TaxTMI 
TaxTMI 
2024 (9) TMI 625
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.... rejecting an application4 moved by the appellant praying inter alia that directions be issued to the Liquidator, Sri Lakshmi Hotel Private Limited to stall all proceedings in respect of the e-auction conducted by him on 23rd December, 2019, to work on an alternative manner of dividing the property put to auction and sell only a part of the land and for grant of sufficient time to make payment to the financial creditor. (ii) Company Appeal No. 339 of 2021 (subject matter of Civil Appeal No. 9060 of 2022) arose from the common order dated 17th November, 2021 passed by the Adjudicating Authority on an Interim Application5 seeking recall of its order dated 05th May, 2020 passed on an application6 filed by the appellant. (iii) Company Appeal No. 343 of 2021 (subject matter of Civil Appeal No. 9061 of 2022) filed by the appellant on 27th October, 2021 under Section 61 of the Insolvency and Bankruptcy Code, 20167 against order dated 05th May, 2020 passed by the Adjudicating Authority allowing an application moved by the successful bidder, M/s KMC Speciality Hospitals (India) Limited8 for extension of time to deposit the balance sale consideration after the Central/State lockdown was lift....
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....Authority, vide order dated 17th July, 2019. 5. Pursuant to the above, the Liquidator engaged two Registered Valuers to give an estimate of the valuation of the subject property. The Valuers submitted their Reports as follows: S.No. Name of the Valuer Tax Value Liquidation Value 1. Ms. Vijayalakshmi Rs.48,03,00,000 Rs.40,82,57,000 2. Mr. R.S. Babu Rajendran Rs.48,48,00,000 Rs.38,00,00,000 Average Liquidation Value for the purpose of E- auction Upset Price Rs.39,41,28,500 Based on the above Reports, the Liquidator arrived at the average value of the subject property, i.e., Rs.39,41,28,500/- (Rupees Thirty nine crore forty one lakh twenty eight thousand five hundred only) and scheduled an auction on 25th November, 2019, with a reserve price set at the above figure. Vide letter dated 08th November, 2019, the appellant objected to fixation of the reserve price. The Liquidator replied to the said communication and turned down his objections. He also requested the appellant to nominate a person in the Stakeholders Committee, which the appellant failed to do. 6. When the Liquidator did not receive any bid in the ....
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....alance sale consideration. Besides taking the plea of the onset of Covid 19 pandemic, one of the grounds taken by the Auction Purchaser for extension of time was that the Income Tax Authority had passed an order attaching the auctioned property. The said application was allowed by the Adjudicating Authority3, vide order dated 05th May, 2020 and the time granted for depositing the balance sale consideration was deferred till the lockdown was lifted by the Central Government/State Government, respectively. 9. Dissatisfied with the aforesaid order, the appellant filed a Company Appeal16, after 19 months, on 27th October, 2021. Well before that, the Auction Purchaser paid the balance sale consideration in respect of the auctioned property on 24th August, 2020 and a Sale Deed was executed by the Liquidator in favour of the Auction Purchaser on 28th August, 2020. One month after completion of the sale transaction, the appellant filed an application on 25th September, 20205, seeking recall of the order dated 05th May, 2020, passed by the Adjudicating Authority and challenging the execution of the Sale Deed. By virtue of the common order dated 17th November, 2021, the Adjudicating Autho....
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....ty to deposit the balance sale consideration. Therefore, it had no defence for not making the payment on time. It was further submitted that the order passed by the this Court and relied on by the Auction Purchaser in GPR Power Solutions Pvt. Ltd. v. Supriyo Chaudhuri19, as also the order dated 02nd March, 2020 and the order dated 12th May, 2020 passed in Civil Appeal No. 1902 of 202020, could not have enured to its benefit for the reason that the said orders applied to filing of petitions, applications, suits, appeals or other proceedings within the prescribed period of limitation. Citing the decision in Sagufa Ahmed v. Upper Assam Polywood Products Pvt. Ltd.21 learned senior counsel submitted that the order passed by this Court on 23rd March, 2020 in Suo Moto Writ Petition (Civil) No. 3/2020, was only intended for the benefit of vigilant litigants who were prevented from initiating proceedings within the period of limitation due to the pandemic and the lockdown. The Auction Purchaser was not a litigant before the Court and could not have availed of the said order. The Auction Purchaser was neither required to approach the Adjudicating Authority, nor to file any petition before th....
