2025 (7) TMI 1461 - AT - IBC

NCLAT Upholds Extra Time for Bidder to Pay Balance Amount Under Insolvency Code Section 29A

The NCLAT upheld the Adjudicating Authority's decision allowing the successful bidder (SAP) additional time beyond the prescribed 90 days to pay the ... Seeking to set aside the auction sale conducted by the Liquidator and holding of fresh auction - seeking stoppage of the running of 90 days time to make auction sale payment due to force majeure circumstances and stoppage of interest liability. Whether on the expiry of 90 days time-period for making the balance sale consideration by the successful bidder, the auction process conducted by the Liquidator stood vitiated by the operation of law warranting its cancellation? - Whether it was permissible on the part of the Adjudicating Authority to allow 30 days to the successful bidder to remit the balance sale consideration which has been allowed much after the lapse of 90 days time-period permitted under the relevant clauses of Liquidation Process Regulations? - Whether the conduct of the auction process by the Liquidator was marred by gross irregularities that run contrary to the liquidation regulatory framework envisaged under the IBC? - HELD THAT:- It is clear from a plain reading of the second proviso to the above Clause 12 of Regulation 33 of the Liquidation Process Regulation that auction sale shall be cancelled if the payment is not received within 90 days from the successful bidder by the Liquidator. In other words, the maximum period available to deposit the sale consideration is 90 days. The bonafide intent of the SAP to pay the balance sale consideration. It is equally important to note that all these correspondences showing their willingness to pay were exchanged before the expiry of the prescribed 90 days period which was to end on 29.12.2020. These letters effectively demonstrate that the SAP was all along willing to pay the balance amount within the 90 days period and that they were also financially capacitated to remit the said account. To prove their bonafide, the SAP was persistently requesting the Liquidator to open an escrow account so that the amount could be deposited - there are no material on record to show that Liquidator had any occasion to remind the SAP to pay the balance consideration. Ordinarily the time-line of 90 days specified in Regulation 33 of Liquidation Process Regulations needs to be adhered to for making payment by the successful bidder. However, it is well settled law that if it comes to the notice of the Adjudicating Authority that extraordinary circumstances have arisen which has impeded the conduct of auction process, it can allow further time to the successful bidder as a special measure in exercise of its inherent powers. Further since the Palanivel judgment [2024 (9) TMI 625 - SUPREME COURT] does not define in specific terms as to the circumstances in which the time extension can be allowed, we do not see any prohibition on the exercise of this power as long as the Adjudicating Authority was satisfied that there are extraordinary and extenuating circumstances to do so. In the present case, the Adjudicating Authority has clearly expressed its satisfaction of the external circumstances which afflicted the conduct of auction and led to the non-payment of balance consideration by the SAP inspite of his willingness to pay. The Adjudicating Authority while allowing extended time has also made it subject to payment of interest for balancing equities. We therefore do not find any infirmity in the order of the Adjudicating Authority in allowing further time to the SAP to make balance payment in view of what it described as “external circumstances”. Whether the conduct of the auction process by the Liquidator was marred by irregularities and contrary to the tenets and spirit of IBC? - HELD THAT:- The conduct of Liquidator has been questioned only after the issue of LoI on account of the Liquidator filing the conversion application - The request letter is seen at page 250 of APB. It is therefore an undisputed fact that the SAP had sought the intervention of the Liquidator to secure the necessary permission for effecting the transfer of the subject land. As a Liquidator, he was duty bound to facilitate and provide assistance to the SAP so as to take the auction sale to its logical culmination - in the given circumstances it was justifiable on the part of the Liquidator to have filed the conversion application since the revenue authorities recognised only the Liquidator as the lawful authority qua the assets of the Corporate Debtor to file such an application. The balance of convenience is clearly in favour of the Liquidator. There is no substance to show that any deliberate irregularity or gross illegality was committed by the Liquidator in the conduct of the auction process. We are of the considered view that it was a validly conducted auction sale. In all fairness, therefore, the findings of the Adjudicating Authority on the conduct of the Liquidator cannot be allowed to subsist as it would cause unnecessary prejudice to the interests of the Liquidator. The SAP has already made the payment