2021 (12) TMI 82 - AT - Insolvency and Bankruptcy

Irregularity in the e-auction process in terms of Regulation 33 and Schedule 1 of the IBBI (Liquidation Process) Regulations, 2016 or not - existence of whiff of any short of collusion between the highest bidder and other bidders - validity of cancellation of present auction - HELD THAT - Regulation 33(3) of the Liquidation Process Regulation casts a duty upon the Liquidator not to proceed with the sale in the circumstances mentioned therein. Regulation 33(3) is not an exhaustive provision applicable only in the specific circumstances stated therein. Thus, it cannot be said that the Liquidator can cancel an auction only if Regulation 33(3) is attracted. Clause 1(11) of Schedule-I specifically authorises a Liquidator to conduct multiple rounds of auctions to maximise the realisation from the sale of assets. Multiple rounds of auctions can be conducted because the Liquidator is competent to hold successive auctions. In the instant case, R-2 have issued the certificate of sale in favour of R-1 in compliance with the directions of the Learned Adjudicating Authority. All steps taken by the Liquidator in compliance with the impugned Order will stand reversed subject to the outcome of this Appeal - there is no concluded contract till the bid is accepted. Before there was a concluded contract, it was open to the bidders to withdraw their bids. Public auctions are held to get the best possible price. Once those aspects are recognised, there appears to be no basis for contending that the owner who had offered to sell them cannot decline to accept the highest bid if he thinks that the price offered is inadequate. It is clear that the learned Adjudicating Authority proceeded on the wrong assumption, i.e. the sale was successfully concluded; therefore, arriving at the wrong conclusion that the sale has been successfully concluded; could not have been cancelled by the learned Liquidator - It is well-settled law laid down by Hon'ble Supreme Court in the catena of decisions that the successful bidder in the auction sale does not acquire any vested right in law to enforce the auction, more particularly, when the auction notice confers power on the Authority conducting the auction to cancel the auction in its discretion. An auction sale is not completed under Clause 12 merely because the person has been declared the highest bidder. Instead, the sale is concluded only on full payment of the amount envisaged under Clause 13 of Schedule 1 - it is clear that the auction bidder has no vested right to claim the auction in its favour in a liquidation sale. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Validity of the e-auction process.
2. Authority of the Liquidator to cancel the auction.
3. Rights of the highest bidder in an auction.
4. Compliance with the Insolvency and Bankruptcy Code (IBC) and Liquidation Process Regulations.

Issue-Wise Detailed Analysis:

1. Validity of the e-auction process:
The Adjudicating Authority found no irregularity in the e-auction process per Regulation 33 and Schedule 1 of the IBBI (Liquidation Process) Regulations, 2016. It observed no evidence of collusion between the highest bidder and other bidders and no material suggesting that canceling the auction would result in a better price for the assets. The Authority concluded that there cannot be endless waits to get the best price for assets without material support for such conjecture.

2. Authority of the Liquidator to cancel the auction:
The Appellant argued that the highest bid does not necessarily conclude the auction and that the Liquidator retains the authority to accept or reject bids or cancel the auction at any stage, as per the bidding terms and conditions. The Liquidator cited multiple Supreme Court rulings affirming that the highest bidder does not acquire a vested right in law and that the auction can be canceled if deemed necessary for maximizing asset value. The Liquidator also referred to Clause 3(k) of the sale auction notice, which grants the Liquidator the absolute right to cancel the auction.

3. Rights of the highest bidder in an auction:
The Appellant emphasized that the highest bidder does not automatically secure the auction's conclusion in their favor. The Supreme Court rulings cited, including Purxotoma Ramanata Quenim v. Makan Kalyan Tandel and State of Jharkhand v. CWE-SOMA Consortium, support the notion that the highest bidder has no vested right to enforce the auction's conclusion. The Liquidator argued that the auction could be canceled even if the highest bid is received, as the highest bidder does not have a vested right to demand acceptance of their bid.

4. Compliance with the Insolvency and Bankruptcy Code (IBC) and Liquidation Process Regulations:
The Liquidator's decision to cancel the auction was based on the reserve price being met but not exceeded, which did not maximize asset value. Regulation 33(3) of the Liquidation Process Regulations and Schedule 1, Clause 1(11), authorize the Liquidator to conduct multiple auctions to maximize asset realization. The Adjudicating Authority's reliance on Clause 12 of Schedule 1, which does not vest discretion in the Liquidator to cancel the auction, was deemed incorrect. The correct interpretation requires considering Clauses 11, 12, and 13 together, which collectively support the Liquidator's authority to cancel the auction to maximize value.

Conclusion:
The Tribunal concluded that the auction sale is not completed merely because the highest bid is received; the sale concludes only upon full payment as per Clause 13 of Schedule 1. The Liquidator, acting within the authority granted by the auction notice and the Liquidation Process Regulations, was entitled to cancel the auction. The Adjudicating Authority erred in its judgment by not considering the relevant clauses in conjunction. The appeal was allowed, the impugned judgment was set aside, and the Liquidator was authorized to initiate a fresh auction process per the IBC and Liquidation Process Regulations.