TaxTMI 
TaxTMI 
2025 (7) TMI 1461
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.... For Respondent : Mr. Sandeep Bajaj, Mr. Vipul Jai, Mr. Monish Surendaram, Advocates for R1. Mr. Sunil Fernandes Sr. Advocate with Ms. Sukhda Kalra, Mr. Nitesh Ramani, Advocates for R2. JUDGMENT ( Hybrid Mode ) Per : Barun Mitra, Member ( Technical ) The present set of appeals filed under Section 61 of Insolvency and Bankruptcy Code 2016 ('IBC' in short) arises out of two Orders both dated 21.01.2025 (hereinafter referred to as 'First and Second Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) in CP (IB) No. 1833 of 2017. By the first impugned order, the Adjudicating Authority has dismissed IA No. 1365 of 2023 filed by Mr. Sushil Jejani-Promoter of Corporate Debtor seeking the setting aside of the auction sale conducted by the Liquidator and holding of fresh auction. By the second impugned order, the Adjudicating Authority has dismissed I.A. No. 12 of 2021 filed by Dicksons Overseas Pvt. Ltd.-Successful Auction Purchaser seeking stoppage of the running of 90 days time to make auction sale payment due to force majeure circumstances and stoppage of interest liability. This second impugned order also dismissed IA No.....
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....and Leasehold Lands into Occupancy Class I Land) Rules, 2019. * On 28.12.2020, SAP filed W.P. No. 3821/2020 before the Hon'ble Bombay High Court, challenging the stay on conversion. Hon'ble High Court passed interim order restraining Liquidator from taking coercive action against SAP. * On 29.12.2020, I.A. No. 12 of 2021 was filed by SAP before the Adjudicating Authority making the following prayers: (a) Declare and hold that running of ordinary time of 90 days has been stopped due to force majeure circumstances, hence there is no consequent liability or responsibility on any of the parties ; (b) Declare and hold that the liability of interest also stopped due reasons of force majeure ; (c) Grant time of four weeks after the date of grant of the required permissions to get the sale deed draft adjudicated from the collector of stamps, payment of stamp duty and complete other sale formalities, (d) Issue direction, without prejudice to any of the aforesaid prayers, to explore and initiate the steps for under Regulation 30A as well as under Regulation 32 (e) of the corporate debtor as a going concern. (e) Direct the Liquida....
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....eeking declaration of force majeure circumstances and for treating the sale for acquiring Corporate Debtor as a 'going concern'. * Pursuant to the order of the Adjudicating Authority dated 21.01.2025, SAP has paid the full sale amount with 12% interest totalling Rs 13.52 Cr. and has been granted possession along with a sale certificate issued on 21.02.2025. The possession of the subject land was also handed over on 12.03.2025 to the SAP. * The proceeds received from the SAP have been duly disbursed on 12.03.2025 to the Stakeholders by the Liquidator in accordance with the statutory provisions of IBC and applicable regulations. * Aggrieved by the first impugned order, Company Appeal No. 449 of 2025 has been filed by Appellant-Sushil Jejani while aggrieved by the second impugned order, appeals have been preferred by SAP vide Company Appeal Nos. 473, 485 and 463 of 2025. 3. Making his submissions, Shri Gaurav Mitra Ld. Counsel for the Appellant submitted that it is an undisputed fact that M/s Dicksons Overseas Pvt. Ltd. was declared as the Successful Auction Purchaser following which the Liquidator had issued them LoI on 01.10.2020. In terms of the LoI an....
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....irst impugned order rejecting IA No. 1365 of 2023 and the second impugned order suffers from contradictions in that on the one hand, the Adjudicating Authority has rejected the force majeure arguments espoused by the SAP for not making payment on time but on the other hand has allowed relief to the SAP to belatedly pay the auction amount after a gap of nearly five years. The Appellant has contended that the Adjudicating Authority by permitting 30 days further time-period for the deposit of balance sale consideration at this belated stage did not act in accordance with the statutory provisions of IBC and hence the impugned order is liable to be set aside. It was contended that giving such relief by the Adjudicating Authority to the SAP had no statutory foundation and was contrary to the tenets of IBC. Moreover, the Adjudicating Authority by allowing the SAP to have the subject land on the bid price of 2020 at a time when there has been a steep value escalation, injustice has been caused to the creditors and other stakeholders of the Corporate Debtor. 7. The contentions made by the Appellant was refuted by Shri Sunil Fernandes, Ld. Senior Advocate representing Respondent No.2-SAP ....
