Lack of Due Diligence in Valuation of Rs. 1000 Crore Assets: IBBI Suspends Valuer's Registration for 2 Years [Read Order]

A registered valuer of Land and Building, was appointed to value the assets of M/s. Jeypore Sugar Company Limited (Corporate Debtor) during its Corporate Insolvency Resolution Process (CIRP) and subsequent liquidation process. In his initial valuation report, valued the assets situated at Rayagada at Rs. 1090.54 crore. However, in a subsequent revised report, he excluded these assets from valuation entirely, stating their value "could not be determined," despite no material change in facts or legal opinions to justify this significant change. A Show Cause Notice (SCN) was issued to him alleging contravention of the Liquidation Regulations and the Model Code of Conduct for Registered Valuers.

The Authority observed that there was a complete lack of due diligence on the part of the valuer. He revised his valuation report based on an earlier legal opinion that did not bring any new clarity to the matter, rather than seeking a more recent one as he had claimed. Furthermore, his methodology for estimating the liquidation value was found to be deficient, applying questionable and overlapping discount factors, which led to a significant undervaluation of the corporate debtor's assets.

The Authority has found the replies of valuer regarding the purpose for issuance of the letter dated 01.11.2020 i.e. NCLT not accepting the valuation and the reason why he has issued the letter stating that the Odisha assets are valued at zero as completely unsatisfactory and refers the matter to the Board for further investigation by the Board regarding the facts and circumstances which have led to issuance of such letter and its effect thereto.

Board shall also examine whether he was required to determine both Fair Value and Liquidation value as per the extant regulations and if so, why he has not done the same. The Authority had not taken these issues into account when issuing the direction in para 3.2, as they had been referred to the Board for examination.

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The Authority found that the valuer's actions violated Sub-regulation (3) of Regulation 35 of the Liquidation Regulations and clauses 6, 12, and 14 of the Model Code of Conduct for Registered Valuers, which mandate due diligence, objectivity, and independence.

The IBBI concluded that the valuer's lack of due diligence and the deficiencies in his valuation methodology compromised the integrity of the valuation process. Consequently, the Authority, in exercise of its powers under the Valuation Rules, suspended the registration of valuer for a period of two years.

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