M/s. R.K. Industries (Unit-Ii) LLP vs M/s. H.R. Commercials Private Limited and Other

61 – Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 – r.4 – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 – Regulations 8, 31A, 32, 33, 33(2)(d), Schedule-I u/Regulation 33 – Gujarat Maritime Board (GMB) leased out a parcel of land to Corporate Debtor for a period of thirty years – ICICI Bank Ltd. moved an application for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor – Interim Resolution Professional (IRP) was appointed – Application moved by the IRP for initiating liquidation proceedings – Adjudicating Authority (NCLT) ordered liquidation of the Corporate Debtor and appointed Respondent No.2 as the Liquidator – Five e-auctions were conducted by the respondent No.2 to sell the consolidated assets of the Corporate Debtor but first four were unsuccessful – In the fifth e-auction, respondent No.2 offered sale of the assets on a stand-alone basis or singly or in smaller lots, besides compositely – Except for the sale of two residential assets, no purchasers stepped forward to purchase the other assets – Respondent no. 2 moved an application before NCLT for permission to sell the assets of the Corporate Debtor through Private Sale, allowed – The Swiss Challenge Process was adopted for sale of the assets of the Corporate Debtor through Private Sale – The first Swiss Challenge Process was unsuccessful – In the second round, as against the base price of ` 460 crores fixed for the Dahej Material and scrap, the appellant made a bid of ` 431 crores that was accepted – Thereafter, the respondent No.2 published an advertisement inviting bidders to submit their bids against the Anchor Bid in response whereto, the appellant, respondents No.3, 4, 5, and 6 submitted their bids, but before the process could be taken further, on an application moved by the respondent No.1, NCLT passed an order directing the respondent No.2 to carry forward the stage upto announcement of the highest bidder, while deferring the rest of the process – Matter pending before the NCLT, the respondent No.2 was approached by the respondent No.7, who evinced interest in purchasing the immovable and movable assets of the Corporate Debtor – NCLT was approached for permission to undertake a composite sale of the Dahej Material and the Shipyard, which was duly granted – Challenged by appellant beforeNCLAT, dismissed – However, modifying the said order,the NCLAT directed respondent no. 2 to restart the entire process of Private Sale after issuing an open notice to prospective buyers instead of confining the process to those parties who had participated in the process earlier – On appeal, held: Merely because the appellant had submitted a bid under the Anchor Bid Document and was declared as the Anchor Bidder in the Second Swiss Challenge Process, could not vest a right on it for it to insist that the said process must be taken to its logical conclusion – Given the terms and condition of the Anchor Bid Document and the Second Swiss Challenge Process Document, read collectively with the unqualified undertaking given by the appellant acknowledging that the respondent No.2 was well empowered to cancel/modify or even abandon the said process, it does not lie in the mouth of the appellant to urge that once it was set into motion, there was no justification to discontinue the Second Swiss Challenge Process – Decision taken by the respondent No.2 cannot be treated as arbitrary, capricious or unreasonable for interference by this Court – The said decision is tempered with sound reason and logic – It is a purely commercial decision centered on the best interest of the stakeholders – The stakeholders having unanimously endorsed the view of the respondent No.2, it is not for Supreme Court to undertake a further scrutiny of the desirability or the reasonableness of the said decision or substitute the same with its own views – Impugned judgment passed by NCLAT to the extent that it modified the order passed by the NCLT and directed restraining of the Private Sale Process, is quashed and set aside.

Insolvency and Bankruptcy Code, 2016 – Swiss Challenge Process – Held: An Anchor Bidder has no vested right beyond the Right of First Refusal (ROFR), being the origination of the proposal – The Swiss Challenge Process is just another method of private participation recognized for its transparency – Ultimately, the IBC has left it to the discretion of the Liquidator to explore the best possible method for selling the assets of the Corporate Debtor in liquidation, which includes Private Sale through direct negotiations with the object of maximizing the value of the assets offered for sale.

