NCLT Orders Fresh Valuation of Neptune Developers' 'Project Swarajya' Amidst Discrepancy Claims by Central Bank

Mumbai, January 21, 2025 – The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Ms. Lakshmi Gurung (Member Judicial) and Sh. Charanjeet Singh Gulati (Member Technical), has partly allowed an application by Central Bank of India, directing the Committee of Creditors (CoC) of Neptune Developers Limited to appoint a third valuer for its 'Project Swarajya'. The decision came in response to significant discrepancies alleged by the bank concerning the valuation of the project, a key asset in the ongoing Corporate Insolvency Resolution Process (CIRP) of Neptune Developers.

Case Background: A Dissenting Creditor's Challenge

Central Bank of India, a financial creditor with an 11.83% voting share in the CoC and holding an exclusive charge over 'Project Swarajya', had approached the NCLT with Interlocutory Application (IA) No. 2694/2023. The bank raised serious concerns about the valuation reports prepared by Mr. Kunal Kantilal Vikamsey and M/s Adroit Appraisers and Research Pvt. Ltd., the two valuers appointed by the Resolution Professional (RP), Mr. Bijendra Kumar Jha.

Neptune Developers Limited was admitted into CIRP on July 16, 2021. Subsequently, a resolution plan submitted by Shree Naman Developers Pvt. Ltd. was approved by 85.35% of the CoC members. Central Bank of India abstained from voting and challenged the process, primarily citing flawed asset valuation.

Central Bank's Allegations: Flawed Valuations and Overlooked Assets

The applicant, Central Bank of India, argued that:

* The valuation of 'Project Swarajya', a 26-acre development, was fundamentally flawed, neglecting significant vacant land (specifically land bearing survey no. 76/5) and properties under construction.

* The two valuers employed different methodologies, leading to inconsistent results.

* The Information Memorandum (IM) contained discrepancies regarding unsold units and relied on an outdated 2016 plan instead of a more recent 2019 plan for the project.

* The sale of 191 flats by the Corporate Debtor after the issuance of a SARFAESI notice on September 22, 2017, was invalid and prejudiced the bank's rights as the exclusive charge holder.

* The distribution mechanism under the approved resolution plan was not "fair and equitable" towards dissenting financial creditors.

The bank contended that these issues significantly impacted the potential recovery for stakeholders and sought a fresh valuation, modification of the resolution plan based on the new valuation, and a stay on the approval of the existing plan.

Respondents' Defense: Due Process Followed, Belated Objections

The Resolution Professional (RP), the Successful Resolution Applicant (SRA), and one of the major CoC members, Edelweiss Asset Reconstruction Company (EARC), countered the bank's claims.

* The RP stated that the valuers were IBBI-registered professionals and he had no role in their methodology. He argued that the bank's 2013 valuation was not comparable to the 2021 CIRP valuation. The RP also highlighted that the bank had received the valuation reports in January 2023 but raised objections only in late March 2023, after the voting on resolution plans had commenced.

* EARC , holding a 72% voting share, emphasized that the bank had actively participated in CoC meetings but failed to object to the valuation reports earlier or request a third valuer.

* The Valuers provided detailed rebuttals, asserting their methodologies complied with the IBC, Valuation Rules, and International Valuation Standards. They explained their treatment of disputed land parcels, barter flats, and partially constructed units, with one valuer noting that some under-construction properties had negative value.

NCLT's Analysis: A "Material Dispute" Warrants Re-look

The NCLT meticulously examined the arguments and evidence. While noting that Central Bank had opportunities to raise its concerns earlier, the Tribunal proceeded to assess the merits of the valuation dispute.

The NCLT found no significant procedural infirmities by the RP. Regarding the Information Memorandum, the Tribunal acknowledged its disclaimer that it's not the sole source of information and Resolution Applicants conduct their own due diligence.

However, the crux of the NCLT's decision hinged on a specific discrepancy in the valuation of the C1 building area within Project Swarajya. The judgment highlighted (Para 62-63):

* The RP-appointed valuers (whose reports were based on the insolvency commencement date of July 16, 2021) considered the C1 building area as partially constructed, with one valuer assessing it as having negative value.

* In contrast, Central Bank submitted its own valuation report dated May 13, 2024 (based on a site inspection on May 11, 2024), which depicted the same C1 building area as vacant land valued at over Rs. 14.38 crores .

The Tribunal observed: > "However, the valuation report produced by the Applicant which was prepared by an independent valuer which clearly states that the said area is a vacant land and valued for more than Rs. 14 crores cannot be brushed aside considering the fact that the said valuation report was issued on 13.05.2024 which date is subsequent to the two valuation reports of R-11 & R-12." (Para 63)

Concluding this point, the NCLT stated: > "On careful analysis of the issue, it is seen that there is a need for re-valuation of the Project Swarajya, especially considering the material dispute on account of the vacant land. We, therefore, deem it necessary that a third valuer should be appointed to value the Swarajya Project to rule out the discrepancies." (Para 64)

The Verdict: Fresh Valuation Ordered for Project Swarajya

Based on these findings, the NCLT partly allowed Central Bank's application:

* Fresh Valuation Ordered: The CoC was directed to appoint a third valuer within two weeks to determine the Fair Value and Liquidation Value of 'Project Swarajya'.

* Modification of Plan Rejected: The prayer to direct the SRA to modify the Resolution Plan was rejected, citing that this falls within the commercial wisdom of the CoC.

* Original Valuations Not Entirely Set Aside: The plea to set aside the valuation reports of the initial two valuers in their entirety was not granted, but the order for a fresh valuation effectively addresses the concerns regarding Project Swarajya.

* Interim reliefs sought by the bank were rejected.

This judgment underscores the NCLT's willingness to intervene and order corrective measures when credible evidence of significant discrepancies in asset valuation is presented, even if challenged at a later stage of the CIRP. It highlights the critical importance of accurate valuation in ensuring the maximization of asset value and maintaining fairness in the insolvency resolution process.