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....Limited (supra) learned senior counsel submitted that the extension orders were applied by this Court even to submissions of claims by creditors to the resolution professionals. For this reason, it would be erroneous to state that extension could apply only to litigants before courts and Tribunals, as sought to be urged by the other side. The decisions in Standard Surfa Chem India Private Limited v. Kishore Gopal Somani24 and Prakash Chandra Kapoor v. Vijay Kumar Iyer25 were cited by learned counsel to argue that timelines prescribed under the IBBI Regulations, 2016 are directory and not mandatory in character. Learned counsel submitted that reliance placed by the appellant on C.N. Paramasivam (supra) to contend that the timeline of 90 days is absolute, is misplaced for the reason that the provisions governing the Debt Recovery Tribunal26 and the Adjudicating Authority are not pari materia. Learned senior counsel submitted that unlike DRT's, Adjudicating Authority has special inherent powers under Rule 11 of the National Company Law Tribunal Rules, 201627. Furthermore, even in cases initiated under the Securitization and Reconstruction of Financial Assets and Enforcement of Securit....
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....e appellant did not seek any interim orders before the Adjudicating Authority or the Tribunal. As a result, the Auction Purchaser proceeded to construct a 200-bed Mother and child hospital at the auctioned property after demolishing the existing building on which a sum of Rs.1,70,00,000/- (Rupees One crore and seventy lakhs only) has been invested. The said hospital is now complete and fully functional and is stated to cater to the needs of seven surrounding districts in the area. 16. Coming next to the submission made on behalf of the appellant that the order of attachment issued by the Income Tax authorities in respect of the auctioned property is not a relevant consideration when it came to depositing the balance sale consideration by the Auction Purchaser within 90 days, learned senior counsel for the Auction Purchaser sought to urge that sale of properties that are the subject matter of Income Tax attachment orders, must be treated on a different footing. Such sale transactions cannot be completed because of the bar placed under the Income Tax Act, 196132. A specific reference in this regard has been made to Sections 222 and 281 read with Rule 48 Part-III, Schedule 2 of the....
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....rned by the Adjudicating Authority and the Tribunal being well reasoned, do not deserve interference. Lastly, learned counsel submitted that without prejudice to the above submission, in the event this Court is of the opinion that the provisions of Rule 12 of Schedule I of the IBBI Regulations, 2016 are mandatory and the Adjudicating Authority was not empowered to extend the timelines for paying the balance sale consideration, then this Court may exercise its powers under Article 142 of the Constitution of India to do complete justice but the auction sale may not be set aside. E. ARGUMENTS ADVANCED ON BEHALF OF THE RESPONDENT NO.1 - LIQUIDATOR 20. Mr. C.U. Singh, Senior Advocate appearing on behalf of the respondent No.1 - Liquidator supported the arguments advanced by learned senior counsel for the Auction Purchaser. He submitted that the appellant has made unfounded allegations regarding valuation of the subject property at Rs.39,41,28,500/- (Rupees Thirty nine crore forty one lakh twenty eight thousand and five hundred only). The said allegations were responded to by the Liquidator, vide letter dated 15th November, 2019 clearly stating inter alia that the reserve price was....
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....e to deposit the balance sale consideration, which was duly allowed by the Adjudicating Authority, vide order dated 5th May, 2020, extending the time until the lifting of the lockdown by the Centre/State Government. The balance sale consideration was deposited by the Auction Purchaser on 24th August, 2020. On receiving the said amount, the Liquidator had settled the outstanding claim of the Income Tax Department on 27th August, 2020 whereafter, the Income Tax attachment was lifted and the Liquidator executed and registered the Sale Deed in favour of the Auction Purchaser on 28th August, 2020. It was pointed out that the appellant decided to challenge the order dated 5th May, 2020 passed by the Adjudicating Authority, 14 months after the Sale Deed was executed and registered in favour of the Auction Purchaser, which shows his non-seriousness. Further, learned counsel cited the decision in Pioneer Urban Land and Infrastructure Limited and Another v. Union of India and Others37, wherein it has been held that the timeline prescribed in Sections 7(5), 9(5) and 10 (4) of the IBC are directory and not mandatory in character. 23. Learned counsel for the Liquidator supported the submissi....
