IBBI Bars RSBA from Taking New Insolvency Related Work for Controversy Over Sale of Videocon

IBBI Bars RSBA from Taking New Insolvency Related Work for Controversy Over Sale of Videocon

The Insolvency and Bankruptcy Board of India (IBBI) has restrained RBSA Valuation Advisors LLP not to take any new assignments for six months, alleging violation of rules in arriving at liquidation and fair value of Videocon Industries and its 12 units that are undergoing corporate insolvency.

An Inspecting Authority (IA) was appointed to conduct inspection of the valuation report submitted by RBSA Valuation Advisors LLP (RBSA) in the consolidated Corporate Insolvency Resolution Process (CIRP) of Videocon Industries Limited (Corporate Debtor/CD). A draft inspection report (DIR), prepared by the IA, was shared with RBSA on 19.07.2022, to which it submitted response on 17.08.2022.

Based on the findings of the inspection, the prima facie opinion was formed that sufficient cause existed to take actions under sub rule (5) of rule 17 of the Valuation Rules and accordingly it issued Show Cause Notice (SCN) dated 30.11.2022 for contravention of the rule 7(g) read with clause 6 of Model Code of Conduct for Registered Valuers under Valuation Rules, rule 8(3)(l) and rule 7(i) of the Valuation Rules and sought for its written reply and offered it an opportunity of personal hearing in accordance with the said Rules.

RBSA submitted that it was appointed vide engagement letter dated 20.01.2020, to carry out Fair Value (FV) and Liquidation Value (LV) of assets of the Videocon Group entities on a consolidated basis, under the CIRP, as per the order Adjudicating Authority (AA) dated 08.08.2019 (Consolidated Insolvency Commencement Date (ICD)/Consolidated Valuation Date) read with AA Order dated 25.09.2019.

The Authority noted that the RBSA has made wrong statement in the valuation report as year 2017-18 even predates its appointment for stand-alone valuation. The Authority also found RBSA had violated rule 8(l) of the Valuation Rule as it had limited its responsibility by stating that the report was based on the information/data collected during the site visit carried out during the year 2017-18 and not carrying out independent inspection considering change in value of assets with time.

The order said the second contravention was that RBSA did not conduct any site visits for valuation exercise and that it relied on the information provide by the resolution professional (RP) and the company management. RBSA conducted site visits when the RP mandated it to value each company on a standalone basis, but it was not done after the Tribunal permitted a consolidated resolution of Videocon and its units, the order said.

Rule 7(i) specifically provides that in case a partnership entity or company is the registered valuer, it shall disclose to the company concerned, the extent of capital employed or contributed in the partnership entity or the company by the partner or director, as the case may be, who would sign and act in respect of relevant valuation assignment for the company.

The Authority observed that RBSA relies on clause 10.6 of an engagement letter which stated that the vendor, i.e., RBSA, represents and warrants that, prior to entering into this Agreement, the Vendor has fully and accurately disclosed to RP or his Authorized Representatives all relevant corporate information regarding the shareholder structure and relevant interests. The Authority observed that clause 10.6 reflected a general presumption and implies shifting of responsibility by RBSA to RP. Hence, the Authority found that RBSA had violated rule 7(i) of the Valuation Rules.

In light of the same the Authority directed, RBSA Valuation Advisors shall not seek or accept any assignment or render any services under the Code and its underlying Regulations for a period of 6 months for violating rules rule 7(g) read with clause 6 of the Model Code of conduct for Registered Valuers, 8(3)(l) and 7(i) of the Valuation Rules. It further directed that while RBSA will not be able to seek fresh assignments for the indicated period, however, it will have no impact on ongoing assignments and it shall continue to handle the assignments in hand unimpacted.