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2023 (9) TMI 414
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.... Tribunal' hereinafter) allowing the appeal of Punjab National Bank i.e. Respondent No.1 being Company Appeal (AT) (Insolvency) No.757 of 2021. The aforesaid appeal was filed by the Punjab National Bank against the order dated 12.08.2021 passed by the National Company Law Tribunal, Kolkata Bench, Kolkata (briefly the 'Tribunal' hereinafter) in I.A. (IB) No.663/KB/2021 in CP (IB) 440/KB/2018. 3. At the outset, it would be necessary to advert to the relevant facts:- (i) One Huvepharma Sea (Pune) Private Limited filed an application under Section 9 of the Code against M/s. Amrit Feeds Limited i.e. corporate debtor before the Tribunal. The same was registered as CP(IB) No.440/KB/2018. The Tribunal passed an order dated 22.10.2019 admitting the application filed under Section 9 of the Code as a result of which corporate insolvency resolution process of the corporate debtor commenced. (ii) On 19.02.2021, the Tribunal passed an order for liquidation of the corporate debtor. Respondent No.2 was appointed as the Liquidator to oversee the corporate insolvency resolution process. (iii) Respondent No.2 by an e-mail dated 07.06.2021 forwarded a sale notice dated 02....
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.... with The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 as well as under Rule 11 of the National Company Law Tribunal Rules, 2016 which was registered as I.A. (IB) No.663/KB/2021 in CP (IB) 440/KB/2018. Tribunal vide order dated 12.08.2021 disposed of the said application by directing the Liquidator i.e. respondent No.2 to send a communication to the appellant requiring him to deposit the balance sale consideration within the time specified in the E-auction notice. (ix) According to the appellant, Respondent No.2 complied with the order of the Tribunal and issued a letter to the appellant to deposit the balance consideration money. Pursuant to the said letter, appellant deposited the entire sum on 10.09.2021 following which Respondent No.2 issued a sale certificate dated 15.09.2021 in respect of the subject property in favour of the appellant. (x) While the Liquidator accepted the order of the Tribunal, one of the financial creditors i.e. Punjab National Bank (Respondent No.1) filed an appeal before the Appellate Tribunal under Section 61 of the Code against the order dated 12.08.2021 passed by the Tribunal. The appeal was contes....
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....of demand. Tribunal relied upon Clause 12 of the Regulations as per which, on the closure of auction, the highest bidder shall be invited to provide the balance sale consideration within 90 days of the date of demand; first proviso mentions that payments made after 30 days would attract interest of 12% with the second proviso clarifying that the sale would be cancelled if the payment is not received within 90 days. According to Respondent No.1, Tribunal by placing reliance on Clause 12 mis-directed itself in directing the Liquidator to send a communication to the appellant for depositing the balance sale consideration within the time specified in the E-auction notice. 5.2. There is no express bar or prohibition either under the Code or under the Regulations restraining the Liquidator from cancelling an auction sale even after declaration of the highest bidder but before completion of sale as understood under Clause 13 of the Regulations. In the absence of such express bar or prohibition and when the auction sale was yet to be concluded, Liquidator was well within his rights in cancelling the auction sale with the intent to have another round of auction sale. Tribunal had erred i....
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....rwarded the E-auction notice to the prospective bidders, including to the appellant. However, as no bids were received in respect of any of the assets of the corporate debtor, reserve prices were reduced by 25% as provided in the Regulations, whereafter Lot No.2 and Lot No.3-subject property, with revised reserve prices of Rs.8.50 crores and Rs. 10.00 crores respectively were again put up for auction vide E-auction notice dated 28.06.2021. By an e-mail dated 29.06.2021, the E-auction notice along with E-Auction Process Information Document were sent to the prospective bidders, including the appellant. 6.2. Before the date of auction on 20.07.2021, earnest money deposit (EMD) was paid by the appellant and another intending bidder both for Lot No.2 and the subject property. Five minutes before the scheduled closure of bidding time there was a spurt of counter bids for Lot No.2 by the appellant and the other bidder, taking the price from Rs.8.50 crores to Rs.14.79 crores. The pattern of bidding in respect of Lot No.2 and the fact that the same two entities had submitted EMD for the subject property, but the bid being ultimately made only by the appellant led Respondent No.2 to beli....
