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2022 (8) TMI 1162 - SC - Insolvency and BankruptcySale of assets of Corporate debtors - approval by the Core committee by majority - Validity of order of NCLAT permitting the Private Sale of the composite assets of the Corporate Debtor instead of taking the Second Swiss Challenge Process to its logical conclusion R.K. Industries was declared as an Anchor Bidder - Validity of direction to respondent No.2 Liquidator to restart the entire process of Private Sale after issuing an open notice to prospective buyers instead of confining the process to those parties who had participated in the process earlier. HELD THAT - On a conjoint reading of the aforesaid provisions of the IBC and the Liquidation Regulations, it is evident that the Liquidator is authorized to sell the immovable and movable property of the Corporate Debtor in liquidation through a public auction or a private contract, either collectively, or in a piecemeal manner. The underlying object of the Statute is to protect and preserve the assets of the Corporate Debtor in liquidation and proceed to sell them at the best possible price. Towards this object, the provisions of the IBC have empowered the Liquidator to go in for a public auction or a private contract as a mode of sale - Regulation 8 of the Liquidation Regulations refers to the consultative process with the stakeholders, as specified in Section 35 (2) of the IBC and states that they shall extend all necessary assistance and cooperation to the Liquidator for completing the liquidation process. Regulation 31A has introduced a Stakeholders Consultation Committee that may advise the Liquidator regarding sale of the assets of the Corporate Debtor and must be furnished all relevant information to provide such advice. Though the advice offered is not binding on the Liquidator, he must give reason in writing for acting against such advice. In the instant case, the first Swiss Challenge Process did not succeed as the highest offerer failed to deposit the EMD. In the second round of the Swiss Challenge Process, as against the base price of ₹460 crores fixed for the Dahej Material and scrap, the appellant made a bid of ₹431 crores that was accepted. Thereafter, the respondent No.2 Liquidator did publish an advertisement inviting bidders to submit their bids against the Anchor Bid in response whereto, the appellant, respondents No.3, 4, 5, and 6 submitted their bids, but before the process could be taken further, on an application moved by the respondent No.1, the Adjudicating Authority (NCLT) passed an order directing the respondent No.2 Liquidator to carry forward the stage upto announcement of the highest bidder, while deferring the rest of the process. A bare perusal of the clauses of the Anchor Bid Document and the Second Swiss Challenge Process Document, leave no manner of doubt that the prospective bidders were informed that the Liquidator had reserved the right to abandon/cancel/terminate/waive the said process and/or part thereof at any stage; that issuance of the Anchor Bid Document did not create any binding obligations on the Liquidator to proceed with the sale of the assets of the Corporate Debtor; that the Anchor Bid Document did not constitute an offer/commitment or an assurance of the Liquidator. Identical rights were reserved with the Liquidator even in the Second Swiss Challenge Process Document - It is a different matter that the earlier eauctions turned out to be unsuccessful, thus compelling the respondent No.2 Liquidator to explore other options, including the option to sell the assets in smaller lots. Thus, it is not for the court to question the judiciousness of the decision taken by the respondent No.2 Liquidator with the idea of enhancing the value of the assets of the Corporate Debtor being put up for sale. The right to refuse the highest bid or completely abandon or cancel the bidding process was available to the respondent No.2 Liquidator. The appellant has not been able to demonstrate that the decision of the respondent No.2 Liquidator to discontinue the Second Swiss Challenge Process and go in for a Private Sale through direction negotiations with prospective bidders was a malafide exercise. It is a well-settled principle that in matters relating to commercial transactions, tenders, etc., the scope of judicial review is fairly limited and the court ought to refrain from substituting its decisions for that of the tendering agency. The powers vested in and the duties cast upon the Liquidator have been made subject to the directions of the Adjudication Authority (NCLT) under Section 35 of the IBC. Once the Liquidator applies to the Adjudicating Authority (NCLT) for appropriate orders/directions, including the decision to sell the movable and immovable assets of the Corporate Debtor in liquidation by adopting a particular mode of sale and the Adjudicating Authority (NCLT) grants approval to such a decision, there is no provision in the IBC that empowers the Appellate Authority (NCLAT) to suo motu conduct a judicial review of the said decision - The Appellate Authority cannot don the mantle of a supervisory authority for overseeing the validity of the approach of the respondent No.2 Liquidator in opting for a particular mode of sale of the assets of the Corporate Debtor. It is thus noted that the Core Committee constitutes 70.3% of the financial creditors and when they have weighed in to support the stand taken by the respondent No.2 Liquidator to continue the bid process commenced on 24th August, 2021, there are no reason to foist the view of the NCLAT on the respondent No.2 Liquidator that he ought to restart the process for sale of the composite assets of the Corporate Debtor from the scratch after issuing an open notice to the prospective buyers. The impugned judgment dated 10th December, 2021, passed by NCLAT to the extent that it has modified the order dated 16th August, 2021 passed by the NCLT and directed restraining of the Private Sale Process, is quashed and set aside - Appeal dismissed.
Issues Involved:
1. Justification for discontinuing the Second Swiss Challenge Process. 2. Validity of opting for a Private Sale Process through direct negotiations. 3. Directions of the NCLAT to restart the Private Sale process. Detailed Analysis: 1. Justification for Discontinuing the Second Swiss Challenge Process: The Liquidator had conducted five unsuccessful e-auctions to sell the consolidated assets of the Corporate Debtor. Consequently, the Liquidator sought and received permission from the NCLT to sell the assets through a Private Sale. The Second Swiss Challenge Process was initiated, but before its completion, Welspun expressed interest in purchasing the consolidated assets, offering a higher value. The Liquidator and the stakeholders found this offer attractive and sought permission from the NCLT to proceed with a composite sale, which was granted. The terms of the Anchor Bid Document and the Second Swiss Challenge Process Document allowed the Liquidator to abandon, cancel, or modify the process at any stage without liability. 2. Validity of Opting for a Private Sale Process through Direct Negotiations: The Liquidator's decision to opt for a Private Sale was driven by the need to maximize the value of the assets and ensure a quicker recovery for the stakeholders. The Liquidator's actions were in line with the IBC and the Liquidation Regulations, which permit the sale of assets through a Private Sale under specific conditions, including obtaining prior permission from the Adjudicating Authority (NCLT). The Liquidator's decision was supported by the stakeholders and was aimed at avoiding further delays and potential depreciation of the assets' value. The Supreme Court emphasized that the Liquidator's commercial decisions, backed by stakeholders, should not be interfered with unless there is evidence of arbitrariness or malafides. 3. Directions of the NCLAT to Restart the Private Sale Process: The Supreme Court found no justification for the NCLAT's direction to restart the Private Sale process by issuing fresh notices to all prospective buyers. The NCLT's decision to allow the sale of the composite assets through direct negotiations with parties who had participated in the earlier rounds was deemed appropriate. The Supreme Court noted that the IBC places fetters on the power of interference by the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT) in commercial decisions taken by the Liquidator. The decision to continue with the Private Sale process, as initiated on 24th August 2021, was in the best interest of the stakeholders and aligned with the objective of maximizing the value of the Corporate Debtor's assets. Conclusion: The Supreme Court quashed the NCLAT's direction to restart the Private Sale process and upheld the Liquidator's decision to proceed with the Private Sale of the consolidated assets. The process initiated on 24th August 2021 was directed to be concluded within four weeks. The appeal by R.K. Industries was dismissed, and the appeal by Welspun was allowed.
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