2020 (3) TMI 164 - AT - Insolvency and Bankruptcy

Appeal granted, orders set aside, Maithan Alloys to complete sale, fines for hampering process. Upholding auction terms vital.

The appeal was allowed, setting aside the impugned orders. Maithan Alloys Limited was directed to complete the sale transaction by paying the balance sale ... Maintainability of appeal under Section 61(1) of the IBC - interference by adjudicating authority in a public auction conducted by a liquidator - sanctity of public auction and grounds for reopening sale (fraud or collusion) - power of liquidator to sell property by public auction under Section 35(1)(f) of the IBC - application of Regulation 32 and Regulation 33 of the IBBI (Liquidation Process) Regulations, 2016 - relief of directing completion of sale and consequences of wrongful withdrawal - imposition of costs/penalty for derailing the liquidation processMaintainability of appeal under Section 61(1) of the IBC - Appellate Tribunal's jurisdiction to entertain the appeal filed by the Financial Creditor (SBI). - HELD THAT: - The Tribunal held that the appeal is maintainable under Section 61(1) of the IBC, which entitles any person aggrieved by an order of the Adjudicating Authority to prefer an appeal. Given SBI's stake as the lead Financial Creditor and its objection to the NCLT's intervention in the liquidation auction, SBI was entitled to challenge the impugned orders before this Appellate Tribunal. [Paras 16, 30]Appeal is maintainable and entertained.Interference by adjudicating authority in a public auction conducted by a liquidator - sanctity of public auction and grounds for reopening sale (fraud or collusion) - power of liquidator to sell property by public auction under Section 35(1)(f) of the IBC - application of Regulation 32 and Regulation 33 of the IBBI (Liquidation Process) Regulations, 2016 - Whether the NCLT was justified in entertaining an oral offer after conclusion of the public auction, permitting the earlier successful bidder to withdraw and directing sale in favour of the later bidders. - HELD THAT: - The Tribunal found that the auction in favour of Respondent No.1 (Maithan Alloys) was conducted in accordance with the terms and conditions and that there was no allegation of fraud or collusion on the record. Regulation 32 permits sale by auction and Regulation 33(3) requires report to the Adjudicating Authority only if there is reason to believe in collusion. Section 35(1)(f) empowers the liquidator to sell by public auction. In the absence of allegations of fraud or collusion and no contractual provision permitting unilateral withdrawal by the successful bidder, the Adjudicating Authority erred in permitting intervention and in approving a later oral offer which derailed the concluded auction. The Tribunal observed that permitting such interference would jeopardise the liquidation process and undermine maximisation of asset value. [Paras 33, 34, 35, 36, 38]NCLT's orders approving the later oral offer and permitting withdrawal of the earlier successful bidder were erroneous and are set aside.Relief of directing completion of sale and consequences of wrongful withdrawal - Whether Respondent No.1 should be directed to complete the sale by paying the balance sale consideration. - HELD THAT: - On setting aside the impugned orders which had allowed withdrawal of the successful bidder and approved a later offer, the Tribunal directed that Respondent No.1 (the earlier successful bidder) complete the sale transaction by paying the balance consideration in accordance with the auction terms. The direction follows from the conclusion that the earlier auction stood, there being no valid ground (fraud/collusion) shown to reopen it. [Paras 36]Respondent No.1 directed to complete the sale transaction by paying the sale consideration.Imposition of costs/penalty for derailing the liquidation process - Imposition of penalty on parties who derailed and delayed the liquidation process by wrongfully challenging and obstructing the auction. - HELD THAT: - The Tribunal found that Respondents 2 to 4, by filing belated objections and offering an after-the-fact oral higher bid without requisite eligibility/compliance, hampered and derailed the liquidation process. In exercise of its authority to vindicate the liquidation process and deter such conduct, the Tribunal imposed a monetary penalty on each of R-2 to R-4 to be paid to the corporate debtor and handed over to the liquidator