2022 (3) TMI 1444 - Tri - Insolvency and Bankruptcy

Seeking to set aside the e-auction held on September 13,2021 by the liquidator - company already under Liquidation process - section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal Rule, 2016 - HELD THAT - Assets as shown in the auction notice are mentioned as Land and Building, Plant Machinery, Inventory, Stores and spares etc. As is evident from the record this factory is situated at Kolkata. It is admitted position that the liquidator decided to postpone the e-auction from 9th of September, 2021 to 13th of September, 2021 and fixed the submission of EMD and other documents in Calcutta for 11th of September, 2021. Overview of the assets and properties of CD is contained at Page-56 of the bidding document. The details of document required to be submitted by the bidder start from Page-61. There is a provision for physical verification and the site visit at Page 62 and also there is a provision for conducting due diligence - Inspection for the assets of the company by the intending bidders was fixed on or before 7th of September, 2021 thus thereby giving a time of around 12 days. However, when the liquidator did not get even a single bid on or before the schedule fixed by him in his notice dated 24th of August, 2021, he extended the time by issuing the corrigendum dated 8th of September,2021 thereby extending the date of submission of EMD till 11th of September, 2021 and date of e-auction on 13th of September, 2021. It is apparent from the facts on record, the time of completion of the liquidation process was till April, 2022 (without extension) and why there was so hurry with the liquidator to extend the time only for three days when he was having not even a single bidder in response to its first notice and at the same time inviting bids afresh without affording anyone the opportunity of conducting physical inspection of the huge and high value assets of the company and conducting due diligence and mentioned in earlier notice inviting bids, per se speaks of failure on the part of Liquidator to conduct the sale in fair and in the manner to get the maximum value of the assets - According to the applicants, reasonable time should have been granted to conduct the site inspection and due diligence when the liquidator was extending the time for want of even a single bidder. By omitting the opportunity to the Intending Bidders, in corrigendum impugned dated 08-09-2021, to conduct physical inspection and due diligence as provided in initial bid document, it is apparent that the liquidator has not acted rationally, reasonably and failed to conduct the auction in a fair manner - Upon the basis of above-mentioned material irregularities/flaws have no option except to auction set aside the entire process, in pursuance to the e- auction notice dated 27th of August, 2021 followed by the corrigendum dated 8th of September, 2021 and the LOI issued by the liquidator to M/s Snaefell Heights LLP and the auction process impugned is hereby set aside. Application disposed off.

Summary

Issues Involved:
1. Validity of the e-auction process held on September 13, 2021.
2. Allegations of procedural irregularities and lack of due diligence by the Liquidator.
3. Claims of network connectivity issues affecting the bidding process.
4. Adequacy of the time provided for inspection and due diligence.
5. Legitimacy and capability of the successful bidder, Snaefell Heights LLP.
6. Requests for re-auction to maximize the value of the Corporate Debtor's assets.

Detailed Analysis:

1. Validity of the e-auction process held on September 13, 2021:
The applicants challenged the e-auction process, seeking its cancellation and re-auction. They argued that the e-auction was flawed due to connectivity issues and procedural irregularities. The Liquidator maintained that the auction was conducted transparently and in compliance with the law.

2. Allegations of procedural irregularities and lack of due diligence by the Liquidator:
The applicants contended that the Liquidator failed to provide adequate time for inspection and due diligence after extending the auction date. They argued that the corrigendum issued on September 8, 2021, deprived bidders of the opportunity to inspect the assets physically. The Liquidator argued that the auction was conducted fairly and transparently, following the regulations.

3. Claims of network connectivity issues affecting the bidding process:
One applicant, Chinar Steel, claimed that they faced connectivity issues during the bidding process, preventing them from placing a higher bid. The Liquidator extended the auction time by 30 minutes, but the applicant could not place the bid due to persistent connectivity issues. The Liquidator provided a log report from the e-auction service provider, confirming no technical glitches on their end.

4. Adequacy of the time provided for inspection and due diligence:
The applicants argued that the Liquidator's extension of the auction date without providing additional time for inspection and due diligence was unfair. They contended that the initial notice allowed 12 days for inspection, but the corrigendum did not provide any time for this purpose. The Tribunal found that the Liquidator's actions were arbitrary and failed to provide a reasonable opportunity for bidders to conduct due diligence.

5. Legitimacy and capability of the successful bidder, Snaefell Heights LLP:
The applicants questioned the legitimacy and capability of Snaefell Heights LLP, the successful bidder, which had a turnover of NIL for the financial years ending on March 31, 2019, 2020, and 2021. They argued that the Liquidator failed to conduct proper due diligence to verify the bidder's ability to continue the Corporate Debtor as a going concern. The Tribunal found merit in this argument, noting that the Liquidator did not adequately address this issue.

6. Requests for re-auction to maximize the value of the Corporate Debtor's assets:
The applicants requested a re-auction, arguing that it would maximize the value of the Corporate Debtor's assets. They cited the principle of maximizing asset value as a key objective of the Insolvency and Bankruptcy Code (IBC). The Tribunal agreed, noting that the Liquidator should have conducted multiple rounds of auction to achieve the best possible value for the assets.

Conclusion:
The Tribunal found significant procedural irregularities and flaws in the e-auction process. It set aside the entire auction process, including the LOI issued to Snaefell Heights LLP. The Tribunal directed the Liquidator to initiate a fresh bidding process, providing fair and reasonable opportunities for inspection and due diligence, and complete the process within three weeks. The judgment emphasized the importance of maximizing asset value and conducting a fair auction process.