EVA AGRO FEEDS PRIVATE LIMITED vs PUNJAB NATIONAL BANK
Civil Appeal 7906 of 2021
Facts:
1.An application under Section 9 of the Code against M/s. Amrit Feeds Limited i.e. corporate debtor before the Tribunal. The same was registered as CP(IB) No.440/KB/2018. The Tribunal passed an order dated 22.10.2019 admitting the application filed under Section 9 of the Code as a result of which corporate insolvency resolution process of the corporate debtor commenced. On 19.02.2021, the Tribunal passed an order for liquidation of the corporate debtor. Respondent No.2 was appointed as the Liquidator to oversee the corporate insolvency resolution process.
2.Auction notice for the sale of assets was published. Appellant submitted its bid dated 16.07.2021 to Respondent No.2 on 17.07.2021 in respect of the assets of the corporate debtor (in liquidation). The assets put up for auction were lands admeasuring 1,05,250.40 sqft at Plot No.56, Khata Nos.27, 26, 29, 36, 36 (Old) and 362/363 (New), Mouza – Deoria, Pargana Bhuli, Tehsil – Chunar, District – Mirzapur, Uttar Pradesh with building, plant and machinery and other fixed assets thereon on a lump sum basis as mentioned in the sale notice.
3.In terms of the sale notice, appellant paid the earnest money deposit (EMD) of Rs.1 crore in respect of the subject property. While the last date/time for submission of bid was 20.07.2021 at 14:30 hours, appellant had submitted its bid on 19.07.2021 for a sum of Rs.10 crores which was equivalent to the reserve price as notified in the bid which ended at 14:30 hours on 20.07.2021. On 20.07.2021, appellant received an E-auction certificate from Respondent No.2 certifying that it had won the auction for the assets of the corporate debtor put up for auction sale (referred to hereinafter as the ‘subject property’). On 21.07.2021, appellant by way of an e-mail requested Respondent No.2 to issue allotment letter in respect of the subject property.
4.On 21.07.2021 itself appellant received an e-mail of the aforesaid date from Respondent No.2 informing that Respondent No.2 had cancelled the E-auction held on 20.07.2021 under Clause 3(k) of the Disclaimer Clause in the E Auction Process Information Document. The appellant was further informed that a fresh E-auction would be conducted for the subject property.
5.Appellant filed appeal before the Tribunal which by way order dated 12.08.2021 disposed of the said application by directing the Liquidator i.e. respondent No.2 to send a communication to the appellant requiring him to deposit the balance sale consideration within the time specified in the E-auction notice. Respondent No.2 complied with the order of the Tribunal and issued a letter to the appellant to deposit the balance consideration money. Pursuant to the said letter, appellant deposited the entire sum on 10.09.2021 following which Respondent No.2 issued a sale certificate dated 15.09.2021 in respect of the subject property in favour of the appellant.
6.Appeal was filed against the above order before the NCLAT wherein the NCLAT by way of order dated 30.11.2021,a allowed the appeal and set aside the order dated 12.08.2021 passed by the Tribunal. Consequently, the steps taken pursuant to the said order were also reversed. Liquidator was given liberty to initiate fresh process of auction in accordance with the provisions of the Code read with The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
7.Against the above order this appeal has been filed.
Issue: Whether the order passed by NCLAT is liable to be set aside?
Arguments:
Appellant:
1.Counsel for the appellant at the outset submits that Appellate Tribunal fell in complete error in setting aside the order of the Tribunal and restoring the order of the Liquidator. Adverting to the order of the Liquidator cancelling the auction sale, he submits that the same is devoid of any reasons. Such an order is not only arbitrary but is non est in the eye of law. There could not have been any occasion for the Liquidator to go for a fresh auction keeping the reserve price at the same amount of Rs.10 crores which was the bid offered by the appellant and accepted by the Liquidator
2.Appellant has stated that the adjudicating authority i.e., the Tribunal had rightly set aside the decision of the Liquidator (Respondent No.2). Respondent No.2 after issuing the certificate certifying that appellant had won the auction of the subject property, cancelled the E-auction without giving any justification or reason for such cancellation. Referring to Clause 3 (a) of the E-Auction Process Information Document, appellant has contended that the said clause is contrary to the Regulations. In the facts and circumstances of the case, Respondent No.2 could not have cancelled the auction. Such act of cancellation of E-auction was wholly illegal and arbitrary.