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....operty, the appellant was well aware of the terms and conditions governing the sale by auction. Appellant expressly accepted the aforesaid terms and conditions while submitting its application dated 16.07.2021 for participating in the auction bid process. According to him, on expiry of the time to submit bids on 20.07.2021, an auto generated e-mail from the web portal of 'eauctioneer.com' was sent to the appellant stating that the bid submitted by it was the highest. 6.7. Thereafter, by an e-mail dated 21.07.2021, Respondent No.2 informed the appellant about cancellation of E-auction held on 20.07.2021 under Clause 3(k) of the E-Auction Process Information Document. Appellant was advised to collect the EMD as a fresh E-auction sale was to be conducted. 6.8. Respondent No.2 has mentioned that he had received an e-mail dated 10.09.2021 from one Mr. Amit Ghidia alleging that the directors of the appellant were also the founder promoters of M/s. Amrit Feeds Limited, the corporate debtor. On receipt of such e-mail, Respondent No.2 carried out inspection and upon verification came to know that one of the present directors of the appellant, Mr. Vijay Kumar Ghidia was a director and ....
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.... the subject property. It is stated that in addition to the above, respondent No.2 had received an e-mail dated 20.08.2021 from IFFCO KISAN Delhi, a subsidiary company of Indian Farmers Fertilisers Cooperative (IFFCO) expressing its interest in the assets of the corporate debtor. 6.14. In the above circumstances, Respondent No.2 has contended that cancellation of E-auction was justified and was done in the best interest of the stakeholders of the corporate debtor. 7. Appellant has filed rejoinder affidavit to the counter affidavit of Respondent No.1. 7.1. While reiterating its contentions, appellant has stated that the adjudicating authority i.e., the Tribunal had rightly set aside the decision of the Liquidator (Respondent No.2). Respondent No.2 after issuing the certificate certifying that appellant had won the auction of the subject property, cancelled the E-auction without giving any justification or reason for such cancellation. Referring to Clause 3 (a) of the E-Auction Process Information Document, appellant has contended that the said clause is contrary to the Regulations. In the facts and circumstances of the case, Respondent No.2 could not have cancelled the auct....
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....a related party of the corporate debtor in view of the specific bar under Section 29A of the Code. As a matter of fact, Mr. Vijay Kumar Ghidia is also the maternal uncle of the intervenor who is the ex-managing director of the corporate debtor. Mr. Vijay Kumar Ghidia therefore comes within the meaning of 'related party' as defined under Sections 5(24) and 5(24A) of the Code. Therefore, the auction sale in favour of the appellant is bad in law and cannot be sustained. 9.1. This aspect was also brought to the notice of Respondent No.2 i.e. the Liquidator. 9.2. It is stated that the intervenor had filed an appeal before the Appellate Tribunal being Company Appeal (AD) (Insolvency) No.789 of 2021. In the said appeal, an interim order was passed on 27.09.2021 directing the parties to maintain status quo. Before the appeal of the intervenor could be heard, the Appellate Tribunal had passed the order dated 30.11.2021 allowing the appeal of Respondent No.1 by setting aside the order of the Tribunal dated 12.08.2021. Therefore, when the appeal of the intervenor came up for hearing before the Appellate Tribunal, the same was disposed of vide order dated 09.12.2021 as having been render....
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....ction sale after declaring the highest bidder but before completion of sale. Power of cancellation is available to the Liquidator under Clause 3(k) of the auction notice. Such a power could be exercised by the Liquidator without assigning any reason. While bidding, the appellant had unconditionally accepted all the clauses of the auction notice, including Clause 3(k). Therefore, the Tribunal was not justified in interfering with such a decision of the Liquidator and further directing the Liquidator to conclude the auction sale process. Before completion of sale, highest bidder has no vested right for confirmation of sale in his favour. Insofar as the maintainability of the appeal before the Appellate Tribunal is concerned, he submits that there is no bar or prohibition restraining a financial creditor from preferring an appeal against an order of the Tribunal since the financial creditor is certainly an aggrieved person and has substantial interest in the auction sale of the subject property of the corporate debtor. That apart, under para 1(11) of Schedule I to the Regulations, the Liquidator has the discretion to conduct multiple rounds of auction to maximize realization in the sa....
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.... In so far issuance of e-mail to the appellant declaring it as the winner of the auction process is concerned, he submits that on expiry of the time for placing of bids, an auto generated e-mail from the e-auction website "www.eauctioneer.com" was sent to the appellant stating that the bid submitted by it was the highest. It was an auto-generated e-mail and cannot be construed to be the E-auction certificate. In so far acceptance of the balance sale consideration and issuance of sale certificate is concerned, he submits that the same was done as per the direction of the Tribunal. 13.3. In the course of the hearing, he submitted that there were two assets of the corporate debtor; one at Lucknow (Lot No. 2) and the other at Mirzapur (Lot No.3). Since the assets at Lot No.2 fetched Rs.4.79 crores more than the reserve price, Liquidator believed that the subject property could fetch a higher amount than the reserve price of Rs.10 crores. Keeping this in mind, he had cancelled the E-auction process. 13.4. On the submission that Liquidator did not assail the decision of the Tribunal and therefore had accepted the same, his contention is that in all the proceedings Liquidator had co....