Insolvency and Bankruptcy Code, 2016 – Jurisdiction of the NCLT and the NCLAT – Held: Powers vested in and the duties cast upon the Liquidator have been made subject to the directions of the Adjudication Authority (NCLT) u/s.35 – Once the Liquidator applies to the Adjudicating Authority (NCLT) for appropriate orders/directions, including the decision to sell the movable and immovable assets of the Corporate Debtor in liquidation by adopting a particular mode of sale and the Adjudicating Authority (NCLT) grants approval to such a decision, there is no provision in the IBC that empowers the Appellate Authority (NCLAT) to suo motu conduct a judicial review of the said decision – The jurisdiction bestowed upon the Adjudicating Authority [NCLT] and the Appellate Authority [NCLAT] are circumscribed by the provisions of the IBC, they cannot act as a Court of equity or exercise plenary powers to unilaterally reverse the decision of the Liquidator based on commercial wisdom and supported by the stakeholders.

Constitution of India – Judicial Review – Scope of – Commercial Matters – Held: It is a well-settled principle that in matters relating to commercial transactions, tenders, etc., the scope of judicial review is fairly limited and the court ought to refrain from substituting its decisions for that of the tendering agency.

Allowing CA No. 7731 of 2021 and dismissing CA No. 7722 of 2021, the Court

HELD: 1.1 On a conjoint reading of the aforesaid provisions of the IBC and the Liquidation Regulations, it is evident that the Liquidator is authorized to sell the immovable and movable property of the Corporate Debtor in liquidation through a public auction or a private contract, either collectively, or in a piecemeal manner. The underlying object of the Statute is to protect and preserve the assets of the Corporate Debtor in liquidation and proceed to sell them at the best possible price. Towards this object, the provisions of the IBC have empowered the Liquidator to go in for a public auction or a private contract as a mode of sale. Besides reporting the progress made, the Liquidator can also apply to the Adjudicating Authority (NCLT) for appropriate orders and directions considered necessary for liquidation of the Corporate Debtor. The Liquidator is permitted to consult the stakeholders who are entitled to distribution of the sale proceeds. However, the proviso to Section 35 (2) of the IBC makes it clear that the opinion of the stakeholders would not be binding on the Liquidator. Regulation 8 of the Liquidation Regulations refers to the consultative process with the stakeholders, as specified in Section 35 (2) of the IBC and states that they shall extend all necessary assistance and cooperation to the Liquidator for completing the liquidation process. Regulation 31A has introduced a Stakeholders’ Consultation Committee that may advise the Liquidator regarding sale of the assets of the Corporate Debtor and must be furnished all relevant information to provide such advice. Though the advice offered is not binding on the Liquidator, he must give reason in writing for acting against such advice. [Para 39][704-D-H; 705-A]

1.2 When it comes to the mode of sale of the assets of the Corporate Debtor, whether immovable or movable and other actionable claims, Regulation 33 of the Liquidation Regulations comes into play and states that ordinarily, the Liquidator will sell the said assets through auction, as specified in Schedule-I (1). Sub-section (2) of Section 33, IBC gives an option to the Liquidator to sell the assets of the Corporate Debtor through a Private Sale, in the manner set out in Schedule-I (2). Regulation 33 of the Liquidation Regulations is couched in a language which shows that ample latitude has been given to the Liquidator, who may “ordinarily” sell the assets through auction thereby meaning that in peculiar facts and circumstances, the Liquidator may directly go in for a Private Sale. To avoid the pitfalls of disposing of the assets by conducting a Private Sale for the Pittance, Regulation

33 has prescribed some stringent conditions that the Liquidator is under an obligation to comply. The said pre-conditions are that

(i) the asset is perishable; (ii) the asset is likely to deteriorate in value significancy if not sold immediately; (iii) the asset is sold at a higher price than the reserved price of the failed auction; and

(iv) the Adjudicating Authority (NCLT) must grant prior permission for such a sale. The proviso appended to Regulation 33(2) of the Liquidation Regulations places yet another embargo to the effect that when the Liquidator intends to sell the assets of the Corporate Debtor by way of a Private Sale to a related party of the Corporate Debtor, his relative party or any professional appointed by him, it is mandatory to obtain prior permission of the Adjudicating Authority (NCLT). Even the mode of sale has been regulated under the Liquidation Regulations for both, a public auction and a Private Sale. All the above dos and don’ts have been inserted to protect the assets of the Corporate Debtor and safeguard the interest of the stakeholders. [Para 40][705-BF]