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.... this was a misplaced argument. Submission was made that the conversion application was filed as part of discharge of duties of the Liquidator. Since the SAP's application before the revenue authority for conversion was not entertained on the plea that only the holder of the subject land could move the conversion application, in this backdrop it became necessary for the Liquidator to procure necessary permission from the revenue authorities to effectuate the transfer of the immovable property and for putting into effect the sale deed. The Liquidator had not taken any step beyond mere filing of a singular Form for conversion. Thus, it would be wrong to impute motives on the Liquidator of trying to extend any additional benefits to the SAP. 10. It was asserted that the Adjudicating Authority had correctly sized up the fact that on account of development of certain external circumstances which had come in the way of finalising the auction sale, it was justifiable to allow further period of 30 days beyond the permissible 90 days statutory period to the SAP to remit the balance consideration. Reliance was placed on the judgment of this Tribunal in Rajabhau Shinde Vs S.M. Electric Wor....
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....l the auction. It has been contended that Regulation 33 of the Liquidation Process Regulation casts a duty on the Liquidator to sell the subject asset in the manner specified in Schedule I Clause 12 thereto which Clause clearly specified that the auction sale shall be cancelled if payment is not received within 90 days. Submission has also been made that even the E-Auction Process Information Document dated 07.09.2020 placed at page 93 of the Appeal Paper Book ("APB" in short) provided that the sale shall be cancelled if the payment is not received within 90 days. In the present case, the SAP had not remitted the balance payment within the stipulated time-line of 90 days. The auction sale was therefore vitiated by operation of law and liable to be cancelled and it was incumbent upon the Liquidator to act accordingly. 16. To return our findings, we may first look at the regulatory provisions as well as the Auction Process Document basis which the auction sale was conducted to know the time-period within which the balance consideration was required to be paid. 17. Regulation 33 of the Liquidation Process Regulation, 2016 stipulates that the Liquidator shall ordinarily sell the ....
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....hall be binding on him. A sale certificate and / or conveyance document and/ or transfer documents for the relevant asset/assets shall be issued / executed between the Successful Bidder and the Company through Liquidator upon receipt of the balance sale consideration. 22. This now brings us to the question whether the balance consideration was paid within 90 days by the SAP as mandated by Liquidation Process Regulation; Auction Process Document and LoI. From all indications, the answer is in the negative. 23. When we see the first impugned order, we find that the Adjudicating Authority has committed no mistake in also noticing that the balance payment was not remitted by SAP within 90 days. Nevertheless, it held that cancellation of this valid auction sale would go against the principles of IBC. It was also observed that SAP was always willing and ready to pay the entire sale consideration but was prevented from doing so due to the "development of certain external circumstances". Hence, non-payment of balance consideration cannot be viewed as a default in payment on the part of the SAP warranting cancellation of sale. 24. Basis this finding, the Adjudicating Autho....
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....the meantime, we propose keeping the balance purchase consideration in an escrow account, until receipt of necessary permissions and execution of sale deed, after which the balance amount shall be remitted in the liquidator's account. In this context, we have no issues if the Liquidator intends to seek Hon'ble NCLT's post facto permission for an Escrow arrangement with us. We have no objection if such escrow arrangement is subject to the orders of Hon'ble NCLT. 5. Considering time is of the essence, we request prompt action from your end. Thanking You (Emphasis supplied) 27. A fourth letter dated 25.12.2020 was sent by the SAP to the Liquidator in which they lamented that the Liquidator had not accepted their offer of escrow account besides submitting proof of sufficient funds in their bank account to meet the balance consideration. The said letter is extracted as under: To, DICKSONS OVERSEAS PRIVATE LIMITED 25.12.2020 CA Prasad Dharap, Hon'ble Liquidator, Jejani Pulp and Paper Mills Private Limited, [email protected] Dear Sir, Execution of Sale Deed in our favo....
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....erform our part of contract. Submitted accordingly Yours faithfully (Emphasis supplied) 28. A plain perusal of the four letters cited above clearly substantiates 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. 29. We also notice that the Adjudicating Authority in the first impugned order has also taken into cognizance the Potens Transmission judgement which has been relied upon by the Appellant to contend that failure to remit payment by successful bidder within 90 days warranted cancellation of the auction sale. The Adjudicating Authority has distinguished the facts of this case from the Potens Transmission jud....
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....ate the "external circumstances" which have been adverted to by the Adjudicating Authority, we may quickly glance through the sequence of events in the present facts of the case. It is an undisputed fact that certain parcels of subject land under auction sale was classified as Class-II under Maharashtra Land Revenue Code (MLRC) on which category of land there were restrictions on the right of transfer unless permission of the competent authority was obtained. Material placed on record shows that the SAP had approached the competent revenue authority for this purpose but did not succeed in getting permission as they were not the holder of the auction land. The SAP therefore wrote to the Liquidator to obtain necessary permissions from the concerned statutory revenue authorities for effecting the transfer of the subject land and to register the sale deed. The Liquidator thereafter took up the matter with the competent revenue authority on 03.11.2020 whereinafter the atmospherics changed. 35. Before the necessary permission could be secured by the Liquidator, we notice that the issue of conversion became contentious and got surrounded by a spate of litigations. On 10.12.2020, the co....