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....s that the same is no bar at all and cannot be held as a disqualification for the appellant inasmuch as Mr. Vijay Kumar Ghidia had ceased to be a director of the corporate debtor way back in the year 2011. To attract disqualification under Section 29A, the relationship has to be proximate. In this connection, he has placed reliance on the decision of this Court in the case of Swiss Ribbons Private Limited and Another versus Union of India and Others (2019) 4 SCC 17. 16. Submissions made by learned counsel for the parties have received due consideration of the Court. 17. As we have noted above after initiation of the corporate insolvency resolution process, Liquidator i.e. Respondent No.2 had issued sale notice dated 02.06.2021 for sale of the subject property of the corporate debtor. The reserve price of the subject property was fixed at Rs.12.69 crores, whereas EMD was fixed at Rs.1,26,19,000.00. E-auction was scheduled on 23.06.2021 between 14.00 to 14.30 hrs. This E-auction did not fructify in the absence of any bidders. Thereafter, Respondent No. 2 issued second sale notice dated 28.06.2021 for auction sale amongst others of the subject property. This time the reserve pri....
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....mation Document should be read together with the provisions of the Code and the Regulations. In the event of a conflict between the E-Auction Process Information Document and the Code or the Regulations, provisions of the Code or the Regulations, as the case may be, would prevail. Mandate of Clause 2(r) is that the successful bidder would have to take over possession of the movable assets being sold under the E-auction within 15 days from the date of the complete payment to the Liquidator without any damage to the premises where the assets were kept. 19.1. Clause 3 of the E-Auction Process Information Document deals with disclaimer. While Clause 3 (a) says that the said document has been issued by the Liquidator for general information purposes only; sub-clause (b) clarifies that the said document is not a statutory document; it has not been approved or registered with any regulatory or statutory authority of Government of India or any State Government. Further, nothing relating to the E-Auction Process Information Document should be construed as legal, financial, accounting, regulatory or tax advice by the Liquidator. Clause 3 (f) declares that by procuring a copy of the E-Auct....
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....arrative, we may mention that aggrieved by such cancellation, appellant had filed an application under Section 60 of the Code before the Tribunal assailing such cancellation. Issue before the Tribunal was whether the Liquidator was justified in cancelling the E-auction. Tribunal noted that the Liquidator had cancelled the auction without assigning any reason. Though a contention was advanced by the Liquidator before the Tribunal that the other assets (at Lucknow) of the corporate debtor put up for auction fetched a higher price and therefore, the Liquidator chose to cancel the auction expecting a higher price in future auction process, the same was not accepted by the Tribunal. It would amount to comparing apples with oranges. Tribunal further noted that there was no material on record to support the perception of the Liquidator that cancelling the present auction and going for further auction would result in better price for the assets in question and that there cannot be an endless wait to obtain a better price. Holding that there was no reason for the Liquidator to cancel the E-auction when the earlier round of auction process did not fructify resulting in decrease in reserve pr....
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....(18), 'Liquidator' means an insolvency professional appointed as a liquidator in accordance with the provisions of Chapter III or Chapter V of Part I of the Code, as the case may be. Chapter III deals with liquidation process, whereas Chapter V deals with voluntary liquidation of corporate persons. Section 34, which is under Chapter III, provides for appointment of Liquidator and the fee to be paid. Sub-section (1) of Section 34 says that where an adjudicating authority passes an order for liquidation of the corporate debtor under Section 33, the resolution professional appointed for the corporate insolvency resolution process shall, subject to submission of written consent, act as the Liquidator for the purposes of liquidation unless replaced by the adjudicating authority. As per sub-section (2), on the appointment of a Liquidator under Section 34 all powers of the board of directors, key managerial personnel and partners of the corporate debtor, as the case may be, shall cease to have effect and shall be vested in the Liquidator. Sub-section (3) requires personnel of the corporate debtor to extend all assistance and cooperation to the Liquidator in managing the affairs of the cor....
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....ation 3(1), an insolvency professional shall be eligible to be appointed as a Liquidator if he and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate debtor. Explanation below Regulation 3 (1) explains as to who are the persons considered independent of the corporate debtor. As per Explanation (b), a person shall be considered independent of the corporate debtor if he is not a related party of the corporate debtor. 25.1. Regulation 5 says that the Liquidator shall prepare and submit various reports to the adjudicating authority (Tribunal) regarding the liquidation process. If in this process the books of account of the corporate debtor are incomplete on the liquidation commencement date, the Liquidator under Regulation 6 shall have them completed and brought up to date. That apart, the Liquidator is required to maintain various registers and books in relation to the liquidation of the corporate debtor. In addition to that, as per Regulation 7, he may appoint a professional to assist him in discharging his duties, obligations and functions. However, those professionals should not be his relative or ....
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....r. Sub- Regulation (4) provides that the average of the two estimates received under sub-Regulation (3) shall be taken as the value of the assets or businesses. 28. Coming back to Schedule-I, we find that as per para 1(4A), where an auction fails at the reserve price, the Liquidator may reduce the price by up to 25% of such value to conduct subsequent auction. 28.1. Paras 1(11), (11A), (12) and (13) of Schedule-I are relevant since much emphasis has been placed by learned counsel for the parties on these provisions. As per para 1(11), if it is required, Liquidator may conduct multiple rounds of auction to maximize the realization from the sale of the assets and to promote the best interest of the creditors. Para 1(11A) says that where the Liquidator rejects the highest bid in an auction process, he shall intimate the reasons for such rejection to the highest bidder and mention it in the next progress report. While learned senior counsel for the appellant has laid great emphasis on this provision on the basis of which he has assailed the unreasoned cancellation of the bid of the appellant, learned senior counsel for the intervenor has pointed out that para 1(11A) was inserted ....
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....l justice "is to prevent miscarriage of justice" and secure "fair play in action". As pointed out earlier the requirement about recording of reasons for its decision by an administrative authority exercising quasi-judicial functions achieves this object by excluding chances of arbitrariness and ensuring a degree of fairness in the process of decision-making. Keeping in view the expanding horizon of the principles of natural justice, we are of the opinion, that the requirement to record reason can be regarded as one of the principles of natural justice which govern exercise of power by administrative authorities. The rules of natural justice are not embodied rules. The extent of their application depends upon the particular statutory framework whereunder jurisdiction has been conferred on the administrative authority. With regard to the exercise of a particular power by an administrative authority including exercise of judicial or quasi-judicial functions the legislature, while conferring the said power, may feel that it would not be in the larger public interest that the reasons for the order passed by the administrative authority be recorded in the order and be communicated to the....
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....n or conclusion arrived at." Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the "inscrutable face of the sphinx", it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system; reasons at least sufficient to indicate an application of mind to the matter before court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made; in other words, a speaking-out. The "inscrutable face of the sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance." 32. Again, in East Coast Railway versus Mahadev Appa Rao (2010) 7 SCC 678, this Court observed that arbitrariness in the making of an order by an authority can manifest itself in different forms. Non-application of mind by the authority making the order is only one of them. Application of mind is best demonstrated by disclosure of m....
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....ng "that heresy was scotched in Ridge v. Baldwin [1964 AC 40 : (1963) 2 WLR 935 : (1963) 2 All ER 66 (HL)] ". 14. The expression "speaking order" was first coined by Lord Chancellor Earl Cairns in a rather strange context. The Lord Chancellor, while explaining the ambit of the writ of certiorari, referred to orders with errors on the face of the record and pointed out that an order with errors on its face, is a speaking order. (See pp. 1878-97, Vol. 4, Appeal Cases 30 at 40 of the Report). 15. This Court always opined that the face of an order passed by a quasi-judicial authority or even an administrative authority affecting the rights of parties, must speak. It must not be like the "inscrutable face of a sphinx". 34. Having discussed the above, we may again advert to the impugned e-mail dated 21.07.2021, as per which Liquidator informed the appellant that in terms of Clause 3(k) of the E-Auction Process Information Document he had cancelled the E-auction held on 20.07.2021. As we have already noted, Clause 3(k) of the E-Auction Process Information Document simply says that the Liquidator has absolute right to accept or reject any or all bids or adjourn/postpon....
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....dicates finality of the decision making by the Liquidator. 37. As per para 1(12) of Schedule-I, on the close of the auction the highest bidder shall be invited to provide balance sale consideration within 90 days of the date of such demand. As per the first proviso, payments made after 30 days shall attract interest @ 12%. The second proviso says that the sale shall be cancelled if the payment is not received within 90 days. 37.1 Para 1(13) says that on payment of the full amount the sale shall stand completed. The Liquidator shall execute the certificate of sale or sale deed to transfer such assets and the assets shall be delivered to the successful bidder in the manner specified in the terms of sale. 38. Therefore, if we read the provisions of Schedule-I, more particularly paras 1(11) to (13) thereof, in a conjoint manner a view may reasonably be taken that ordinarily the highest bid may be accepted by the Liquidator unless there are statutory infirmities in the bidding or the bidding is collusive in nature or there is an element of fraud in the bidding process. 39. In Valji Khimji and Company Versus Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Ot....
