V.S. Palanivel vs P. Sriram, CS, Liquidator, Etc.

Held: The Notice for sale of assets issued by the Liquidator for conducting the e-auction of the land and building owned by the Corporate Debtor that declared the reserve price of the subject property as ₹29,55,96,375/- – The e-auction of the subject property took place on 23.12.2019 – Going by the Notice for sale issued by the Liquidator, the period of 90 days available to the Auction Purchaser to deposit the balance sale consideration, if reckoned from 24.12.2019, the date when the Liquidator informed that it was the successful bidder, would have expired on 23.03.2020 – However, the Letter of Intent issued by the Liquidator on 24.12.2019, was received by the Auction Purchaser on 26.12.2019 – The period of 90 days reckoned from 26.12.2019 would have expired on 25.03.2020 – Admittedly, the balance sale consideration was not paid by the Auction Purchaser within the aforesaid timeline – The said amount was deposited by the Auction Purchaser through RTGS only on 24.08.2020 – The Supreme Court in a Sou Motu writ petition took cognizance of the situation arising out of the challenge faced by the country on account of Covid-19 virus and extended limitation w.e.f 15.03.2020 – The Auction Purchaser has also invoked Regulation 47A of the IBBI Regulations, 2016 – The submission made on behalf of the appellant that the word ‘Litigants’ used in the order dated 23.03.2020 passed in the Suo Moto Writ Petition ought to be given a narrow interpretation so as to exclude a party like the Auction Purchaser herein as stricto sensu, cannot be accepted – The appellant cannot be heard to state that when the entire country was engulfed by the Covid-19 pandemic and a countrywide lockdown was imposed on 25.03.2020 that was extended from time to time, the Auction Purchaser ought to have deposited the balance sale consideration within the stipulated 90 days – In such a situation, a lenient view would have to be taken by the Court – In the present case, as noticed, the period of 90 days for depositing the balance sale consideration had expired just after the crucial date, i.e., 23.03.2020 – There is no merit in the submission made by the appellant that the Tribunal ought not to have accepted the view taken by the Adjudicating Authority that Covid-19 lockdown was a valid reason for extension of time to deposit the balance sale consideration. [Paras 32.2, 32.3, 32.5, 32.6, 32.12] Insolvency and Bankruptcy Code, 2016 – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 – Whether the appellant was justified in alleging that the subject property was under-valued:

Held: If the appellant was so confident that the subject property would have fetched a much higher price, nothing precluded him from identifying a bidder who was willing to offer a better price – In fact, such a suggestion was made by the Liquidator in his reply dated 15.11.2019 to the objection taken by the appellant to the estimated value of the subject property in his letter dated 08.11.2019 – Again, the Liquidator wrote a letter dated 27.11.2019 to the appellant suggesting that ask eligible parties willing to offer a better price to participate in the auction process – The appellant did not follow up after that – Therefore, the appellant cannot be permitted to argue that since the tax value of the subject property was estimated by the Registered Valuers at above ₹48 crores, the Liquidator ought not to have fixed the reserve price at ₹39,41,28,500/- for the simple reason that though the reports of the Registered Valuers mentioned the tax value of the subject property at a little above ₹48 crores, but the liquidation value in both the reports was much lower and the Liquidator arrived at the average of the two estimated liquidation values to fix the reserve price of the subject property. [Paras 33.5, 33.6] Insolvency and Bankruptcy Code, 2016 – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 – Regulation 31A – Whether it was incumbent for the Liquidator to constitute a Stakeholders’ Consultation Committee:

Held: By virtue of the Notification dated 28.04.2022, an Explanation was appended at the foot of Regulation 31A which clarifies that the requirement of constituting a Stakeholders’ Consultation Committee shall apply only to those liquidation processes that were to commence on/after the date of commencement of the IBBI Regulation, 2016 – In the present case, the liquidation process in respect of the company had commenced on 17.07.2019 and therefore, the submission made by the appellant that the Liquidator has breached Regulation 31A of the IBBI Regulations, 2016 by not constituting a Stakeholders’ Consultation Committee, is devoid of merits – That apart, the record reveals, that the Liquidator had sent a reply on 15.11.2019 to a written objection taken by the appellant on the Valuation reports submitted by the Registered Valuers on 08.11.2019, wherein, it was stated that neither he nor the other ex-Directors of the company had responded to the Liquidator’s suggestion for calling a meeting of the CoC – Despite this, neither the appellant nor the other ex-Directors of the company took any step to depute a person from amongst them to be a part of the Stakeholders’ Consultation Committee – In view of the aforesaid facts, the objection taken by the appellant that the Liquidator has breached Regulation 31A, does not hold any water –Nor is the Court inclined to examine the submission made at the instance of the appellant that in the absence of any explanation appended to Regulation 31A as it stood before 25.07.2019, it was incumbent for the Liquidator to have constituted a Stakeholders’ Consultation Committee. [Para 34.3] Insolvency and Bankruptcy Code, 2016 – S. 35 – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 – Regulation 33, Schedule I, Rule 12 – National Company Law Tribunal Rules, 2016 – R.11 – Whether Liquidator had violated Regulation 33 of the IBBI Regulations, 2016: Held: Schedule I under Regulation 33 lays down the manner in which the assets of the Corporate Debtor are to be sold by the Liquidator – Rule 12 under Schedule I, would have to be treated as mandatory in character for the reason that it contemplates a consequence in the event of non-payment of the balance sale consideration by the highest bidder within the stipulated timeline of 90 days, which is cancellation of the sale by the Liquidator – To that extent, there is substance in the submission made on behalf of the appellant that since the second proviso under Rule 12 contemplates a consequence of cancellation of the auction on non-payment of the balance sale consideration within 90 days, the Liquidator was not empowered to extend the timeline – In the present case, records reveal that when the Auction Purchaser had approached the Liquidator seeking extension of time to deposit the balance sale consideration – The Liquidator had rightly expressed his inability to do so and indicated that such a power vests only in the Adjudicating Authority – On receiving the aforesaid response, the Auction Purchaser did take steps to move the Adjudicating Authority for seeking extension of time for making the payments – It is a matter of record that the said application was allowed by the Adjudicating Authority on 05.05.2020 and time was granted to the Auction Purchaser to pay the balance sale consideration on the Central Government/State Government lifting the lockdown – The said order was passed by the Adjudicating Authority in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016 – In the facts of the present case, the Adjudicating Authority exercised statutory powers under Section 35 of the IBC read with its inherent powers under Rule 11 of the NCLT Rules, 2016 for extending the time to deposit the balance sale consideration on sufficient cause being shown, i.e., in view of the countrywide lockdown due to the Covid-19 pandemic – This latitude that was given in the aforesaid extraordinary circumstances to meet the ends of justice, cannot be faulted. [Paras 35.1, 35.11, 35.14, 35.16]

Insolvency and Bankruptcy Code, 2016 – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 – Schedule I, Rule 12 and Rule 13 – What is the import of the order of attachment issued by the Income Tax Authorities in respect of the auctioned property:

Held: Rule 12 is held to be mandatory in character because nonpayment within the timeline has consequences attached to it – However, in contrast thereto, there are no adverse consequences spelt out in Rule 13 for it to be treated as mandatory – The said Rule lays down the procedure for completion of the sale and would have to be treated as directory since some procedural steps have been set out for purposes of completion of the sale process, but nothing beyond that – This Court is therefore not inclined to accept the submissions made by the respondents that none of the activities as contemplated in Rule 12 could have been completed unless and until the attachment order passed by the Income Tax Authorities was lifted or that the Liquidator was not in a position to complete the sale under Rule13 on that count – On an overall conspectus of the facts of the present case which brings out the glaring default on the part of the Auction Purchaser in making deposit of the balance sale consideration even after permission was granted by the Adjudicating Authority on 10.02.2020 to lift the attachment order, the only question that needs to be answered is as to whether this Court should proceed to set aside the auction and as a sequence thereto, declare as null and void, the sale certificate issued by the Liquidator in favour of the Auction Purchaser, as has been pleaded by the appellant – The Subject land is now an operational hospital – Huge amounts have been pumped into the project by the Auction Purchaser – In contrast, the appellant has not been a vigilant litigant – He has dragged his feet at every stage – It took 19 months for the appellant to prefer an appeal before the Tribunal against the order passed by the Adjudicating Authority – Also, it is a well settled legal position that once auction is confirmed, it ought to be interfered with on fairly limited grounds – In the given facts, the sale deed cannot be declared void. [Paras 36.9, 36.12, 36.14]