1.3 A bare perusal of the clauses of the Anchor Bid Document and the Second Swiss Challenge Process Document, leave no manner of doubt that the prospective bidders were informed that the Liquidator had reserved the right to abandon/cancel/terminate/waive the said process and/or part thereof at any stage; that issuance of the Anchor Bid Document did not create any binding obligations on the Liquidator to proceed with the sale of the assets of the Corporate Debtor; that the Anchor Bid Document did not constitute an offer/commitment or an assurance of the Liquidator. Identical rights were reserved with the Liquidator even in the Second Swiss Challenge Process Document. In fact, as noted above, Schedule IV goes a step further and entitles the Liquidator to include a bidder to participate in the sale process at any stage. He could even decide to sell the composite assets of the Corporate Debtor during the said process. [Para 47][709-D-F]

1.4 Merely because the appellant herein had submitted a bid under the Anchor Bid Document and was declared as the Anchor Bidder in the Second Swiss Challenge Process, could not vest a right on it for it to insist that the said process must be taken to its logical conclusion. The appellant has been harping about the vested right that had allegedly accrued in its favour on being declared as the Anchor Bidder. But it has conveniently glossed over an affidavit dated 23rd March, 2021 filed by it, undertaking inter alia that it would remain unconditionally and irrevocably bound by the Swiss Challenge Process Document and the decision of the respondent No.2 Liquidator. Given the aforesaid terms and condition of the Anchor Bid Document and the Second Swiss Challenge Process Document, read collectively with the unqualified undertaking given by the appellant acknowledging that the respondent No.2 – Liquidator was well empowered to cancel/modify or even abandon the said process, it does not lie in the mouth of the appellant to urge that once it was set into motion, there was no justification to discontinue the Second Swiss Challenge Process. No special rights came to be bestowed on the appellant as the Anchor Bidder for it to insist that the said process ought to be taken forward and concluded, irrespective of the subsequent decision taken by the respondent No.2 – Liquidator, backed to the hilt by the stakeholders of discontinuing the Swiss Challenge Process and opting for Private Sale of the consolidated assets of the Corporate Debtor to be conducted through direct negotiations. An Anchor Bidder has no vested right beyond the ROFR, being the origination of the proposal. It must be borne in mind that the Swiss Challenge Process is just another method of private participation that has been recognized by this Court for its transparency. Ultimately, the IBC has left it to the discretion of the Liquidator to explore the best possible method for selling the assets of the Corporate Debtor in liquidation, which includes Private Sale through direct negotiations with the object of maximizing the value of the assets offered for sale. [Paras 48, 49][709-G-H; 710-A-E] Ravi Development v. Krishna Parishthan& Others (2009) 7 SCC 462 : [2009] 8 SCR 654 – referred to.

1.5 It is not for the court to question the judiciousness of the decision taken by the respondent No.2 – Liquidator with the idea of enhancing the value of the assets of the Corporate Debtor being put up for sale. The right to refuse the highest bid or completely abandon or cancel the bidding process was available to the respondent No.2 – Liquidator. The appellant has not been able to demonstrate that the decision of the respondent No.2 – Liquidator to discontinue the Second Swiss Challenge Process and go in for a Private Sale through direction negotiations with prospective bidders was a malafide exercise. [Para 52][711-E-F] State of Madhya Pradesh and Others v. Nandlal Jaiswal and Others (1986) 4 SCC 566 : [1987] 1 SCR 1; 5 M & T Consultants, Secunderabad v. S.Y. Nawab and Another (2003) 8 SCC 100: [2003] 4 Suppl. SCR 187; State of Jharkhand and Others v. CWE-Soma

Consortium (2016) 14 SCC 172: [2016] 4 SCR 157; Laxmikant and Others v. Satyawan and Others (1996)

