E-auction upheld; Covid-time extension u/s35 IBC and Rule 11 valid, undervaluation rejected, purchaser pays additional amount

SC upheld the validity of the liquidation e-auction and refused to cancel the sale or declare the sale deed void. It held that extension of time to deposit the balance sale consideration, granted by the Adjudicating Authority during the Covid-19 lockdown under s. 35 IBC and Rule 11 NCLT Rules, was lawful despite Rule 12 consequences. Allegations of undervaluation failed, the Liquidator having properly fixed and reduced the reserve price under the IBBI framework, with no higher bidder produced. Non-constitution of a Stakeholders Consultation Committee was held inapplicable to this pre-amendment liquidation. The auction purchaser was bound by "as is where is" terms despite tax attachments. Balancing equities, SC directed the auction purchaser to pay an additional amount; appeal was partly allowed.

---

---

Issues Involved:
1. Validity of the auction conducted by the Liquidator.
2. Impact of COVID-19 pandemic on the extension of time for payment.
3. Allegations of undervaluation of the auctioned property.
4. Non-constitution of a Stakeholders' Consultation Committee.
5. Violation of Regulation 33 of the IBBI Regulations, 2016.
6. Impact of the Income Tax attachment order on the sale.

Detailed Analysis:

1. Validity of the Auction Conducted by the Liquidator
The appellant challenged the auction conducted by the Liquidator, arguing it violated the IBBI Regulations, 2016, particularly Regulation 31A regarding the constitution of a Stakeholders' Consultation Committee and Regulation 33 concerning the mode of sale. The Liquidator had reduced the reserve price by 25% for the second auction, which was permissible under Rule 4A of Schedule I of the IBBI Regulations, 2016. The Tribunal found no fault in the Liquidator's actions as he had followed the prescribed rules and had given the appellant opportunities to bring better bidders, which the appellant failed to do.

2. Impact of COVID-19 Pandemic on the Extension of Time for Payment
The Auction Purchaser failed to pay the balance sale consideration within the stipulated 90 days due to the COVID-19 pandemic. The Supreme Court, invoking Regulation 47A of the IBBI Regulations, 2016, and the order dated 23rd March 2020 in the Suo Moto Writ Petition, extended the limitation period due to the pandemic. The Court held that the Auction Purchaser was entitled to the benefit of these orders, and the Liquidator's discretion in extending the payment timeline was justified given the extraordinary circumstances.

3. Allegations of Undervaluation of the Auctioned Property
The appellant argued that the property was undervalued. The Liquidator had engaged two Registered Valuers who estimated the liquidation value of the property, and the average of these estimates was used as the reserve price. The Liquidator reduced the reserve price by 25% for the second auction as allowed under Rule 4A of Schedule I. The Court found that the Liquidator had acted within his powers and that the appellant had not brought any higher bidders despite being given the opportunity.

4. Non-Constitution of a Stakeholders' Consultation Committee
The appellant contended that the Liquidator failed to constitute a Stakeholders' Consultation Committee as required under Regulation 31A. The Court noted that the liquidation process had commenced before the amendment requiring the constitution of such a committee. Moreover, the appellant and other ex-Directors had not responded to the Liquidator's suggestion to call a meeting of the CoC, and thus, this objection was not tenable.

5. Violation of Regulation 33 of the IBBI Regulations, 2016
The appellant argued that the Liquidator violated Regulation 33 by not adhering to the mandatory timeline for payment of the balance sale consideration. The Court held that Rule 12 of Schedule I, which mandates cancellation of the sale if the payment is not received within 90 days, is mandatory. However, the Adjudicating Authority's extension of the timeline due to the COVID-19 pandemic was valid, given the extraordinary circumstances.

6. Impact of the Income Tax Attachment Order on the Sale
The Auction Purchaser argued that the Income Tax attachment order on the property prevented the completion of the sale. The Court noted that the Liquidator had informed the Auction Purchaser that the Income Tax dues would be paid from the sale proceeds and that the attachment order would not affect the registration of the property. The Auction Purchaser was aware of this before participating in the auction. The Court found that the attachment order was not a valid reason for delaying the payment.

Conclusion
The Court directed the Auction Purchaser to deposit an additional amount of Rs. 5,00,00,000/- with interest at 9% per annum from 26th March 2020 till the date of actual payment, to balance the equities. The appeals were partly allowed on these terms.

---