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....e may be obtained can be no good ground to cancel an otherwise valid auction and go for another round of auction. Such a cause of action would not only lead to incurring of avoidable expenses but also erode credibility of the auction process itself. That apart, post auction it is not open to the Liquidator to act on third party communication and cancel an auction, unless it is found that fraud or collusion had vitiated the auction. The necessary corollary that follows therefrom is that there can be no absolute or unfettered discretion on the part of the Liquidator to cancel an auction which is otherwise valid. As it is in an administrative framework governed by the rule of law there can be no absolute or unfettered discretion of the Liquidator. Further, upon a thorough analysis of all the provisions concerning the Liquidator it is evident that the Liquidator is vested with a host of duties, functions and powers to oversee the liquidation process in which he is not to act in any adversarial manner while ensuring that the auction process is carried out in accordance with law and to the benefit of all the stakeholders. Merely because the Liquidator has the discretion of carrying out m....
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....ership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor; (h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act; (i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary; (j) any person who controls more than twenty per cent of voting rights in the corporate debtor on account of ownership or a voting agreement; (k) any person in whom the corporate debtor controls more than twenty per cent of voting rights on account of ownership or a voting agreement; (l) any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor; (m) any person who is associated with the corporate debtor on account of- (i) participation in policy-making processes of the corporate debtor; or (ii) having more than two directors in common....
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.... party, own more than fifty per cent. of the share capital of the company or controls the appointment of the board of directors of the company. Explanation.-For the purposes of this clause,- (a) "relative", with reference to any person, means anyone who is related to another, in the following manner, namely- (i) members of a Hindu Undivided Family, (ii) husband, (iii) wife, (iv) father, (v) mother, (vi) son, (vii) daughter, (viii) son's daughter and son, (ix) daughter's daughter and son, (x) grandson's daughter and son, (xi) granddaughter's daughter and son, (xii) brother, (xiii) sister, (xiv) brother's son and daughter, (xv) sister's son and daughter, (xvi) father's father and mother, (xvii) mother's father and mother, (xviii) father's brother and sister, (xix) mother's brother and sister, and (b) wherever the relation is that of a son, daughter, sister or brother, their spouses shall also be included;] 45.1. From the above, it is evident that ....
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....ty of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares [or completion of such transactions as may be prescribed,] prior to the insolvency commencement date. Explanation II.-For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;] [(d) has been convicted for any offence punishable with imprisonment- (i) for two years or more under any Act specified under the Twelfth Schedule; or (ii) for seven years or more under any other law for the time being in force: Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release fr....
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....on referred to in clauses (i) and (ii). * * * * * * 46.1. Thus, as per Section 29A(g), a person shall not be eligible to submit a resolution plan if such person or any other person acting jointly or in concert with such person has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the adjudicating authority. Clause (j) says that a person shall not be eligible to submit a resolution plan if such person or any other person acting jointly or in concert with such person has a connected person not eligible under Clauses (a) to (i). As per Explanation (i), the expression 'connected person' means-(i) any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in the management or control of the business of the corporate debtor during the implementation of the resolution plan; etc. 47. The expression 'related party' appearing in Sections 5(24) and (24A) suffering ineligibility under Section 29A ....
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....e resolution plan. This disposes of all the contentions raising questions as to the constitutional validity of Section 29- A(j). 47.1. After a careful analysis, this Court opined that the expressions 'related party' and 'relative' contained in the definition sections must be read noscitur a sociis with the categories of person mentioned in Explanation I. So read, it would include only persons who are connected with the business activity of the resolution applicant. This Court further clarified that the expression 'connected person' would also cover a person who is in management or control of the business of the corporate debtor during the implementation of a resolution plan. 48. In Phoenix ARC Private Limited versus Spade Financial Services Limited (2021) 3 SCC 475 , this Court noted that the expression 'related party' is defined in Section 5(24) in relation to a corporate debtor and Section 5(24A) provides a corresponding definition in relation to an individual. Thereafter, it has been observed as under:- 88. An issue of interpretation in relation to the first proviso of Section 21(2) is whether the disqualification under the proviso would attach to a financial cred....