4 SCC 208 : [1996] 3 SCR 532; Montecarlo Limited v. National Thermal Power Corporation Limited (2016)

15 SCC 272 : [ 2016] 8 SCR 224 – relied on.

1.6 The Statute enjoins the Liquidator to sell the immovable and movable assets of the Corporate Debtor in a manner that would result in maximization of value, lead to a higher and quicker recovery for the stakeholders, cut short the delay and afford a guaranteed timeline for completion of the process. On examining the records, it is found that these were the considerations that have weighed not only with the respondent No.2 – Liquidator, but also with the stakeholders, who were unanimous in their decision that the Second Swiss Challenge Process Document ought to be abandoned in favour of the Private Sale process where not only the appellant, but all the other prospective bidders who had participated in the process were permitted by the Adjudicating Authority (NCLT) to make a bid in respect of the consolidated assets of the Corporate Debtor. In its anxiety to claim a vested right as an Anchor Bidder, the appellant tends to forget that the Swiss Challenge Process adopted by the respondent No.2 – Liquidator also falls in the category of a Private Sale, referred to in Schedule-I(2) under Regulation 33 of the Liquidation Regulations. For conducting a Private Sale, all that the Liquidator is required to do is to prepare a strategy to approach the interested parties. He is authorized to directly liaise with the potential buyers to ensure that realization from the sale of the assets can be maximized. No infirmity in the said approach adopted by the respondent No.2 – Liquidator. When compared to the above protracted process, a single buyer for the Dahej land along with the metal scrap, etc., lying at the complex was bound to speed up the entire process inasmuch as the successful bidder could be handed over the possession straightaway and the respondent No.2 - Liquidator would be in a position to receive the payment for the composite assets in a timebound manner with a higher rate of recovery. All these factors that fall in the realm of commercial considerations were examined holistically by the respondent No.2 – Liquidator who then placed the cards before the stakeholders in the meeting conducted on 6th August, 2021. Even though the provisions of the IBC empower the Liquidator to take an independent decision for the sale of the assets of the Corporate Debtor in liquidation, it can be seen that he has taken the stakeholders into confidence at every step. Only after finding them to be in agreement with the option sought to be explored by him of halting the Second Swiss Challenge Process and proceeding with the Private Sale of the consolidated assets of the Corporate Debtor by directly liaising with the potential buyers, did the respondent No.2 – Liquidator take such a decision solely with the object of augmenting realization from the sale of the assets. Thereafter, the matter was taken to the Adjudicating Authority (NCLT) for necessary permissions under Section 35(1) of the IBC that was duly granted. The decision taken by the respondent No.2 – Liquidator cannot be treated as arbitrary, capricious or unreasonable for interference by this Court. The said decision is tempered with sound reason and logic. It is a purely commercial decision centered on the best interest of the stakeholders. The stakeholders having unanimously endorsed the view of the respondent No.2 – Liquidator, it is not for this Court to undertake a further scrutiny of the desirability or the reasonableness of the said decision or substitute the same with its own views. [Paras 56, 57][715-F-H; 716-A-D]

1.7 Therefore, the view expressed by the NCLAT that the decision of the respondent No.2 – Liquidator was driven by the desire of the stakeholders to complete the liquidation process in the shortest possible time is concurred with. The aforesaid exercise of selling the assets of the Corporate Debtor has been ongoing for about three years, with several litigations spewed throughout to cause further delay. The sooner the curtains are drawn on the process, the better it would be for all concerned. It is for the very same reason that this Court is inclined to set aside the subsequent directions issued by the NCLAT of restarting the entire process of Private Sale by issuing fresh notices to all the prospective buyers without limiting them to those who had participated in the process. No doubt, a public auction entails the procedure of issuing public notices. But that is not the case with a Private Sale where the procedure prescribed permits the Liquidator to directly liaise with the potential buyer and conduct the negotiations. It may be emphasized that these are commercial transactions and purely business driven decisions, which are not amenable to judicial review. The insolvency regime introduced under the IBC has placed fetters on the power of interference by the Adjudicating Authority (NCLT) and the Appellant Authority (NCLAT). The decision of the NCLT to have the sale of the composite assets negotiated with the parties who had participated in the earlier rounds of sale, cannot be described as a rushed decision for the NCLAT to have modified the said order and direct that the clock be set back to the initial stage of issuing notices to the prospective buyers. No such relief was sought by any of the parties to the lis, nor has the NCLAT given any plausible reason for issuing such a direction. [Paras 58, 59][716-D-H; 717-A-B]