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.... respondents that model timelines for the liquidation process under Regulation 47 of the IBBI Regulations, 2016 are directory in character and not mandatory, learned senior counsel for the appellant submitted that the decisions cited by the respondents to substantiate the said submission, are distinguishable on facts. It was contended that this Court has itself held in Pioneer Urban Land and Infrastructure Limited (supra) that the timelines mentioned in Sections 7(5), 9(5) and 10(4) of the IBC are directory in nature because they do not provide for any consequence if the period so mentioned is exceeded. However, the word used in Rule 12 of Schedule I under Regulation 33 of the IBBI Regulations, 2016 is "shall". The second proviso under Rule 12 provides for a consequence that in the event the amount is not paid within 90 days, the sale shall be cancelled. The decision in the case of Prakash Chandra Kapoor (supra) is also sought to be distinguished on the same grounds. Learned senior counsel submitted that in all the Rules under Schedule I, except for Rule 11, the word "shall" has been used and it has been held in Vidarbha Industries Power Limited v. Axis Bank Limited42, that if one ....
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....r. The Income Tax attachment did not stand in the way of payment of the balance sale consideration. A distinction was sought to be drawn between the expression 'payment of sale consideration' and 'execution of sale deed'. The attention of the Court was also drawn to the letter dated 9th December, 2019 issued by the Liquidator to the Auction Purchaser in response to its communication dated 9th December, 2019 well before the date of auction, seeking a clarification. The Liquidator had clearly stated that the subject property was being sold under the IBC and the Income Tax Department could not have a priority in claim. In any case, the income tax dues were limited to a sum of Rs.2,44,00,000/- crores (Rupees Two crore and forty four lakhs only) and the said amount could have been deposited with the Income Tax Department from out of the sale proceeds. It was on the basis of the aforesaid clarification furnished by the Liquidator that the Auction Purchaser had participated in the auction process and once having succeeded in the bid, it was under an obligation to deposit the balance sale consideration within 90 days from the date of the auction. 28. Questioning the stand taken by the r....
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....d that should the Court be inclined to accept the pleas taken by the respondents in opposition to the appeals, then it would only be fair to direct the Auction Purchaser to compensate the appellant for the loss of the value of the property which was assessed by the registered Valuers in the year 2019, at Rs.48,00,00,000/- (Rupees Forty eight crores only). G. DISCUSSION AND ANALYSIS 31. This Court has given its thoughtful consideration to the arguments advanced by learned counsel for the parties, perused the records and the judgments cited on both sides. We shall now deal with the contentions raised by learned counsel for the appellant ad seriatim. 32. COVID-19 PANDEMIC AND ITS IMPACT ON LIMITATION 32.1 The ball was set rolling on the Notice for sale of assets issued by the Liquidator for conducting the e-auction of the land and building owned by the Corporate Debtor that declared the reserve price of the subject property as Rs.29,55,96,375/- (Rupees Twenty nine crore fifty five lakh ninety six thousand three hundred and seventy five only). The intending bidders were required to deposit 10 per cent of the reserve price as earnest money amount which came to Rs. 2,95,59,63....
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....haser within the aforesaid timeline. The said amount was deposited by the Auction Purchaser through RTGS only on 24th August, 2020. 32.3 For explaining the delay in depositing the balance sale consideration, the Auction Purchaser has sought to take shelter of the order dated 23rd March, 2020, passed by this Court in the Suo Moto Writ Petition wherein it was directed as under: Order "1. This Court has taken suo motu cognizance of the situation arising out of the challenge faced by the country on account of Covm-19 virus and resultant difficulties that may be faced by litigants across the country in filing their petitions/applications/suits/appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under special laws (both Central and/or State). 2. To obviate such difficulties and to ensure that lawyers/litigants do not have to come physically to file such proceedings in respective courts/tribunals d across the country including this Court, it is hereby ordered that a period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or special laws whether co....
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....for containment zones, to state: 'Regulated movement will be allowed for medical emergencies, provision of essential goods and services, and other necessary functions, such as, time- bound applications, including for legal purposes, and educational and job- related requirements.' 3. The suo motu writ petition is disposed of accordingly." 32.5 The Auction Purchaser has also invoked Regulation 47A of the IBBI Regulations, 2016, that was inserted on 20th April, 2020 and made effective from 17th April, 202045. Regulation 47A provides for exclusion of the period of lockdown and reads as under : "Exclusion of period of lockdown 47A. Subject to the provisions of the Code, the period of lockdown imposed by the Central Government in the wake of Covid-19 outbreak shall not be counted for the purposes of computation of the time-line for any task that could not be completed due to such lockdown, in relation to any liquidation process." 32.6 It is evident from a perusal of Regulation 47A, that the benefit of the said regulation was made available not only for initiation of any litigation, but also for computation of the timeline for completing any task ....
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....nd incorporated Regulation 47A. 32.8 On 28th February, 2020, the Auction Purchaser approached the Liquidator for seeking extension of time to deposit the balance sale consideration. It was stated that the balance sale consideration would be paid on the date of registration of the subject property and a request was made not to levy any interest. On 02nd April, 2020, the Liquidator informed the Auction Purchaser that he was not empowered to relax the timelines for depositing the balance sale consideration and it ought to approach the Adjudicating Authority for appropriate relief. In view of the aforesaid response received from the Liquidator, the Auction Purchaser filed an application before the Adjudicating Authority on 22nd April 202046, seeking extension of the time for making payment of the balance sale consideration on various grounds that included a plea that there was an income tax attachment order in respect of the subject property and the Covid-19 pandemic had caused a lot of disruption. It was this application that was allowed by the Adjudicating Authority vide order dated 05th May, 2020 granting the Auction Purchaser time to pay the balance sale consideration until the ....
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....ant is also based on its own peculiar facts where successive applications were moved by the applicant - Auction Purchaser therein for extension of time to pay the balance sale price of the subject property. Despite a long rope given by the Court by granting enlargement of time, the applicant kept on dragging its feet and committing defaults. In view of the aforesaid conduct, the Court referred to sub-rule (4) and (6) of Rule 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Enforcement) Rules 200247 that prescribes time of sale, issue of sale certificate and delivery of possession and observed that even if a liberal construction is given to the said sub-rules, in view of successive orders passed by the Court on applications moved by the applicant - Auction Purchasers, it was not permissible to extend the timeline under the substantive statutory provisions dealing with the subject. The facts of the present case being on a different footing, the appellant cannot take advantage of the aforesaid decision. 32.12 In the present case, as noticed above, the period of 90 days for depositing the balance sale consideration had expired just....
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....stimate of the valuation of the subject property and the average of the two estimates was fixed by him at Rs.39,41,28,500/- (Rupees Thirty nine crore forty one lakh twenty eight thousand five hundred only) for purposes of conducting the e-auction. 33.3 The objection taken by the appellant to the Liquidator slashing the reserve price by 25 per cent and bringing it down to Rs. 29,55,96,375/- (Rupees Twenty nine crore, fifty five lakhs ninety six thousand three hundred seventy five only), is answered in Rule 4A of Schedule I under Regulation 33 of the IBBI Regulations, 2016, that states as follows: "(4A) Where an auction fails at the reserve price, the liquidator may reduce the reserve price by up to twenty-five percent of such value to conduct subsequent auction." 33.4 Admittedly, in the first round of the Notice for sale through e-auction published by the Liquidator on 25th November, 2019, he did not receive any bid. As a result, the Liquidator reduced the reserve price of the subject property by 25 per cent to conduct a second auction on 23rd December, 2019 wherein the Auction Purchaser was declared as the successful bidder. In our view, the Liquidator cannot be faul....
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....holders' consultation committee. (1) The liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31, to advise him on matters relating to- (a) appointment of professionals and their remuneration under regulation 7; (b) sale under regulation 32, including manner of sale, pre-bid qualifications, reserve price, amount of earnest money deposit, and marketing strategy: Provided that the decision(s) taken by the liquidator prior to the constitution of consultation committee shall be placed before the consultation committee for information in its first meeting. xxxxx (5) Subject to the provisions of the Code and these regulations, representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the liquidator under sub-regulation (1). xxxxx (8) The liquidator shall place the recommendation of committee of creditors made under subregulation (1) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Proce....