3.Respondent No.1 has misinterpreted Clause 3 (k) to mean that since full amount was not paid, it was entitled to invoke the said clause and cancel the bid. Such a contention is wholly untenable having regard to the overall scheme of the Regulations. No reasons were assigned by the Liquidator while cancelling the auction process
Respondent:
1.Respondent in counter affidavit pleaded that the appeal deserves to be dismissed at the threshold and that the impugned order of the Appellate Tribunal upholding the decision of the Liquidator to cancel the auction sale is fully justified. Appellant was the sole bidder and quoted exactly the reserve price.
2.It is submitted that it is a settled position that any auction sale, before completion, can always be cancelled. Tribunal had overlooked the provisions contained in Clause-13 of the Regulations which makes it clear that auction sale shall stand completed only on payment of full amount and not at the stage when the highest bidder is invited to provide balance sale consideration within 90 days from the date of demand. Tribunal relied upon Clause 12 of the Regulations as per which, on the closure of auction, the highest bidder shall be invited to provide the balance sale consideration within 90 days of the date of demand; first proviso mentions that payments made after 30 days would attract interest of 12% with the second proviso clarifying that the sale would be cancelled if the payment is not received within 90 days.
3.There is no express bar or prohibition either under the Code or under the Regulations restraining the Liquidator from cancelling an auction sale even after declaration of the highest bidder but before completion of sale as understood under Clause 13 of the Regulations. In the absence of such express bar or prohibition and when the auction sale was yet to be concluded, Liquidator was well within his rights in cancelling the auction sale with the intent to have another round of auction sale
4.Respondent no.2 has contended that while submitting its bid for the subject property, the appellant was well aware of the terms and conditions governing the sale by auction. Appellant expressly accepted the aforesaid terms and conditions while submitting its application dated 16.07.2021 for participating in the auction bid process. According to him, on expiry of the time to submit bids on 20.07.2021, an auto generated e-mail from the web portal of ‘eauctioneer.com’ was sent to the appellant stating that the bid submitted by it was the highest.
Decision: Supreme Court set aside the order of NCLAT and uphled the order of NCLT.
Rationale:
1.Hon’ble SC noted that in the event of a conflict between the E-Auction Process Information Document and the Code or the Regulations, provisions of the Code or the Regulations, as the case may be, would prevail. Mandate of Clause 2(r) is that the successful bidder would have to take over possession of the movable assets being sold under the E-auction within 15 days from the date of the complete payment to the Liquidator without any damage to the premises where the assets were kept.
2.Hon’ble Court after reading down the language of the mail of Respondent noted that no reasons were assigned by the Liquidator for cancellation of the E-auction held on 20.07.2021. Appellant was simply informed that the E-auction was cancelled in terms of Clause 3(k) of the E-Auction Process Information Document. Clause 3 (k) as discussed above only declares that the Liquidator has absolute right to accept or reject any or all bids or adjourn/postpone/cancel the E-auction etc., at any stage without assigning any reason therefore.
3.Hon’ble court noted that While it is true that para 1(11A) came to be inserted in Schedule 1 to the Regulations with effect from 30.09.2021, 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. It is trite law that furnishing of reasons is an important aspect rather a check on the arbitrary exercise of power.
4.It also noted that 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.
5.In so far the present case is concerned, we have already noted the language employed by the Liquidator at the end of the bidding process. Vide the e-mail dated 21.07.2021 the appellant was informed that it had won the auction and that its winning order had been prepared. The language of this e-mail clearly indicates finality of the decision making by the Liquidator.
6.If we read the provisions of Schedule-I, more particularly paras 1(11) to (13) thereof, in a conjoint manner a view may reasonably be taken that ordinarily the highest bid may be accepted by the Liquidator unless there are statutory infirmities in the bidding or the bidding is collusive in nature or there is an element of fraud in the bidding process.
7.It held that mere expectation of the Liquidator that a still higher price may be obtained can be no good ground to cancel an otherwise valid auction and go for another round of auction. Such a cause of action would not only lead to incurring of avoidable expenses but also erode credibility of the auction process itself. That apart, post auction it is not open to the Liquidator to act on third party communication and cancel an auction, unless it is found that fraud or collusion had vitiated the auction. The necessary corollary that follows therefrom is that there can be no absolute or unfettered discretion on the part of the Liquidator to cancel an auction which is otherwise valid.
Order Copy:
