2021 (12) TMI 484 - AT - Insolvency and Bankruptcy

CIRP proceedings - private sale of assets - failure to e-auction process for the composite assets of the Corporate Debtor was taken up by the liquidator. - HELD THAT - It comes out from a reading of Section 35 of IBC and Regulation 8 of Liquidation Regulations is that the proviso that any such consultation shall not be binding on the liquidator is ostensibly so to enable the liquidator to perform its duties in a fair, impartial and judicious manner for realising the maximum value from the disposal of assets of the Corporate Debtor. In our opinion the views of the stakeholders regarding the sale of assets are both desirable and valuable, especially as they are the ultimate beneficiaries of the liquidation process and also because substantial period of time (over two years and seven months) has already been spent in the liquidation process without any fruitful results. The specific context in which an auction is carried out can only elucidate the aspect of arbitrariness and favouritism or otherwise. Thus, in the present appeal where the Impugned Order challenging the stoppage of second Swiss Challenge Process and taking up a fresh private sale process has been challenged, it is seen that the decision of the stakeholders and the liquidator, upon which the Adjudicating Authority has based its order does not grant any particular party any favour. It is driven by the stakeholders wish to get the liquidation process concluded early without losing sight of maximization of value of assets. Also, even though this is a private sale as opposed to sale by a government authority, we are of the opinion that the standards and norms of transparency, fairness and responsibility should be adopted without any qualification or reservation and all prospective bidders should get sufficient notice and time to enable them to participate in the bidding in an effective manner. The process should be taken up after proper notice to prospective buyers and not limited to chosen few. The impugned order directs the Liquidator to complete the entire private sale (relating to the assets contained in the WSRPL offer) within three weeks from the date of Adjudicating Authority s order - it is directed that in partial modification of the impugned order, that while the second Swiss Challenge Process stands cancelled, the private sale process should be undertaken in accordance with the directions contained in the preceding paragraph of this judgment as per relevant legal provisions. Appeal disposed off.

Issues Involved:
1. Legality of the stay on the Impugned Order and auction process.
2. Validity of the Swiss Challenge Process and its cancellation.
3. Allegations of malafide actions and undue haste by the liquidator.
4. Maximization of asset value and timeliness in the liquidation process.
5. Adherence to legal provisions and transparency in the sale process.

Detailed Analysis:

1. Legality of the Stay on the Impugned Order and Auction Process:
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), challenging the Impugned Order dated 16.8.2021 by the Adjudicating Authority (NCLT, Ahmedabad). The Appellant sought a stay on the Impugned Order and the auction process, which was granted by the Tribunal on 2.9.2021, stating, "This is a fit case for admission as well as for stay of the Impugned Order."

2. Validity of the Swiss Challenge Process and Its Cancellation:
The Corporate Debtor, ABG Shipyard Limited, underwent multiple rounds of e-auction for its assets, all of which were unsuccessful. Consequently, the liquidator initiated the Swiss Challenge Process for private sale of the Dahej Materials. The first Swiss Challenge Process failed, leading to the initiation of the second Swiss Challenge Process, where R.K. Industries was declared the anchor bidder. However, the liquidator received an unsolicited offer from WSRPL for the composite assets, leading to the cancellation of the second Swiss Challenge Process. The Tribunal noted that the liquidator has the power to cancel or modify the process, provided it is done without bias and in a transparent manner.

3. Allegations of Malafide Actions and Undue Haste by the Liquidator:
The Appellant argued that the liquidator showed undue haste and malafide intentions by favoring WSRPL without formal orders from the Adjudicating Authority. The Tribunal considered the liquidator's actions, including asking WSRPL to deposit a bank guarantee and submit a confidentiality agreement, as within his powers but emphasized the need for transparency and fairness.

4. Maximization of Asset Value and Timeliness in the Liquidation Process:
The Tribunal highlighted the objective of the liquidation process to achieve value maximization of assets. The liquidator's decision to sell the assets as a composite unit was driven by the stakeholders' wish to conclude the liquidation process early and maximize value. The Tribunal referred to the judgments in Swiss Ribbons (P) Ltd. vs. Union of India and Innovative Industries Limited vs. ICICI Bank & Anr., emphasizing the importance of value maximization.

5. Adherence to Legal Provisions and Transparency in the Sale Process:
The Tribunal stressed the need for the sale process to adhere to the provisions of IBC and Liquidation Regulations, ensuring fairness and transparency. The Impugned Order directed the liquidator to complete the private sale within three weeks and allow all parties involved in the hearing to participate. The Tribunal modified this order, stating that the sale process should be restarted with adequate preparation and open notice to prospective buyers.

Conclusion:
The Tribunal partially modified the Impugned Order, canceling the second Swiss Challenge Process and directing the liquidator to undertake a private sale process in accordance with legal provisions, ensuring transparency and fairness. The appeal was disposed of with these directions, emphasizing the need for a balanced approach between timeliness and value maximization in the liquidation process.

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