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2022 (6) TMI 497 - Tri - Insolvency and BankruptcyValidity of Auction Sale - decrease in the value of property - commencement of amount of auction sale - HELD THAT - On 25.09.2020 when the auction commenced the auction was attended by four persons by Mr. G. Subramanian and Mr. S. Ramalingam also participated. The upset price was reset with the level of Rs. 1,06,55,550/-. It is noteworthy that this upset price of Rs. 1,06,55,550/- is the same upset price on which the auction commenced on 23.09.2020. On perusal of the facts placed, it appears that the auction was not conducted in a transparent manner - Ld. Liquidator could have very well sold the property to the second highest bidder Mr. G. Subramanian for Rs. 1,55,55,550/- at his bid placed at 11 56 AM as per the auction record - No fresh e-auction notice was published by the Liquidator for holding e-auction on 25.09.2020. As late as 24.09.2020 the Liquidator was not clear what he is going to do which is apparent from the email written by the Liquidator to the Financial creditor - From the record of auction placed before us it is clear that the Liquidator allowed Mr. S. Ramalingam, the person who placed a wrong bid on 23.09.2020 and whose EMD the Liquidator had forfeited to participate in the auction held on 25.09.2020. The entire episode smacks of wrongdoings and mala fide on the conduct of the Liquidator in conducting the two auctions on 23.09.2020 and 25.09.2020 - The auction held on 25.09.2020 is hereby set aside. Attachment of property - HELD THAT - The 1st Respondent has attached the property of the Corporate Debtor vide letter dated 03.02.2016 for the sales tax dues of Rs. 2,11,57,636/- pertaining to the Financial Years 2007-08 to 2014-15. The CIRP in respect of the Corporate Debtor was initiated on 03.12.2018. Thus, it could be seen that the attachment of the property of the Corporate Debtor by the 1st Respondent was made prior to CIRP period. Hence, the prayer of the Liquidator seeking removal of attachment on the property is not maintainable - Application dismissed.
Issues Involved:
1. Validity of the auction conducted on 25.09.2020. 2. Transparency and potential fraud in the auction process. 3. Non-joinder of essential parties. 4. Limitation period for filing the application. 5. Conduct of the Liquidator. 6. Rights of the highest bidder and the second highest bidder. 7. Impact of the auction on the value maximization of the assets. 8. Legal implications of the attachment on the property by the tax authorities. Detailed Analysis: 1. Validity of the Auction Conducted on 25.09.2020: The auction held on 25.09.2020 was challenged by the Indian Bank, the sole financial creditor, on grounds of lack of transparency and alleged fraud. The Tribunal found that the auction was not conducted transparently. The Liquidator should have sold the property to the second highest bidder from the auction on 23.09.2020, Mr. G. Subramanian, for Rs. 1,55,55,550/-. Instead, the auction on 25.09.2020 was conducted without a fresh notice and started at a lower upset price, resulting in a final bid of Rs. 1,10,55,550/-, significantly lower than the previous highest bid. Consequently, the auction held on 25.09.2020 was set aside. 2. Transparency and Potential Fraud in the Auction Process: The Tribunal noted several discrepancies indicating a lack of transparency and potential fraud: - The Liquidator did not publish a fresh e-auction notice for the auction on 25.09.2020. - The upset price was set lower than the last valid bid from the auction on 23.09.2020. - The same set of bidders participated in the auction on 25.09.2020, including Mr. S. Ramalingam, whose erroneous bid was previously forfeited. - The financial creditor was not informed about the auction on 25.09.2020. These actions led to a decrease in the asset's value by Rs. 45 lakhs, indicating malafide conduct by the Liquidator. 3. Non-Joinder of Essential Parties: The Liquidator argued that the application was not maintainable due to the non-joinder of essential parties. However, the Tribunal did not find this argument sufficient to dismiss the application. 4. Limitation Period for Filing the Application: The Liquidator raised the issue of limitation, stating that the application was filed after 190 days from the auction sale and the issuance of the Sale Certificate. The Tribunal did not consider this argument as a ground for dismissing the application. 5. Conduct of the Liquidator: The Tribunal found the conduct of the Liquidator questionable. The Liquidator failed to maximize the asset's value and did not keep the financial creditor informed. The Tribunal directed the Insolvency and Bankruptcy Board of India (IBBI) to conduct a detailed inspection of the Liquidator and the records of the Corporate Debtor to identify any irregularities. 6. Rights of the Highest Bidder and the Second Highest Bidder: The highest bidder from the auction on 23.09.2020, Mr. S. Ramalingam, mistakenly quoted a significantly higher amount and requested the cancellation of his bid. The Liquidator forfeited his EMD but allowed him to participate in the subsequent auction. The second highest bidder, Mr. G. Subramanian, who had bid Rs. 1,55,55,550/- on 23.09.2020, was declared the highest bidder in the auction on 25.09.2020 at a lower amount of Rs. 1,10,55,550/-. The Tribunal found this process flawed and set aside the auction on 25.09.2020. 7. Impact of the Auction on the Value Maximization of the Assets: The Tribunal observed that the auction on 25.09.2020 did not maximize the value of the assets, as required under the Insolvency and Bankruptcy Code (IBC), 2016. The lower final bid amount indicated a failure to achieve a transparent and fair auction process. 8. Legal Implications of the Attachment on the Property by the Tax Authorities: The Liquidator sought the removal of the attachment on the property by the tax authorities. The Tribunal dismissed this request, citing the judgment in Regional Provident Fund Commissioner v. T.V. Balasubramanian, which held that such attachments made prior to the Corporate Insolvency Resolution Process (CIRP) period are valid. Separate Judgments: The Tribunal issued separate judgments for different applications: - IA/796/2021 was allowed, setting aside the auction held on 25.09.2020. - IA/206/CHE/2021 and IA/22(CHE)/2021 were dismissed in view of the findings in IA/796/2021. - IA/932/2020 was dismissed, upholding the attachment by the tax authorities. Conclusion: The Tribunal's judgment emphasized the importance of transparency and fairness in the auction process under the IBC, 2016. The conduct of the Liquidator was found to be questionable, and the auction on 25.09.2020 was set aside to ensure justice and value maximization for the financial creditor. The attachment on the property by the tax authorities was upheld, aligning with existing legal precedents.
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