,” observed the bench of BSV Prakash Kumar and Hemant Kumar Sarangi. “We don’t think liquidator made any such verification to ascertain the correct value of the asset. Looking at the variation with regard to the value of the asset during the CIRP period and during the liquidation, we have asked a circle value and market value of the land, to which the counsel has stated that the circle value is more than the market value.

The tribunal observed that during the CIRP, the RP had informed that the company has about 20-acre land which values Rs 50 crore and the plant and machinery is valued Rs 50 crore. Assuming the value of the company has come down due to pandemic Covid, would it come down more than 50% within a year is beyond tribunal’s comprehension.

“By seeing the huge variations in values, and the way in which the CoC failing to approve the plan valued double to the liquidation value and looking at the liquidator setting up the reserved price too low,” observed the tribunal in its order of December 15. “We are of the view that the inquiry is necessary to find out whether or not the RP and CoC fairly done their duties during the CIRP thereafter whether or not this liquidator has made any effort to ascertain the real value of the asset after the values are shown at abysmally low as against the valuations made during the CIRP.”

Oriental Bank of Commerce is now merged with the Punjab National Bank along with United Bank of India.

The tribunal has allowed the petition of the liquidator for the extension of liquidation period for 90 days from December 10, 2020. However, in its 3-page order, the tribunal has directed that the liquidator can’t sell assets before the reports come from the IBBI and the respective bank.

The tribunal has asked both IBBI and the bank to submit the report within 15 days and has posted the case on January 4 for further hearing.

“One of the foremost objectives of the IBC is the maximization of the value of Corporate Debtor. Upon substantial reduction in the value of Corporate Debtor at the point of liquidation, Adjudicating Authority has raised doubts whether RP & CoC has fairly done duties during the course of CIRP or not, especially when CoC is supreme decision-making authority,” said Paras Savla, partner at audit and consulting firm KPB and Associates. “This decision may go long way in placing onerous responsibility on the CoC.”

The Oriental Bank of Commerce had approached the NCLT against Lotus Auto Engineering Ltd in 2018 for the default of over Rs 202 crore. Subsequently, the tribunal had admitted the company for under the bankruptcy laws and had appointed Ashok Kumar Gulla, Partner of RBSA advisors as IRP of the company. Subsequently, the lenders had appointed him as liquidator as well.

As per the company’s website, it is manufacturing parts for auto companies including Maruti Suzuki India, Cummins Inc, BorgWarner, Brakes India, Mushashi, Honda and Multimatic among others.

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