within the stipulated time. [Paras 37, 38]Respondents 2 to 4 directed to pay a penalty (as ordered) to the corporate debtor; amount to be deposited with the liquidator within 30 days.Final Conclusion: The appeal is allowed: the impugned NCLT orders dated 25-9-2019, 23-10-2019 and 06-11-2019 are set aside; Respondent No.1 is directed to complete the sale by paying the balance consideration; Respondents 2-4 are penalised for derailing the liquidation process and ordered to deposit the penalty with the corporate debtor's liquidator; interim orders, if any, are vacated. Issues Involved:1. Validity of the public auction process.2. Withdrawal of the successful bidder.3. Jurisdiction and authority of NCLT to interfere in the auction process.4. Compliance with the terms and conditions of the auction.5. The role and conduct of the liquidator.6. The locus standi of the appellant to file the appeal.7. Imposition of penalties on respondents for derailing the liquidation process.Detailed Analysis:1. Validity of the Public Auction Process:The auction process was initiated by the liquidator to sell the Corporate Debtor as a going concern. The first auction with a reserve price of Rs. 80 Cr. received no response, leading to a second auction with a reduced reserve price of Rs. 68 Cr. Respondent No. 1 (Maithan Alloys Limited) was declared the successful bidder, having complied with the terms and conditions by depositing the requisite amounts.2. Withdrawal of the Successful Bidder:Respondent No. 1, Maithan Alloys Limited, after being declared the successful bidder and depositing 25% of the sale price, sought to withdraw from the auction process. The NCLT permitted this withdrawal and directed the liquidator to refund the amount deposited by Maithan Alloys Limited. The NCLT also entertained a higher bid from Respondents 2 to 4, which was made orally in court.3. Jurisdiction and Authority of NCLT to Interfere in the Auction Process:The NCLT's interference in the auction process was challenged by the appellant. The appellant argued that there is no provision under the IBC or Liquidation Regulations that allows the NCLT to interfere with a public auction conducted by the liquidator. The NCLT's decision to entertain an oral offer and direct the liquidator to consider it was deemed erroneous.4. Compliance with the Terms and Conditions of the Auction:The terms and conditions of the auction required the successful bidder to deposit 25% of the sale price within 7 days and the balance within 30 days. The NCLT's decision to allow Respondents 2 to 4 to participate and make a higher bid after the auction process was concluded was seen as a violation of these terms and conditions.5. The Role and Conduct of the Liquidator:The liquidator acted in accordance with the terms and conditions of the auction by declaring Maithan Alloys Limited as the successful bidder. The liquidator also sought to ensure that the company was sold as a going concern to maximize the value of the assets. The liquidator's decision to reject the bid from Respondents 2 to 4 due to non-compliance with the eligibility criteria was supported by the appellant.6. The Locus Standi of the Appellant to File the Appeal:The appellant, being the financial creditor with a significant stake of Rs. 469.29 Cr. in the Corporate Debtor, was deemed to have the locus standi to file the appeal under Section 61(1) of the IBC, which allows any person aggrieved by the order of the Adjudicating Authority to file an appeal.7. Imposition of Penalties on Respondents for Derailing the Liquidation Process:Respondents 2 to 4 were found to have derailed and delayed the liquidation process by filing objections and making a higher bid after the auction process was concluded. The NCLT's decision to entertain their bid and allow them to participate was seen as creating unnecessary delays and jeopardizing the liquidation process. Consequently, a fine of Rs. 10 Lakhs each was imposed on Respondents 2 to 4.Conclusion:The appeal was allowed, and the impugned orders dated 25-9-2019, 23-10-2019, and 06-11-2019 were set aside. Maithan Alloys Limited was directed to complete the sale transaction by paying the balance sale consideration. Respondents 2 to 4 were fined Rs. 10 Lakhs each for hampering and derailing the liquidation process. The judgment emphasized that allowing such interventions in public auctions would jeopardize the liquidation process and reduce the value of the Corporate Debtor's assets.