Insolvency and Bankruptcy Code, 2016 – Auction sale cancelled by Liquidator without assigning any reasons – Appellant submitted its bid dtd.16.07.21 to Respondent No.2-Liquidator in respect of the assets of the corporate debtor (in liquidation) – On 20.07.21, appellant received an E-auction certificate from certifying that it had won the auction of the subject property– On 21.07.21, the appellant received an email from Respondent No.2 simply informing that he had cancelled the E-auction u/Clause 3(k) of the Disclaimer Clause in the E-Auction Process Information Document and that a fresh E-auction would be conducted– Appellant filed application before the Tribunal– Tribunal directed the respondent No.2 vide order dtd. 12.08.21 to send a communication to the appellant requiring him to deposit the balance sale consideration– Letter issued to the appellant, entire sum was deposited – Sale certificate issued in favour of the appellant – Respondent No.1-financial creditor filed appeal against order dtd. 12.08.21– Appellate Tribunal set aside the said order and reversed the steps taken pursuant thereto, liberty given to the Respondent No.2 to initiate fresh process of auction – He issued sale notice dtd. 24.12.2021 for E-auction sale of the subject property – Auction scheduled stayed:
Held: No reasons were assigned by the Liquidator for cancellation of the E-auction – While the highest bidder has no indefeasible right to demand acceptance of his bid, the Liquidator if he does not want to accept the bid of the highest bidder has to apply his mind to the relevant factors – Such application of mind must be visible or manifest in the rejection order itself – It is incomprehensible that an administrative authority can take a decision without disclosing the reasons for taking a decision affecting the rights of parties – Further, while it is true that para 1(11A), stating that where the Liquidator rejects the highest bid in an auction process, he shall intimate the reasons for such rejection to the highest bidder and mention it in the next progress report, came to be inserted in Schedule 1 to the Regulations w.e.f 30.09.21, it does not imply that an auction sale or the highest bid prior to the aforesaid date could be cancelled by the Liquidator exercising unfettered discretion and without furnishing any reason – Furthermore, in the present case, even after cancelling the highest bid of the appellant, in the subsequent sale notice dtd. 24.12.21, Respondent No.2 again fixed the reserve price of the subject property at Rs.10 crores which was the reserve price in the previous round of auction sale and which was also the bid value of the appellant – There was no rationale or justification in rejecting the bid of the appellant and going for another round of auction at the same reserve price – Merely because the Liquidator has the discretion of carrying out multiple auction it does not necessarily imply that he would abandon or cancel a valid auction fetching a reasonable price and opt for another round of auction process with the expectation of a better price – There can be no absolute or unfettered discretion on the part of the Liquidator to cancel an auction which is otherwise valid – Tribunal rightly held that there were no objective materials before the Liquidator to cancel the auction process and to opt for another round of auction – Appellate Tribunal not justified in setting aside the order of the Tribunal dtd.12.08.2021 – Impugned order set aside, order dtd.12.08.2021 restored – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016– Regulation 33; Schedule 1, Para 1(11A)– Auction– National Company Law Tribunal Rules, 2016– Administrative Law – Principles of natural justice. [Paras 20.1, 29, 34.1, 41, 42 and 51]
Insolvency and Bankruptcy Code, 2016 – ss.5(24), 29A – ‘related party’ suffering ineligibility u/s.29A – Intervenor argued that one ‘VKG’, the director and principal shareholder of the appellant was also one of the promotor director and principal shareholder of the corporate debtor and therefore, a ‘related party’ of the corporate debtor and as such was not eligible; rather debarred from participating in the auction of the subject property of the corporate debtor:
Held: The disqualification sought to be attached to the appellant is without any substance as the related party had ceased to be in the helm of affairs of the corporate debtor more than a decade ago – He was not in charge of the company or an influential member of the company i.e., the corporate debtor when the appellant had made its bid pursuant to the auction sale notice. [Para 50]
Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 – Schedule 1, Para 1(11A) – Plea of the intervenor that since para 1(11A) was inserted in Schedule I vide notifi cation dtd.30.09.2021 w.e.f 30.09.2021 and this provision is prospective thus, it cannot be applied to auctions conducted prior to 30.09.2021, including the auction in question – Therefore, there was no requirement for the Liquidator to give reasons for cancellation of the bid of the appellant:
Held: Plea not accepted – Furnishing of reasons is an important aspect rather a check on the arbitrary exercise of power – It presupposes application of mind to the relevant factors and consideration by the concerned authority before passing an order – Absence of reasons may be a good reason to draw inference that the decision making process was arbitrary – Therefore, what para 1(11A) has done is to give statutory recognition to the requirement for furnishing reasons, if the Liquidator wishes to reject the bid of the highest bidder – Furnishing of reasons, which is an integral facet of the principles of natural justice, is embedded in a provision or action, whereby the highest bid is rejected by the Liquidator – Thus, what para 1(11A) has done is to give statutory recognition to this well-established principle – It has made explicit what was implicit. [Para 29]
Insolvency and Bankruptcy Code, 2016 – Powers and duties of the Liquidator – Discussed – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
LIST OF CITATIONS AND OTHER REFERENCES
S.N. Mukherjee versus Union of India (1990) 4 SCC 594: [1990]
1 Suppl. SCR 44; State of Orissa versus Dhaniram Luhar (2004) 5 SCC 568: [2004] 2 SCR 68; East Coast Railway versus Mahadev Appa Rao (2010) 7 SCC 678: [2010] 7 SCR 908; Kranti Associates (P) Ltd. Versus Masood Ahmed Khan (2010) 9 SCC 496: [2010] 10 SCR 1070; Valji Khimji and Company Versus Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Others (2008) 9 SCC 299: [2008] 12 SCR 1; K. Kumara Gupta Versus Sri Markendaya and Sri Omkareswara Swamy Temple and Ors (2022) 5 SCC 710 – relied on.
Swiss Ribbons Private Limited and Another versus Union of India and Others (2019) 4 SCC 17: [2019] 3 SCR 535; Phoenix ARC Private Limited versus Spade Financial Services Limited (2021) 3 SCC 475; Arcelor Mittal (India) (P) Ltd. V. Satish Kumar Gupta (2019) 2 SCC 1: [2018] 12 SCR 362; Arun Kumar Jagatramka Versus Jindal Steel and Power Limited and Another (2021) 7 SCC 474: [2021] 3 SCR 114 – referred to.
OTHER CASE DETAILS INCLUDING IMPUGNED
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As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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