Liquidation auction cancellation needs reasons; related party disqualification under insolvency law applies only to current statutory connections.

A liquidator's power to cancel a liquidation auction is not unfettered: reasons must be recorded, and a valid highest bid cannot be rejected arbitrarily merely in hope of a better price. On the facts described, the auction cancellation was unsustainable because no reasons were given and the reserve price remained unchanged. Section 29A disqualification for a related party applies only where the bidder remains legally connected with the corporate debtor in the manner contemplated by the Code at the relevant time. A person who had ceased to be connected long before the auction was not disqualified. The auction could not be annulled on the grounds raised.

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Issues: (i) Whether the Liquidator could cancel the auction of the corporate debtor's assets after declaring the appellant as the highest bidder, without assigning reasons; (ii) Whether the appellant was disqualified from participating in the auction on the ground that it was a related party of the corporate debtor under Section 29A of the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether the Liquidator could cancel the auction of the corporate debtor's assets after declaring the appellant as the highest bidder, without assigning reasons.

Analysis: The liquidation framework under Sections 34, 35 and 36 of the Insolvency and Bankruptcy Code, 2016 and Regulations 32, 33 and 35 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 permits auction of assets to maximize realization, including multiple rounds in appropriate cases. However, the power to reject a highest bid or cancel an auction is not an unfettered or arbitrary power. The requirement to record reasons is an integral facet of natural justice and a check against arbitrariness. Paras 1(11), 1(12) and 1(13) of Schedule I indicate that the highest bidder is invited to pay the balance consideration and the sale is completed only on full payment, but they do not authorize a reasonless cancellation of a valid auction merely on an expectation of a better price. In the facts, the cancellation communication disclosed no reasons, and the subsequent reserve price was kept at the same level, which undermined the justification for cancellation.

Conclusion: The cancellation of the auction without reasons was unjustified and unsustainable; the finding is in favour of the appellant.

Issue (ii): Whether the appellant was disqualified from participating in the auction on the ground that it was a related party of the corporate debtor under Section 29A of the Insolvency and Bankruptcy Code, 2016.

Analysis: The disqualification under Section 29A is aimed at preventing ineligible persons who remain connected with the business activity or control of the corporate debtor from re-entering through the insolvency process. The definitions in Sections 5(24) and 5(24A) must be read in the statutory context, and the expression related party is not to be applied mechanically to a person who had ceased to be involved with the corporate debtor long before the auction. On the facts found, the relevant person had ceased to be connected with the corporate debtor more than a decade earlier and was not shown to be in control of, or influential in, the corporate debtor at the time of bidding. The asserted disqualification therefore lacked a legal foundation.

Conclusion: The appellant was not hit by the related party disqualification under Section 29A; the finding is in favour of the appellant.

Final Conclusion: The appellate tribunal's interference with the tribunal's order was unwarranted, and the liquidation auction could not be annulled on the grounds urged against the appellant.

Ratio Decidendi: A liquidator exercising power in a liquidation auction cannot cancel a valid highest bid arbitrarily and without reasons, and a related-party disqualification under the insolvency code applies only where the bidder remains legally connected with the corporate debtor in a manner contemplated by the statute at the relevant time.

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