Mere declaration of person as highest bidder doesn’t amount to completion of auction sale

Case Details: Punjab National Bank v. EVA Agro Feeds (P.) Ltd. - [2022] 138 taxmann.com 243 (NCL-AT)

Judiciary and Counsel Details

• • M. Venugopal | Judicial Member, V.P. Singh & Dr Ashok Kumar Mishra, Technical Member
  • Rajesh Gautam, Nipun Sharma & Anant Gautam, Advs. for the Appellant.
  • Rajshekhar Rao, Sr. Adv., Ms Manju Bhuteria, Ms Sarvapriya Mukherjee, Saurav Gupta, Raghav Kacker & K. Thaker, Advs. for the Respondent.

Facts of the Case

In the instant case, the CIRP was initiated against the corporate debtor, and thereafter an order of liquidation was passed. The liquidator was appointed and in e-auction, the respondent was declared as the successful bidder. However, the liquidator cancelled the said e-auction as the asset was sold at a reserved price and he wanted to sell assets at a higher price.

Respondent filed an interlocutory application before NCLT against the action of the liquidator. The Adjudicating Authority (NCLT) by impugned order allowed the said application holding that there was no irregularity in the e-auction process in terms of Regulation 33 read with the Schedule I of the IBBI (Liquidation Process) Regulations, 2016.

However, one of the financial creditors of the Corporate Debtor filed an appeal before the National Company Law Appellate Tribunal (NCLAT) seeking to set aside the impugned order passed by the NCLT as the financial creditor had a security interest in the said asset of the corporate debtor.

The appellant raised the issue that even if some bids were the highest, it didn’t amount to that the auction had successfully been completed. In addition to this, the bidding terms and conditions gave absolute authority to the liquidator to accept or reject any or all bids or cancel the e-auction at any stage. The highest bidder does not get a vested or acquired right in law.

NCLAT Held

NCLAT observed that Regulation 33(3) of the Liquidation Process Regulation casts a duty upon the Liquidator not to proceed with the sale in the circumstances mentioned therein. Regulation 33(3) is not an exhaustive provision applicable only in the specific circumstances stated therein. Thus, it cannot be said that the Liquidator can cancel an auction only if Regulation 33(3) is attracted. Clause 1(11) of Schedule-I specifically authorises a Liquidator to conduct multiple rounds of auctions to maximise the realisation from the sale of assets.

NCLAT further observed that the Adjudicating Authority in the impugned judgment had only relied upon clause 12 of Schedule I of the Liquidation Process Regulations, 2016 to hold that clause 12 does not vest any discretion in the Liquidator to cancel the auction. However, while arriving at the said conclusion, the Adjudicating Authority has failed to consider that clause 11 of the Schedule I authorises the Liquidator to conduct multiple rounds of the auction to maximise the realisation from the sale of assets and promote the creditors’ best interest

In view of the above, NCLAT held that the auction bidder had not vested right to claim the auction in its favour in a liquidation sale. It was also clear that the terms of auction sale notice that provide absolute right to accept or reject any or all bids or adjourn the E-Auction or withdraw any asset or portion thereof from the E-Auction at any stage without assigning any reason thereof cannot be considered as in violation of the Schedule I of the Liquidation Process Regulations.

Therefore, NCLAT set aside the impugned order passed by the NCLT and directed that Liquidator may initiate the fresh process of the auction in accordance with the laid down provisions of the code.

List of Cases Reviewed

• • Huvepharma Sea (Pune) (P.) Ltd. v. Amrit Feeds Ltd. [2022] 138 taxmann.com 242 (NCLT – Kol.) (para 22) reversed [See Annex].

List of Cases Referred to

• • Purxotoma Ramanata Quenim v. Makan Kalyan Tandel [1974] 2 SCC 169 (para 5)
  • State of Jharkhand v. CWE-SOMA Consortium [2016] 14 SCC 172 (para 5)
  • HUDA v. Orchid Infrastructure Developers (P.) Ltd. [2017] 4 SCC 243 (para 5)
  • State of Orissa v. Harinarayan Jaiswal [1972] 2 SCC 36 (para 5)
  • Meerut Development Authority v. Association of Management Studies [2009] 6 SCC 171 (para 6).