NCLAT junks order for fresh valuation of Educomp arm's shares in US firm sold by SBI Singapore

New Delhi, Jan 27 (PTI) Insolvency appellate tribunal NCLAT has set aside the directions for a fresh valuation of shares, which were held by Educomp Solutions' Singapore-based subsidiary Educomp Asia Pacific Pte in US-based firm The Learning Internet Inc and sold by SBI Singapore.
     Wondering over the basis on which the Delhi bench of NCLT passed direction for fresh valuations, the appellate tribunal said Educomp Asia Pacific Pte Ltd (EAPPL) was being liquidated over the order passed by the High Court of Singapore and issues regarding the valuation of shares in The Learning Internet Inc could have been raised there in the proceedings.
     "We wonder, on what basis the Adjudicating Authority (NCLT) could have intervened in matter directly connected with the liquidation process of EAPPL in Singapore, albeit the subsidiary of the corporate debtor when it has got no jurisdiction in the subject matter of EAPPL," said NCLAT.
     A two-member National Company Law Appellate Tribunal (NCLAT) bench further said if Shantanu Prakash, director of the suspended board of Educomp Solutions, is aggrieved due to "alleged undervaluation shares of The Learning Internet Inc", he could have approached the liquidators or could have invoked the suitable jurisdiction before the High Court of Singapore, which was not done by him.
     "We hold that it does not give any right to Respondent No 1 (Shantanu Prakash) to approach the Adjudicating Authority (NCLT) on this issue and without any doubt, the Adjudicating Authority did not have any jurisdiction to give such directions with respect to fresh valuation ...," said a 40-page NCLAT order.
     The appellate tribunal also noted that SBI Singapore has "categorically and in a transparent manner" written to the liquidators of EAPPL about the offer received and only after getting confirmation from the liquidators that the liquidators did not have better value then only it goes ahead to realise it security interest by the sale of shares in The Learning Internet Inc.
     NCLAT also observed that NCLT has referred to Regulation 21A of the Liquidation Regulations while ordering for a fresh valuation as contained in Para 27 of the Impugned Order passed on August 25, 2023, in proceedings of insolvency of Educomp Solutions.
     "We consciously note that the present case is regarding CIRP of the corporate debtor and not of the liquidation and therefore, in such case the Regulation 21 A of the Liquidation Regulations is not applicable," it said.
     The order further said that Prakash had alleged "connivance of the concerned parties" in selling shares of The Learning Internet Inc at "unrealistic low prices", however, he could not furnish any concrete evidence.
     "In view of the above detailed analysis, we find merits in the arguments of the Appellant (SBI). The appeal succeeds and the impugned order contained in para 27 (a) & (b) and second line of 27 (c) i.e., "The secured financial claim of the State Bank of India (Singapore) qua the CD would be subject to the outcome of the valuation result/report" is set aside," said NCLAT.
     However, the NCLAT also said the "remaining order shall survive and shall stand applicable".
     The NCLAT order came over a petition filed by SBI Singapore, which had earlier provided a loan facility of USD 20 million to Educomp Asia Pacific Pte Ltd (EAPPL), a wholly-owned subsidiary of Educomp Solutions. This funding was utilised to acquire a 51 per cent stake in the US-based company, The Learning Internet Inc.
     To secure this loan, Educomp Solutions executed a deed of guarantee in favour of SBI Singapore. Furthermore, on July 23, 2008, EAPPL pledged 18,173 unlisted shares (representing a 51 per cent stake) of The Learning Internet Inc as collateral with SBI Singapore.
     Later EAPPL on November 3, 2014, entered into a loan restructuring, which resulted in outstanding dues of USD 14.72 million.
     In the meantime, the Delhi-bench of the National Company Law Tribunal (NCLT) admitted a plea filed by Educomp Solutions under section 10 to initiate a Corporate Insolvency Resolution Process (CIRP) on May 30, 2017.
     A month later, on June 30, 2017, EAPPL was ordered into liquidation by the High Court of Singapore and appointed liquidators. During the liquidation proceedings, the liquidators provided The Learning Internet Inc with the first option to repurchase its own shares by submitting a suitable offer.
     However, the offer by The Learning Internet Inc was deemed not acceptable, being on the lower side. Later, after multiple rounds of negotiations with the purchaser, an increased offer was ultimately reached. Consequently, the shares were sold to the purchaser through an agreement dated September 3, 2021, for a price of USD 7.10 million.
     On August 25, 2023, NCLT over an application filed by Shantanu Prakash, held that the assets of a subsidiary company differ from those of its holding company. It was held that the shares of The Learning Internet Inc do not constitute part of the assets of Educomp Solutions.
     Moreover, NCLT also directed valuation of shares of The Learning Internet Inc. owned by EAPPL and pledged with State Bank of India, Singapore. It directed the Resolution Professional of Educomp to approach IBBI for the appointment of two registered valuers to assess the valuation of shares of The Learning Internet Inc.
     It also said if the valuation conducted by any of these valuators exceeds USD 7.10 million, the price at which the shares were sold on September 3, 2021, the claim of State Bank of India (Singapore) against Educomp Solutions would be reduced accordingly.

(This story has not been edited by THE WEEK and is auto-generated from PTI)