of the balance sale consideration along with 12% interest within 30 days period given to them to remit the payment. The 6th SCC meeting of the Corporate Debtor held on 20.02.2025 has taken notice of the receipt of the consideration amount of Rs 13.52 Cr. from the SAP. The Liquidator also has issued a sale certificate on 21.02.2025 to the SAP. The Liquidator has distributed to the stakeholders of the Corporate Debtor the auction proceeds received from the SAP on 12.03.2025. Clearly no prejudice has been caused to any stakeholder. It would suffice to say that the interest payment @ 12% p.a. made by the SAP on the directions of the Adjudicating Authority would balance the equity and secure the ends of justice - thus, no purpose would be served if the auction is set aside as it would only result in delays and costs to be borne by the members of the SCC which we cannot commend. There are no merit in the appeal - appeal dismissed. ISSUES: Whether the auction process conducted by the Liquidator stood vitiated by operation of law warranting cancellation due to the successful bidder's failure to remit balance sale consideration within the stipulated 90 days period under Regulation 33 of the Liquidation Process Regulations.Whether the Adjudicating Authority had the jurisdiction to extend the 90-day payment period and allow an additional 30 days for the successful bidder to remit the balance sale consideration beyond the statutory timeline.Whether the conduct of the Liquidator in the auction process was marred by gross irregularities or violations of the Insolvency and Bankruptcy Code (IBC) and its regulatory framework, including the Liquidator's involvement in land conversion proceedings. RULINGS / HOLDINGS: On the first issue, the Court held that although the balance payment was not made within the prescribed 90 days, the auction sale was not vitiated by operation of law because the successful bidder was 'always willing and ready to pay' but was prevented due to 'development of certain external circumstances.' Therefore, cancellation of the auction was not warranted.Regarding the second issue, the Court affirmed that the Adjudicating Authority possesses inherent powers under Rule 11 of the NCLT Rules, 2016, to extend the payment period beyond 90 days on sufficient cause shown, as supported by the Supreme Court's ruling in V.S. Palanivel vs. P. Sriram. The extension of 30 days granted was valid in the exceptional circumstances of the case.On the third issue, the Court found no material irregularity or gross illegality in the Liquidator's conduct. The Liquidator's filing of the land conversion application was justified as a necessary step under the Maharashtra Land Revenue Code and was in furtherance of the auction's completion. The auction process was validly conducted and did not violate the IBC framework. RATIONALE: The Court applied Regulation 33 of the Liquidation Process Regulations, 2016, specifically Clause 12 of Schedule I, which mandates payment of balance sale consideration within 90 days and provides for cancellation if payment is not received within that period. However, the Court recognized that the Adjudicating Authority's inherent powers under Rule 11 of the NCLT Rules and Section 35 of the IBC enable extension of timelines in extraordinary circumstances.The Court distinguished the present facts from precedent cases such as Potens Transmission & Power Pvt. Ltd. where wilful default by the bidder was found, noting that here the successful bidder demonstrated bona fide intent and financial capacity to pay but was impeded by external factors including government stay orders and protracted land conversion litigation.The Court relied on the Supreme Court's decision in V.S. Palanivel vs. P. Sriram, which confirmed the mandatory nature of the 90-day timeline but also acknowledged the Adjudicating Authority's power to grant extensions for sufficient cause, thereby endorsing the Adjudicating Authority's exercise of discretion in this case.The Court acknowledged that the Liquidator's application for land conversion was compelled by statutory requirements under the Maharashtra Land Revenue (Conversion of Occupancy Class II and Leasehold Lands into Occupancy Class I Land) Rules, 2019, as only the landholder (the Liquidator) could apply for conversion, and this was necessary to effectuate the transfer of the immovable property to the successful bidder.The Court emphasized the principle of value maximization under the IBC and held that cancellation of a valid auction after such delay would prejudice stakeholders and disrupt the liquidation process, especially since the successful bidder had paid the balance amount with interest and possession was delivered.The Court declined to entertain allegations of commercial opportunism or value escalation without objective material and refrained from conducting any roving inquiry into valuation changes post-auction.The Court dismissed the appeal against the first impugned order and affirmed the Adjudicating Authority's directions, while also holding that observations adverse to the Liquidator's conduct should not be treated as binding precedent or adverse findings.