Should Aamby Valley sale draw from insolvency process?

“Why dream of a villa when you can own an entire valley?” screamed a newspaper advertisement released on December 1. No prizes for guessing what the ad was about. The official liquidator of the Bombay High Court has begun his second attempt at selling luxury township Aamby Valley to recover the dues of the Securities and Exchange Board of India (Sebi).

Under the hammer are three distinct properties. One is the 6,761-acre integrated hill city township with multiple facilities like an international school, hospital, and airport. Some of these facilities are held through corporate entities. The second part comprises land parcels, which fall outside the hill city area but close to it. These total over 1,400 acres. The third part is a 321-acre property in Satara district.

Don’t be carried away by the catchy copywriting. The valley is available for sale, but nowhere close to the villa’s price. At the reserve price of about ~37,000 crore, not even 10,000 villas would equal its value. If you are thinking one of those bungalows in Lutyens’ Delhi or Malabar Hill, it would be worth 100 such structures.

The first attempt was a disaster as just two bidders were reportedly in the fray in the initial stages and even these did not turn up for inspection after reports of alleged obstruction by the previous owners.

Is the result going to be any different from the first time? The Supreme Court has taken steps to take the possession and operational control away from the Sahara group. The receiver of the Bombay High Court has been appointed to run the day-today affairs even as the liquidator proceeds with the auction process. This is likely to give some comfort for the potential bidders.

While the court is keen to put an end to the lingering proceedings in the SebiSahara matter, liquidator Vinod Sharma has an unprecedented and an unenviable job. There is a lingering doubt about the usefulness of such a massive property for a potential investor. Though the group is supposed to have claimed recently that the development is worth over ~2 lakh crore, the numbers are yet to be tested independently.

Doubts have been expressed about getting bidders, given the difficult phase the real estate sector is going through. Most marquee names in the sector are reeling under debt and are themselves trying to offload assets. Further, the restrictions on foreign investment in real estate could prove to be a wet blanket for people from abroad.

If the land parcels and other facilities are sold as separate units, they might not be able to realise their full value.

All these issues make one wonder if the auction process is too simplistic to accommodate all the complexities that come with the size and web of companies that the bidders might be mindful of. Could not a more flexible process have been considered after consultations with the market?

A comparable mechanism is available under the insolvency law, by which numerous companies are currently undergoing a resolution process administered by the National Company Law Tribunal.

That process offers a longer time frame for the professionals to come up with a resolution plan. The auction is expected to be completed within eight weeks, whereas insolvency courts allow 26 weeks (180 days). Another difference would be that Sebi would want to recover all the dues rather than a portion of it.

Even allowing for these, the broader template of insolvency resolution could be used as a starting point by the official liquidator to chalk up a process that ensures that the valley eventually doesn’t fetch only a villa’s price.

A more flexible approach might ensure a better participation and better realisation