2024 (6) TMI 714 - HC - Insolvency and Bankruptcy

IRP cannot claim bid amount after auction set aside and refund ordered under CIRP proceedings

Central Bank of India and M/s Kaur Sain Spinners Ltd. Versus Union of India and others and Additional District Magistrate, Khanna, Ludhiana and others

Punjab and Haryana HC disposed of writ petitions as infructuous after directing release of bid amount to successful auction bidder. The auction conducted ... Auction sale - CIRP proceedings under IBC - Refund of bid amount deposited by the successful bidder - Seeking possession of property u/s 14 of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - HELD THAT:- There is no merit in the objection raised by learned counsel for IRP appointed by learned NCLT qua the prayer for release of bid amount by respondent No. 9. Factual aspect of auction having been conducted on 05.11.2021, subsequent decision on the objections by Recovery Officer and setting aside of auction proceedings as well as sale in favour of respondent No. 9 vide order dated 24.04.2023 passed by Recovery Officer, is also a matter of record. With passing of order dated 24.04.2023, which as per information provided to us, stands unchallenged as on date, sale of property in question in favour of respondent No. 9 clearly does not exist. It is a matter of record that refund of the amount in question has been ordered vide order dated 24.04.2023. It is to be noted that any money, amount or property which may be for the benefit of corporate debtor can doubtlessly not be directed to be released or dealt with by this Court at this stage in view of proceedings before NCLT. However, in the present given factual matrix, it cannot be held by any stretch of imagination that corporate debtor has any legal right or beneficial interest qua the bid amount which has been deposited by the auction purchaser (respondent No. 9) in respect to auction/sale which has admittedly been set aside with refund thereof being ordered and the said order not being challenged till date. No right over the same vests in respondent No. 9 and conversely corporate debtor or the Bank also do not have any right to claim money deposited towards bid amount, admittedly lying with Recovery Officer. Said money/amount cannot be stated to be for the benefit of corporate debtor. Once that be the position, it cannot be said that this Court would not have jurisdiction to direct release of said amount. It would indeed be imminently unjust towards respondent No. 9 to insist that application should now be filed by it before learned NCLT. It is, thus, held that respondent No. 9 is entitled to release of the amount deposited by it in terms of order dated 24.04.2023. It is directed that amount deposited by respondent No. 9 be released by Recovery Officer expeditiously in terms of order dated 24.04.2023. With the said direction, both writ petitions are disposed of as infructuous at this stage, without expression of opinion on the merit of the matter or even entertainability thereof, keeping in view the passing of order dated 14.05.2024 by learned NCLT, Chandigarh Bench. Petition disposed off. Issues Involved:1. Setting aside orders dated 25.10.2021 and 28.10.2021 by the Recovery Officer, DRT-III, Chandigarh.2. Seeking possession of property under SARFAESI Act.3. Refund of bid amount deposited by the successful bidder after the auction was set aside.4. Objections to the proclamation of sale and auction proceedings.5. Impact of the moratorium under Section 14 of IBC 2016 on the refund of the bid amount.Issue-Wise Detailed Analysis:1. Setting Aside Orders Dated 25.10.2021 and 28.10.2021 by the Recovery Officer, DRT-III, Chandigarh:The Central Bank of India filed CWP-22367-2021 to set aside the orders dated 25.10.2021 and 28.10.2021 passed by the Recovery Officer, DRT-III, Chandigarh. The bank sought directions for the Recovery Officer to proceed with the auction of properties as per the proclamation of sale notice issued on 07.09.2021. The Recovery Officer had initially directed the auction to be put on hold and required a fresh valuation from a new empanelled valuer. However, the orders were challenged, and the court issued a notice of motion, allowing the auction to proceed but without confirming the sale.2. Seeking Possession of Property Under SARFAESI Act:M/s Kaur Sain Spinners Limited filed CWP-11117-2022 seeking to set aside the notice dated 11.05.2022 issued by Tehsildar-cum-Executive Magistrate, Samrala, which sought possession of property pursuant to an order dated 07.12.2021 under Section 14 of the SARFAESI Act. The corporate debtor also sought to restrain the bank from dispossessing them of the property and to stay all proceedings under the SARFAESI Act.3. Refund of Bid Amount Deposited by the Successful Bidder After the Auction Was Set Aside:During the pendency of the writ petitions, an application under Section 7 of IBC 2016 was admitted by the NCLT, Chandigarh, leading to the appointment of an Interim Resolution Professional (IRP). Consequently, both writ petitions were rendered infructuous. However, respondent No. 9, the successful bidder in the auction held on 05.11.2021, sought a refund of the entire bid amount along with the poundage fee and interest of 12%. The Recovery Officer had set aside the auction on 24.04.2023, and the IRP raised objections to the refund.4. Objections to the Proclamation of Sale and Auction Proceedings:Various objections were filed against the proclamation of sale dated 07.09.2021 and the auction held on 05.11.2021. The Recovery Officer was directed to consider and deal with these objections. The Recovery Officer concluded that the proclamation of sale was illegal and set it aside, along with the auction. The objections were based on the fact that the demand notice and proclamation of sale were issued in the names of deceased individuals without impleading their legal representatives.5. Impact of the Moratorium Under Section 14 of IBC 2016 on the Refund of the Bid Amount:The IRP objected to the release of the bid amount, citing Section 14 of IBC 2016, which imposes a moratorium prohibiting actions against the corporate debtor. However, the court found that the corporate debtor had no legal right or beneficial interest in the bid amount deposited by the auction purchaser, as the auction had been set aside. The court held that the refund of the bid amount did not fall within the prohibitions of the moratorium and directed the Recovery Officer to release the amount expeditiously.Conclusion:The court directed the Recovery Officer to release the bid amount deposited by respondent No. 9 in terms of the order dated 24.04.2023. Both writ petitions were disposed of as infructuous due to the order passed by the NCLT. The parties were granted liberty to avail remedies available to them in accordance with the law before appropriate forums. Pending applications, if any, were also disposed of accordingly.