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Issue for consideration:Appellate Tribunal whether justified in upholding the decision of theLiquidator to cancel the auction sale without assigning any reasons.Insolvency and Bankruptcy Code, 2016 – Auction sale cancelledby Liquidator without assigning any reasons – Appellantsubmitted its bid dtd.16.07.21 to Respondent No.2-Liquidatorin respect of the assets of the corporate debtor (in liquidation)– On 20.07.21, appellant received an E-auction certificate fromcertifying that it had won the auction of the subject property–On 21.07.21, the appellant received an email from RespondentNo.2 simply informing that he had cancelled the E-auction u/Clause 3(k) of the Disclaimer Clause in the E-Auction ProcessInformation Document and that a fresh E-auction would beconducted– Appellant filed application before the Tribunal–Tribunal directed the respondent No.2 vide order dtd. 12.08.21to send a communication to the appellant requiring him todeposit the balance sale consideration– Letter issued to theappellant, entire sum was deposited – Sale certificate issuedin favour of the appellant – Respondent No.1-financial creditorfiled appeal against order dtd. 12.08.21– Appellate Tribunal setaside the said order and reversed the steps taken pursuantthereto, liberty given to the Respondent No.2 to initiate freshprocess of auction – He issued sale notice dtd. 24.12.2021 forE-auction sale of the subject property – Auction scheduledstayedHeld: No reasons were assigned by the Liquidator for cancellationof the E-auction – While the highest bidder has no indefeasibleright to demand acceptance of his bid, the Liquidator if he doesnot want to accept the bid of the highest bidder has to applyhis mind to the relevant factors – Such application of mindmust be visible or manifest in the rejection order itself – It isincomprehensible that an administrative authority can take adecision without disclosing the reasons for taking a decisionaffecting the rights of parties – Further, while it is true that para1(11A), stating that where the Liquidator rejects the highest bidin an auction process, he shall intimate the reasons for suchrejection to the highest bidder and mention it in the next progressreport, came to be inserted in Schedule 1 to the Regulations w.e.f30.09.21, it does not imply that an auction sale or the highest bidprior to the aforesaid date could be cancelled by the Liquidatorexercising unfettered discretion and without furnishing any reason– Furthermore, in the present case, even after cancelling thehighest bid of the appellant, in the subsequent sale notice dtd.24.12.21, Respondent No.2 again fixed the reserve price of thesubject property at Rs.10 crores which was the reserve price inthe previous round of auction sale and which was also the bidvalue of the appellant – There was no rationale or justification inrejecting the bid of the appellant and going for another round ofauction at the same reserve price – Merely because the Liquidatorhas the discretion of carrying out multiple auction it does notnecessarily imply that he would abandon or cancel a valid auctionfetching a reasonable price and opt for another round of auctionprocess with the expectation of a better price – There can beno absolute or unfettered discretion on the part of the Liquidatorto cancel an auction which is otherwise valid – Tribunal rightlyheld that there were no objective materials before the Liquidatorto cancel the auction process and to opt for another round ofauction – Appellate Tribunal not justified in setting aside the orderof the Tribunal dtd. 12.08.2021 – Impugned order set aside, orderdtd. 12.08.2021 restored – Insolvency and Bankruptcy Boardof India (Liquidation Process) Regulations, 2016– Regulation33; Schedule 1, Para 1(11A)– Auction– National Company LawTribunal Rules, 2016– Administrative Law – Principles of naturaljustice. [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 arguedthat one ‘VKG’, the director and principal shareholder of theappellant was also one of the promotor director and principalshareholder of the corporate debtor and therefore, a ‘relatedparty’ of the corporate debtor and as such was not eligible;rather debarred from participating in the auction of the subjectproperty of the corporate debtor:Held: The disqualification sought to be attached to the appellantis without any substance as the related party had ceased to be inthe helm of affairs of the corporate debtor more than a decade ago– He was not in charge of the company or an influential memberof the company i.e., the corporate debtor when the appellant hadmade its bid pursuant to the auction sale notice. [Para 50]Insolvency and Bankruptcy Board of India (LiquidationProcess) Regulations, 2016 – Schedule 1, Para 1(11A) – Pleaof the intervenor that since para 1(11A) was inserted inSchedule I vide notification dtd.30.09.2021 w.e.f 30.09.2021and this provision is prospective thus, it cannot be appliedto auctions conducted prior to 30.09.2021, including theauction in question – Therefore, there was no requirementfor the Liquidator to give reasons for cancellation of the bidof the appellant:Held: Plea not accepted – Furnishing of reasons is an importantaspect rather a check on the arbitrary exercise of power – Itpresupposes application of mind to the relevant factors andconsideration by the concerned authority before passing an order –Absence of reasons may be a good reason to draw inference thatthe decision making process was arbitrary – Therefore, what para1(11A) has done is to give statutory recognition to the requirementfor furnishing reasons, if the Liquidator wishes to reject the bid ofthe highest bidder – Furnishing of reasons, which is an integralfacet of the principles of natural justice, is embedded in a provisionor action, whereby the highest bid is rejected by the Liquidator –Thus, what para 1(11A) has done is to give statutory recognitionto this well-established principle – It has made explicit what wasimplicit. [Para 29]Insolvency and Bankruptcy Code, 2016 – Powers and dutiesof the Liquidator – Discussed – Insolvency and BankruptcyBoard of India (Liquidation Process) Regulations, 2016. |
