The liquidation value conundrum Vis-à-vis the dissenting financial creditors

[2022] 137 taxmann.com 40 (Article)

Valuation under The Insolvency and Bankruptcy Code, 2016 (“Code”) is an exercise that is undertaken by two registered valuers appointed by the Resolution Professional. The Resolution Professional has also been provided with the power by the code to appoint a third valuer, if he believes, that the difference between the values provided by the first and second valuer is significantly different.

The Code provides no guide with respect to what shall be considered as a significant difference in the values. In the matter of Dr. Vijay Radhakrishnan v. Bijoy P Pulipara3, the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) refused to hold a difference of 15.62% in values provided by the registered valuers as significantly different but the said order of NCLAT does not set up 15.62% as an objective parameter to be applied in all cases. Further, valuation is to be used in code to ensure minimum guarantees to certain classes of creditors. Thus, it is apparent that valuation is the premise of the resolution under the Insolvency and Bankruptcy Code. It is imperative for all stakeholders and bidders of the Company to have aholistic understanding of the liquidation value4 as it would aid them in synthesizing an efficacious Resolution Plan for the Corporate Debtor.

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