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....te contract as a mode of sale. Besides reporting the progress made, the liquidator can also apply to the adjudicating authority (NCLT) for appropriate orders and directions considered necessary for liquidation of the corporate debtor. The liquidator is permitted to consult the stakeholders who are entitled to distribution of the sale proceeds. However, the proviso to Section 35(2) IBC makes it clear that the opinion of the stakeholders would not be binding on the liquidator. Regulation 8 of the Liquidation Regulations refers to the consultative process with the stakeholders, as specified in Section 35(2) IBC and states that they shall extend all necessary assistance and cooperation to the liquidator for completing the liquidation process. Regulation 31-A has introduced a stakeholders' Consultation Committee that may advise the liquidator regarding sale of the assets of the corporate debtor and must be furnished all relevant information to provide such advice. Though the advice offered is not binding on the liquidator, he must give reason in writing for acting against such advice." 34.3 By virtue of the Notification dated 28th April, 2022, an Explanation was appended at the f....
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....h sale of an asset through auction and the manner in which such a sale shall be conducted by the Liquidator and the second part deals with private sales. The relevant clauses of Schedule I for purposes of the present discussion are as follows: "SCHEDULE I MODE OF SALE (Under Regulation 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016) 1. AUCTION (1) Where an asset is to be sold through auction, a liquidator shall do so the in the manner specified herein. xxxxx (3) The liquidator shall prepare terms and conditions of sale, including reserve price, earnest money deposit as well as pre-bid qualifications, if any. xxxxx (6) The liquidator shall provide all assistance necessary for the conduct of due diligence by interested buyers. xxxxx (12) On the close of the auction, the highest bidder shall be invited to provide balance sale consideration within ninety days of the date of such demand: Provided that payments made after thirty days shall attract interest at the rate of 12%. Provided further that the sale shall be cancelled if the paymen....
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....ns which can be deduced from several decisions of courts regarding the rules of construction that should be followed in determining whether a provision of law is directory or mandatory may be summarised thus: The fact that the statute uses the word "shall" while laying down a duty is not conclusive on the question whether it is a mandatory or directory provision. In order to find out the true character of the legislation, the court has to ascertain the object which the provision of law in question has to subserve and its design and the context in which it is enacted. If the object of a law is to be defeated by non-compliance with it, it has to be regarded as mandatory. But when a provision of law relates to the performance of any public duty and the invalidation of any act done in disregard of that provision causes serious prejudice to those for whose benefit it is enacted and at the same time who have no control over the performance of the duty, such provision should be treated as a directory one. Where, however, a provision of law prescribes that a certain act has to be done in a particular manner by a person in order to acquire a right and it is coupled with another provision wh....
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....lication and communicate the decision to the operational creditor and the corporate debtor, provided, the conditions stipulated in clauses (a) to (e) of Section 9(5)(i) IBC are satisfied. The adjudicating authority (NCLT) must reject the application of the operational creditor in the circumstances specified in clauses (a) to (e) of Section 9(5)(ii) IBC. 75. Significantly, the legislature has in its wisdom used the word "may" in Section 7(5)(a) IBC in respect of an application for CIRP initiated by a financial creditor against a corporate debtor but has used the expression "shall" in the otherwise almost identical provision of Section 9(5) IBC relating to the initiation of CIRP by an operational creditor. 76. The fact that the legislature used "may" in Section 7(5)(a) IBC but a different word, that is, "shall" in the otherwise almost identical provision of Section 9(5)(a) shows that "may" and "shall" in the two provisions are intended to convey a different meaning. It is apparent that the legislature intended Section 9(5)(a) IBC to be mandatory and Section 7(5)(a) IBC to be discretionary. An application of an operational creditor for initiation of CIRP under Sectio....
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....s have their equivalent in Order 21 Rules 84, 85 and 86 CPC which are pari materia in language, sweep and effect and have been held to be mandatory by this Court in Manilal Mohanlal Shah v. Sardar Sayed Ahmed Sayed Mahmad [AIR 1954 SC 349] in the following words: (AIR pp. 351-52, paras 8-9 & 11) "8. The provision regarding the deposit of 25 per cent by the purchaser other than the decree-holder is mandatory as the language of the rule suggests. The full amount of the purchase money must be paid within fifteen days from the date of the sale but the decree-holder is entitled to the advantage of a set- off. The provision for payment is, however, mandatory ... (Rule 85). If the payment is not made within the period of fifteen days, the court has the discretion to forfeit the deposit, and there the discretion ends but the obligation of the court to resell the property is imperative. A further consequence of non-payment is that the defaulting purchaser forfeits all claim to the property ... (Rule 86). 9. ... These provisions leave no doubt that unless the deposit and the payment are made as required by the mandatory provisions of the Rules, there is no sale in ....
