2023 (1) TMI 810 - AT - Insolvency and Bankruptcy

Seeking to withdraw from e-auction process - refund of EMD and first installment deposited - whether even after attachment of the assets of the corporate debtor under PMLA Act on 02.12.2021, the auction purchaser was required to deposit the entire sale amount? - HELD THAT - Before the Order of attachment was passed on 02.12.2021, no default can be said to have committed by Auction Purchaser in depositing the amount since first installment was deposited within time and the successful purchaser had 90 days time to deposit the balance amount and before expiry of 90 days the assets of the corporate debtor were attached. In view of the attachment of the assets of the corporate debtor on 02.12.2021, Liquidator can neither complete the sale, can issue sale certificate nor can hand over the assets of the corporate Debtor to the Successful Auction Purchaser and due to aforesaid event the Application was filed by the Successful Auction Purchaser to withdraw from auction and for refund of the EMD. The Successful Auction Purchaser has genuine case for not proceeding with the deposit of the balance bid amount due to attachment of the assets of the corporate debtor on 02.12.2021 as noted above. The 90 days period had not even come to an end on 02.12.2021 so as to impute any violation of the term and conditions by the Successful Auction Purchaser. The Adjudicating Authority after considering the submissions of parties has taken the views that as on today the liquidator is not in a position to hand over the custody of the units of the corporate debtor for which e-auction was held and the Division Bench of the High Court on 24.12.2021 has directed parties to maintain status quo. The Adjudicating Authority has rightly passed an order permitting the Successful Bidder to withdraw from the auction and directed to refund of the amount of the EMD Rs. 5 Crores and First Installment of Rs. 30 Crores. Even in a case where Successful Auction Bid as going concern is not approved, Successful Auction Bidder is not entitled for any Interest on the EMD and 1st Installment. We are of the view that the Successful Auction Bidder is not entitled for interest on the amount of EMD and First Installment and the Adjudicating Authority without adverting to clause 15.4 has issued direction for refund of the EMD and 1st Installment along with interest. The Adjudicating Authority has rightly permitted the Successful Auction Purchaser to withdraw from e-auction and directed for refund of the EMD of Rs. 5 Crores and 1st Installment of Rs. 30 Crores - the direction to refund the amount of Rs. 5 Crores and 30 Crores along with interest is unsustainable - Appeal allowed in part.

Summary

Issues Involved:
1. Forfeiture of Earnest Money Deposit (EMD) and first installment due to non-payment of balance bid amount.
2. Legitimacy of allowing the Successful Auction Purchaser to withdraw from the e-auction.
3. Appropriateness of refunding the EMD and first installment with interest.

Detailed Analysis:

1. Forfeiture of Earnest Money Deposit (EMD) and First Installment:
The primary issue was whether the Successful Auction Purchaser (Respondent No. 1) should forfeit the EMD and first installment for failing to deposit the total bid amount within the stipulated time. The Liquidator argued that the Respondent No. 1 participated in the e-auction with full knowledge of the Enforcement Directorate's (ED) ongoing proceedings against the Corporate Debtor and the terms of the sale notice, which included forfeiture clauses. The Respondent No. 1, however, contended that the attachment of the Corporate Debtor's assets by the ED on 02.12.2021 made it impossible to complete the sale, thus justifying their inability to pay the balance amount.

2. Legitimacy of Allowing the Successful Auction Purchaser to Withdraw:
The Adjudicating Authority allowed the Successful Auction Purchaser to withdraw from the e-auction and ordered the refund of the EMD and first installment. The Liquidator challenged this decision, arguing that the Respondent No. 1 was bound by the terms of the sale notice and should not be allowed to withdraw. However, the court noted that the attachment of the Corporate Debtor's assets by the ED on 02.12.2021, before the expiry of the 90-day period for payment, made it impossible for the Liquidator to hand over the assets or issue a sale certificate. The court also took into account the Delhi High Court's order dated 22.02.2022, which recorded and accepted the statement of the Successful Auction Purchaser's counsel that they wished to exit the e-auction process.

3. Appropriateness of Refunding the EMD and First Installment with Interest:
The Adjudicating Authority directed the refund of the EMD and first installment along with interest. The Liquidator argued that as per the terms of the e-auction sale notice, no interest was payable on the refunded amounts. The court agreed with this contention, citing Clause 15.4 of the terms and conditions, which explicitly stated that no interest shall be payable on the EMD and first installment even if the auction sale is not approved. Consequently, the court found the direction to refund the amounts with interest to be unsustainable.

Conclusion:
The court upheld the Adjudicating Authority's decision to allow the Successful Auction Purchaser to withdraw from the e-auction and directed the refund of the EMD and first installment. However, it set aside the direction to refund these amounts with interest, aligning with the terms of the e-auction sale notice that no interest was payable on such refunds.