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....e SAP was still ready and willing to pay the balance consideration, in the event of any further delay happening in concluding of the auction sale, the value of the assets of the Corporate Debtor would suffer further depletion which would cause violence to one of the overarching principles of maximization of the value of assets which permeates the IBC. Given these special and exceptional developments, to our minds, the Adjudicating Authority did not commit any error in coming to the conclusion that the auction having been held in a valid manner, the auction sale ought not to be cancelled as it would disrupt the liquidation process. 38. To overcome the exigencies of the situation, the Adjudicating Authority directed the SAP to pay the balance consideration alongwith interest @12% for the entire period of delay within 30 days of the first impugned order. This issue before us is whether this window of 30 days period could have been allowed by the Adjudicating Authority, when this extended period of 30 days is beyond the permissible 90 days statutory period permitted under the Liquidation Process Regulation. 39. It is the case of the Appellant that this extension of time is illega....
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....05.2022 as well as the judgment of the Hon'ble Supreme Court in "Civil Appeal Nos.9059-9061 of 2022- "V.S. Palanivel vs. P. Sriram, CS, Liquidator, Etc.". Counsel for the Appellant submits that when the sale itself was liable to be cancelled and has rightly been cancelled by the liquidator, there is no question of approval of sale by the Adjudicating Authority by subsequent order dated 15.07.2024, hence, the said order also deserves to be set aside. ... ... 16. The liquidator, thus, approached the Adjudicating Authority for approval of the sale after receiving the entire amount and prayed for certain reliefs and concessions. 17. The Hon'ble Supreme Court in "V.S. Palanivel vs. P. Sriram, CS, Liquidator, Etc." (supra) itself had occasion to consider the power of the Adjudicating Authority in reference to extension of time for deposit of the balance consideration. It is useful to extract paragraphs 35.15 and 35.16 of the judgment of the Hon'ble Supreme Court which is as follows:- "35.15 The aforesaid Rule is not to be read in isolation but in conjunction with Section 35 of the IBC that deals with the powers and duties of the Liquidator and....
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....hereafter application was filed for approval of the sale which has also been granted by the Adjudicating Authority." 42. Interestingly, we notice that the Adjudicating Authority has also relied on the judgment of the Hon'ble Apex Court in the matter of Palanivel judgment supra to allow further time to SAP for remitting balance consideration. The Adjudicating Authority at para 47 of the first impugned order has observed that the Hon'ble Apex Court in Palanivel judgment supra while holding that the timelines specified in Regulation 33 of Liquidation Process Regulation is mandatory, also held that Adjudicating Authority has the power to extend the time period if it finds serious flaws in the conduct of the auction. 43. Given this backdrop, we are of the considered view, that it is settled law that it is open to the Adjudicating Authority to exercise its inherent powers under Rule 11 to grant extension of payment as long as it is satisfied that sufficient grounds exist. We also notice that Adjudicating Authority in its order allowed further time to the SAP in view of certain external circumstances having developed but also simultaneously directed the SAP to make additional paymen....
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....uments and the LoI. It was therefore asserted that there were material irregularities in the auction process and hence the Liquidator by allowing the auction sale to continue acted in violation of the IBC. 47. It is also the case of the Appellant that SAP had voluntarily participated in the liquidation auction and consciously submitted their bid with full knowledge of the nature of title. Having taken a commercial decision to participate in the bid document, the SAP ought not to have been permitted by the Liquidator to resile from its obligations to pay the balance amount on title issue. Even if the alleged regulatory restrictions impeded the registration process, this was not a valid ground for the Liquidator not to insist on the balance payment. The Liquidator deferred the enforcement of the statutory consequences of default which was contrary to the regulatory framework of IBC and therefore committed a serious irregularity. 48. Per contra, it is the contention of the Liquidator that this was not a case where the SAP was not willing to pay or that it was not equipped to pay the balance consideration. As Liquidator, he however had no occasion to forfeit the EMD or cancel the....
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....or that a still higher price 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....." 51. We do not have any objective material or basis before us to show that there has been a value escalation of the subject land. Neither do we propose to get into any fishing and roving enquiry to find out whether there has been any material increase or decrease in the value of the property post auction. We wish to confine ourselves to the question as to whether there has been any material irregularity or illegality in the conduct of the auction. 52. The other contention raised by the Appellant is that the Liquidator had exceeded his powe....
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....wing to the purported prohibition on transfer of the land falling in Occupancy Class-II without due permission received from the competent authority, the SAP requested the Liquidator to file the conversion application following which the conversion permission was sought by the Liquidator on 03.11.2020. 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. We are therefore of the view that 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. 55. Further at that point of time, it appears that the SAP and the Liquidator were both under the impression that the LoI contemplated conveyance of the title of the land which would not be possible without the conversion a....