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.... Shares and Securities v. National Coop. Bank Ltd. [(2007) 12 SCC 165] , wherein the same position has been taken. 31. In the light of the above we see no reason to hold that Rules 57 and 58 of the Income Tax Rules are anything but mandatory in nature, so that a breach of the requirements under those Rules will render the auction non est in the eye of the law." (emphasis added) 35.7 In State of Bihar v. Bihar Rajya Bhumi Vikas Bank Samiti52, referring to Section 34(5) of the Arbitration and Conciliation Act, 1996, this Court has held that the absence of any consequences for infraction of a procedural provision implies that such a provision ought to be interpreted to be directory and not mandatory. Following are the observations made in the captioned decision : "19. It will thus be seen that Section 34(5) does not deal with the power of the Court to condone the non-compliance thereof. It is imperative to note that the provision is procedural, the object behind which is to dispose of applications under Section 34 expeditiously. One must remember the wise observation contained in Kailash [Kailash v. Nanhku, (2005) 4 SCC 480] , where the object of such a p....
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....manner prescribed in the Rules under Schedule I. He is not left with any discretion to condone the delay. 35.10 When broken down, Rule 12 states that (a) the highest bidder in an auction shall be called upon to provide the balance sale consideration within 90 days from the date of such a demand; (b) any payments made after 30 days from such a demand shall attract interest at the rate of 12 per cent; (c) if the payment is not received within the period of 90 days, the sale shall be cancelled. The word 'shall' has been used thrice in Rule 12. Coming next to Rule 13, the same states that (a) the sale shall stand completed on the payment of the full amount; (b) the Liquidator shall execute a sale certificate/sale deed to transfer such an asset(s); (c) the asset(s) shall be delivered in the manner prescribed in terms of the sale. The word "shall" has again been used thrice in Rule 13. It is noticed that except for Rules 4A, 4B, 8 and Rule 11A where the word "may" has been used and it vests a discretion in the Liquidator to reduce the reserve price more than once and conduct multiple rounds of auctions with the purpose of maximizing realization from the sale of assets in the best inte....
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....would be directory. We are conscious of the fact that under Section 64(1) of the Code, NCLT President or the Chairperson of Nclat may, after taking into account reasons by NCLT or Nclat for exceeding the period mentioned by statute, extend the period of 14 days by a period not exceeding 10 days. We may note that even this provision is directory, in that no consequence is provided either if the period is not extended, or after the extension expires. This is also for the good reason that an act of the court cannot harm the litigant before it. Unfortunately, both NCLT and Nclat do not have sufficient members to deal with the flood of applications and appeals that is before them. The time taken in the queue by applicants who knock at their doors cannot, for no fault of theirs, be put against them." 35.13 Nor can the decisions of the Tribunal in Standard Surfa Chem India Private Limited (supra) and Prakash Chandra Kapoor (supra) referred to by learned senior counsel for the Liquidator, be read in favour of the respondents. A sweeping observation that all the timelines prescribed in Regulation 47 are directory, is impermissible. The consequences of non-compliance of the specific rule ....
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....rs under Section 35 of the IBC read with its inherent powers under Rule 11 of the NCLT Rules, 2016 for extending the time to deposit the balance sale consideration on sufficient cause being shown, i.e., in view of the countrywide lockdown due to the Covid- 19 pandemic. This latitude that was given in the aforesaid extraordinary circumstances to meet the ends of justice, cannot be faulted. 36. IMPACT OF THE ATTACHMENT ORDER BY THE INCOME TAX AUTHORITIES ON THE SALE OF THE AUCTIONED PROPERTY 36.1 All things even, having held that there was sufficient reason to grant extension of time to the Auction Purchaser to deposit the balance sale consideration in terms of orders passed by this Court in the Suo Moto Writ Petition read with the provisions of Regulation 47A of the IBBI Regulations, 2016, and having regard to the view expressed above that the Adjudicating Authority was empowered in law to extend the time on sufficient cause being shown, the matter ought to have rested there. But there is something more to be said in this case that revolves around the arguments advanced by learned counsel for the appellant regarding the import of the order of attachment issued by the Income Ta....
