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Issues: (i) Whether the e-auction process for sale of the corporate debtor as a going concern suffered from material irregularities for want of reasonable opportunity, physical inspection and due diligence by intending bidders. (ii) Whether the liquidator acted unreasonably in not extending the auction process further and in not verifying the suitability of the successful bidder for running the corporate debtor as a going concern. (iii) Whether the concluded e-auction and the letter of intent issued in favour of the highest bidder were liable to be set aside and a fresh auction directed.
Issue (i): Whether the e-auction process for sale of the corporate debtor as a going concern suffered from material irregularities for want of reasonable opportunity, physical inspection and due diligence by intending bidders.
Analysis: The original auction notice contemplated site inspection and due diligence before submission of bids. The subsequent corrigendum extended the time for EMD and auction, but did not correspondingly preserve an adequate opportunity for inspection and due diligence. In a sale of assets in liquidation, especially of a business to be sold as a going concern, the process must be fair and must afford intending bidders a realistic chance to assess the assets. The omission to give such opportunity materially affected the fairness of the process.
Conclusion: Yes. The auction process was vitiated by material irregularity and lack of fair opportunity.
Issue (ii): Whether the liquidator acted unreasonably in not extending the auction process further and in not verifying the suitability of the successful bidder for running the corporate debtor as a going concern.
Analysis: The liquidator had initially received no bid and thus had time to ensure a better process for value maximization. The record also showed that the successful bidder was an LLP with no turnover in the relevant years, yet no meaningful due diligence was undertaken as to its capacity to continue the business as a going concern and protect the interests of stakeholders and workmen. Applying the standard of reasonableness in administrative action, the decision-making was found wanting because relevant considerations were not properly addressed.
Conclusion: Yes. The liquidator's approach was found to be unreasonable and inadequate.
Issue (iii): Whether the concluded e-auction and the letter of intent issued in favour of the highest bidder were liable to be set aside and a fresh auction directed.
Analysis: Since the auction process was found unfair and not conducive to maximization of value, the sanctity of the concluded auction could not be preserved. The appropriate course was to undo the impugned process and direct a fresh bidding exercise so that all intending bidders get a fair and reasonable opportunity and the assets are sold on terms likely to realize the best value.
Conclusion: Yes. The auction and the letter of intent were set aside and a fresh auction was directed.
Final Conclusion: The applications succeeded. The impugned e-auction process was invalidated, and the liquidator was directed to recommence the sale process afresh in a fair manner to secure value maximization.
Ratio Decidendi: A liquidation auction for sale of a corporate debtor as a going concern can be set aside where the process is unfair, denies intending bidders a reasonable opportunity to inspect and evaluate the assets, and fails to reflect proper due diligence and value maximization.
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