1.8 The powers vested in and the duties cast upon the Liquidator have been made subject to the directions of the Adjudication Authority (NCLT) under Section 35 of the IBC. Once the Liquidator applies to the Adjudicating Authority (NCLT) for appropriate orders/directions, including the decision to sell the movable and immovable assets ofthe Corporate Debtor in liquidation by adopting a particular mode of sale and the Adjudicating Authority (NCLT) grants approval to such a decision, there is no provision in the IBC that empowers the Appellate Authority (NCLAT) to suo motu conduct a judicial review of the said decision. The jurisdiction bestowed upon the Adjudicating Authority [NCLT] and the Appellate Authority [NCLAT] are circumscribed by the provisions of the IBC, they cannot act as a Court of equity or exercise plenary powers to unilaterally reverse the decision of the Liquidator based on commercial wisdom and supported by the stakeholders. In fact, it has been brought to notice by the respondent No.2 – Liquidator that close on the heels of the impugned judgment passed by the NCLAT delivered on 10th December, 2021, the Core Committee of Financial Creditors of the Corporate Debtor had conducted a meeting on 15th December, 2021 and had unanimously ratified the view of the respondent No.2 – Liquidator that the bid process commenced on 24th August, 2021, ought to be continued and not restarted having regard to the fact that it had taken almost three years to find such buyers and the sale was at the cusp of being closed. It was also recorded in the minutes of the meeting that several attempts had already been made to solicit interest from parties but none had come forward to make an offer for the composite purchase of the assets. The Core Committee constitutes 70.3% of the financial creditors and when they have weighed in to support the stand taken by the respondent No.2 – Liquidator to continue the bid process commenced on 24th August, 2021, there is no reason to foist the view of the NCLAT on the respondent No.2 – Liquidator that he ought to restart the process for sale of the composite assets of the Corporate Debtor from the scratch after issuing an open notice to the prospective buyers. [Paras 60, 61][717-B-E; 718-B-E]

Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others (2020) 8 SCC 531 : [2019] 16 SCR 275 – relied on.

K. Sashidhar v. Indian Overseas Bank and Others (2019) 12 SCC 150: [2019] 3 SCR 845; Committee of Creditors of Amtek Auto Limited v. Dinkar T.

Venkatasubramanian and Others (2021) 4 SCC 457 : 2021 (3) JT 110; Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another. (2021)

10 SCC 401 : 2021 (4 ) JT 128; Ghanashyam Mishra And Sons Private Limited through the Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited through the Director and Others (2021) 9 SCC

657 – referred to.

1.9 Therefore, the impugned judgment dated 10th December, 2021, passed by NCLAT to the extent that it has modified the order dated 16th August, 2021 passed by the NCLT and directed restraining of the Private Sale Process, is quashed and set aside. The Private Sale process of the composite assets of the Corporate Debtor should be taken further by the respondent No.2 – Liquidator without losing any further time and be concluded at the earliest. All the eligible bidders who have made Earnest Money Deposits would be entitled to participate in the negotiations to be conducted by the respondent No.2– Liquidator for privately selling the consolidated assets of the Corporate Debtor. Accordingly, it is directed that the process of private negotiations that had commenced on 24th August, 2021, shall be taken to its logical end and brought to a closure by the respondent No.2 – Liquidator within four weeks from the date of passing of this order. [Para 62][718-F-H; 719-A]

Tata Cellular v. Union of India (1994) 6 SCC 651: [1994] 2 Suppl. SCR 122; Air India v. Cochin

International Airport Limited and Others (2000) 2 SCC

617 : [2000] 1 SCR 505; Agmatel India Private Limited v. Resources Telecom and Others (2022) 5 SCC 362: 2022 (2) SCALE 554; Swiss Ribbons Private Limited and Another v. Union of India and Others (2019) 4 SCC 17 : [2019] 3 SCR 535; EBIX Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (2022) 2 SCC 401; Jaypee

Kensington Boulevard Apartments Welfare Association and Others v. NBCC (India) Limited and Others (2022)

1 SCC 401 : 2021 (5) SCALE 142; Innovative

Industries Limited v. ICICI Bank and another (2018) 1 SCC 407 : [2017] 8 SCR 33; Arcelormittal India Private Limited v. Satish Kumar Gupta and Others (2019) 2 SCC

1 : [2018] 12 SCR 362; Sterling Computers Limited v. M/s M & N Publications Limited and Others (1993) 1 SCC 445 : [1993] 1 SCR 81; Mauleshwar Mani and Others v. Jagdish Prasad and Others (2002) 2 SCC

468 : [2002] 1 SCR 423; B.S.N. Joshi & Sons Limited v. Nair Coal Services Limited and Others (2006) 11 SCC

548 : [2006] 8 Suppl. SCR 11; Jagdish Mandal v. State of Orissa and Others (2007) 14 SCC 517; Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited and Another (2016) 16 SCC 818 : [2016] 3 SCR 551 – referred to.