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....ns given by the Liquidator to the Auction Purchaser that registration of the subject property in favour of the successful bidder was not to be linked with the income tax attachment order for the reason that the Income Tax Department had already lodged a claim before the Liquidator and payment was to be released to the Department in the order of priority, as stipulated under the IBC. Despite that, the Auction Purchaser did not proceed further. 36.5 In the light of the Notice for sale and the replies furnished to the Auction Purchaser well before the bidding process had commenced, we are of the considered view that it was for the Auction Purchaser as an intending bidder to have conducted a due diligence at its own end, gather all the relevant information pertaining to the subject property which included the status of the property and the liabilities attached to it, weigh all the pros and cons and only thereafter participate in the auction process. After having participated in the e-auction with its eyes wide open, the Auction Purchaser cannot be heard to state that payment of the balance sale consideration was linked with the lifting of the attachment order passed by the Income Ta....
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....2,44,01,603/- (Rupees Two crore forty four lakhs one thousand six hundred and three only) were deposited in the escrow account on 24th August, 2020, though the income tax department lifted the attachment order three days later, on 27th August, 2020. This was duly conveyed to the office of the Sub-Registrar at Trichy on the same date. The second proviso to Section 281 of the IT Act did provide a window to the Auction Purchaser to approach the assessing officer for prior permission to transfer the subject property. But that option was exercised when the Liquidator moved an application for appropriate permission before the Adjudicating Authority which was granted on 10th February, 2020 under intimation to the Auction Purchaser. 36.8 The contention of the learned counsel for the Auction Purchaser is that Rule 13, Schedule I of the IBBI Regulation, 2016 must be read in conjunction with Rule 12 and only on payment of the full amount, could the sale transaction be treated to have been completed in all respects. Since the full amount could not be paid till the attachment order was lifted, the Liquidator could not have executed a certificate for sale/sale deed to transfer the subject pro....
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.... the said position and the order of priority that was to be given to the claim of the Income Tax Department. Yet the Auction Purchaser did not deposit the balance sale consideration. In view of the above, the plea taken by the Auction Purchaser that the income tax attachment order was a serious and an insurmountable impediment in completion of the sale and the subject property could not have been validly transferred in its favour by the Liquidator, is rather tenuous and not persuasive. 36.11 The anxiety of the Auction Purchaser was adequately addressed on the Adjudicating Authority passing an order on 10th February, 2020, lifting the attachment order. This order was communicated by the Liquidator to the Auction Purchaser well in time. Mere not receipt of a copy of the said order cannot be a ground for the Auction Purchaser to have delayed deposit of the entire balance sale consideration. The spectre of Covid-19 was nowhere on the horizon at that time. It spiralled only in the last week of March, 2020. If the Auction Purchaser was serious, it could have easily deposited at least some amount out of the balance sale consideration of Rs.26,60,36,677/- (Rupees Twenty six crore sixty ....
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....ers57). Repeated interferences in public auction also results in causing uncertainty and frustrates the very purpose of holding auctions. (Refer : K. Kumara Gupta v. Sri Markendaya and Sri Omkareswara Swamy Temple and others58). Unless there are some serious flaws in the conduct of the auction as for example perpetration of a fraud/collusion, grave irregularities that go to the root of such an auction, courts must ordinarily refrain from setting them aside keeping in mind the domino effect such an order would have. Given the facts noted above, we shall refrain from cancelling the sale or declaring the Sale Deed as void. Instead, it is deemed appropriate to balance the equities by directing the Auction Purchaser to pay an additional amount in respect of the subject property. CONCLUSION 36.15 For arriving at a just and fair figure, we propose to take into consideration the estimated value of the subject property in terms of the Reports submitted by the Registered Valuers appointed by the Liquidator. Based on their Reports, the Liquidator had fixed Rs.39,41,28,800/- (Rupees Thirty nine crore forty one lakh twenty eight thousand and eight hundred only) as the average liquidation ....