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2020 (9) TMI 990 - Tri - Insolvency and BankruptcyValidity of e-auction - submission of cunter-bid - declaration of earlier auction as illegal and bad - HELD THAT - The liquidator under Regulation 33(3) can deal with the aspect of collusion between various parties which ultimately effects the maximization of value of all assets of the corporate debtor adversely. No doubt, the sanctity of auction process has to be maintained i.e., once it is closed, normally it should not be reopened as generally understood. As stated earlier, generally the same can be done only on two grounds i.e., fraud or material irregularity occurred in the process of auction. However, another ground is added by IBC, 2016 i.e., maximization of value of assets of corporate debtor. Thus, when a situation of challenge to auction process arises on the ground of assets are not being sold at the maximum possible value, then, also in our considered view, auction process can be enquired into and such process can be set aside on this ground also. Another aspect which needs to be considered is that a person who is ready to pay more cannot be debarred or legal technicalities cannot be allowed to come in its way. Further, when liquidator is having an opportunity to approach this Authority in case of collusion, but when the maximization of value of assets is apparently not happening, though may or may not exist, any other interested party can certainly approach this Authority under sections 60(5)(a) / 60(5)(c) of IBC, 2016. Such person, in our considered view, cannot be rendered remedyless. It is apparent that there is a departure from the earlier concept of supremacy of Committee of Creditors as the decisions of Committee of Creditors now can be looked upon in the light of preamble to IBC, 2016 and Committee of Creditors may be required to reconsider the resolution plan to achieve such objectives. In our considered view, this rationale also applies to the decisions of liquidator - the decisions of the liquidator can certainly be looked upon by this Authority when such decisions are not in consonance with the stated objectives of IBC, 2016. In the present case, as stated earlier, e-auction was taken only once. Only one bidder has participated and that too, bid at a reserve price. This bid has been accepted by the liquidator. No reason has been brought on record by the liquidator as to why multiple rounds of auctions were not required as mandated in clause 1 of part 1 of Schedule I. Further, this situation is also violative of Regulation 39 of Liquidation Process Regulation Rules, 2016 as the maximization was not endeavoured - Further, as per notice inviting for expression of interest, balance consideration was to be deposited within 7 days from the date when any bidder is declared successful. However, in the present case, such condition has also been relaxed by taking a bank guarantee for an amount of ₹ 10 Crores approx. Thus, there exists not only contravention of the preamble to the Code and Regulations made thereunder but also an irregularity/deviation. As evident from the various provisions of the Code as well as Liquidation Process Regulations discussed herein before, maximization of value of the assets of the corporate debtor is a key factor / prime consideration and in the present case this object has not been achieved by accepting the bid of the applicant at the reserve price which has been now outbid by a substantial higher amount. Much higher Earnest money has also been deposited - it is a simple case of sale of immovable property, hence, no complexities are involved and, therefore, the only criteria which needs to be applied here is higher bid in monetary terms as well as having regard to time value of money should exist and on this criteria new bid gets through. The old e-auction is cancelled and set aside. The proposal of applicant is accepted subject to the condition that the balance amount of total bid of ₹ 15.50 Crores for the impugned asset parcel shall be deposited within six weeks from the date of receipt of this order failing which the amount of ₹ 3.875 Crores so deposited shall stand forfeited - Application allowed.
Issues Involved:
1. Jurisdiction and applicability of Section 60(5) of IBC, 2016. 2. Validity of the e-auction process held on 11th June 2019. 3. Maximization of value of the Corporate Debtor's assets. 4. Role and responsibilities of the liquidator under IBC, 2016. 5. Legal standing of the applicant to challenge the auction process. 6. Compliance with Liquidation Process Regulations, 2016. Issue-wise Detailed Analysis: 1. Jurisdiction and Applicability of Section 60(5) of IBC, 2016: The application was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking to declare the e-auction held on 11th June 2019 as void and to set aside the same. The Tribunal clarified that Section 60(5) empowers it to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person. This includes any question of priorities or any question of law or facts arising out of or in relation to the insolvency resolution or liquidation proceedings. The Tribunal emphasized that Section 60(5)(c) is a residuary provision that overrides contrary provisions of any other law but not IBC, 2016. 2. Validity of the E-Auction Process Held on 11th June 2019: The applicant argued that the e-auction was not conducted in the spirit of maximization of value as only one bidder participated, and the bid was accepted at the reserve price without any attempt for upward revision. The Tribunal noted that the liquidator accepted the bid without conducting multiple rounds of auctions, which is required under Schedule I of the Liquidation Process Regulations, 2016. The Tribunal found that the auction process did not maximize the value of the assets and was thus subject to scrutiny. 3. Maximization of Value of the Corporate Debtor's Assets: The Tribunal highlighted that one of the key objectives of IBC, 2016 is the maximization of value of the assets of the corporate debtor. It referred to the Supreme Court's decision in the case of Committee of Creditors of Essar Steel India Limited, which emphasized that the resolution plan must maximize the value of the assets and balance the interests of all stakeholders. The Tribunal concluded that the liquidator's acceptance of the bid at the reserve price did not achieve this objective, especially when a higher bid was subsequently offered. 4. Role and Responsibilities of the Liquidator Under IBC, 2016: The Tribunal analyzed the role and responsibilities of the liquidator as prescribed in Section 35 of IBC, 2016. The liquidator is required to sell the assets of the corporate debtor in a manner that maximizes value and is time-bound. The Tribunal found that the liquidator failed to conduct multiple rounds of auctions and did not provide adequate reasons for not doing so, thus not fulfilling the responsibilities as mandated. 5. Legal Standing of the Applicant to Challenge the Auction Process: The successful bidder contended that the applicant had no locus to challenge the auction as it did not participate in the e-auction and pointed out no fraud or irregularity. However, the Tribunal held that any interested party could approach it under Sections 60(5)(a) and 60(5)(c) of IBC, 2016, especially when the maximization of value of assets is in question. The Tribunal emphasized that legal technicalities should not bar a party ready to pay more from participating. 6. Compliance with Liquidation Process Regulations, 2016: The Tribunal found that the liquidator did not comply with the Liquidation Process Regulations, 2016, particularly Regulation 33, which mandates multiple rounds of auctions to maximize the realization from the sale of assets. The Tribunal also noted the deviation from the terms of the notice inviting expression of interest, as the balance consideration was not deposited within the stipulated time but was instead secured by a bank guarantee. Conclusion: The Tribunal concluded that the old e-auction process was flawed and did not achieve the maximization of value. Consequently, it set aside the previous auction and accepted the new bid, subject to the condition that the balance amount must be deposited within six weeks. The application was allowed, and the new bidder was declared successful, ensuring a higher value for the assets of the corporate debtor.
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