New Delhi, The National Company Law Appellate Tribunal (NCLAT) has dismissed appeals against the sale of Sristi Hospitality through insolvency and refused to review its valuation, saying the resolution plan has already been accepted by the Committee of Creditors (CoC).
Rejecting the allegations of undervaluation of the asset by the suspended board (former promoters) of the hospital, the insolvency appellate tribunal said: “We are of the view that once the CoC is satisfied with the valuation and has approved the resolution plan, such allegations raised by ex-promoters of the corporate debtor cannot be entertained.”
The Mumbai-bench of the National Company Law Tribunal (NCLT), on July 12, 2024, approved the resolution plan of a consortium of Admas Industries, Subh Ashish Exim Pvt Ltd and Amit Jatia, Hardcastle Restaurants, in which they had proposed an investment of Rs 32.41 crore.
The former promoters moved to NCLAT, where they filed two appeals challenging the valuation for the Vile Parle, Mumbai, a prime-location-based property housing several restaurants, permit rooms, and other commercial activities.
Santosh R Shetty, suspended director of the board of Sristi Hospitality, said earlier valuations (2017 and 2020) clearly established a much higher fair market value, which was up to Rs 76.72 crore, and alleged that the valuation obtained during the insolvency process was manipulated to enable the consortium to acquire the prime property at a throwaway price.
He further alleged that Hardcastle Restaurant, the master franchisee for McDonald’s in west and south India, was operating a quick service restaurant (QSR) of the American multinational fast food restaurant chain. Shetty alleged collusion between the resolution professional and the consortium and was also denied the opportunity to submit a superior competing plan.
However, the appellate tribunal rejected his appeals and said only valuations conducted by IBBI-registered valuers appointed after the commencement of the CIRP (corporate insolvency resolution process) are relevant, and that pre-insolvency valuations have no bearing on the process.
“The commercial wisdom of the Committee of Creditors (CoC) is non-justiciable… neither the NCLT nor the NCLAT has jurisdiction to reverse the commercial decision of the CoC,” the tribunal observed, citing the Supreme Court’s ruling in K Sashidhar versus Indian Overseas Bank.
If the CoC disagrees with a valuation, it has the power to direct a fresh valuation.
“If the CoC accepts the valuation, that decision is final for the purposes of CIRP and cannot be interfered with by the Adjudicating Authority (NCLT) or even this Appellate Tribunal, or appellate authorities only on grounds of commercial inadequacy,” it said.
NCLAT also observed that during the hearing, it was brought to the notice that the bids approved by NCLT on July 12, 2024, have been fully implemented.
It also held that “no material irregularity in the exercise of powers by the Resolution Professional has been established”.
“We hold that the approved Resolution Plan does not suffer from any violation of the mandatory requirements of Section 30(2) of the Code. The CoC exercised its commercial wisdom in approving the Plan at the negotiated consideration. This Appellate Tribunal, exercising appellate jurisdiction under Section 61(3) of the Code, cannot sit as a court of appeal over the commercial wisdom of the CoC or substitute its judgment for that of the collective financial creditors,” it said.
CIRP against Sristi Hospitality was initiated in February 2023 following a plea by Saraswat Co-operative Bank over an unpaid loan of over Rs 28 crore.
