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

Punjab and Haryana HC disposed of writ petitions as infructuous after directing release of bid amount to successful auction bidder. The auction conducted under CIRP proceedings was subsequently set aside by Recovery Officer, who ordered refund of bid amount. HC held that corporate debtor had no legal right or beneficial interest in the deposited bid amount since the auction/sale was admittedly set aside with refund ordered. Court found no merit in IRP's objection to bid amount release, noting the money could not be considered for corporate debtor's benefit. Recovery Officer was directed to release the deposited amount expeditiously.

---

---

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.

---