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2020 (3) TMI 164 - AT - Insolvency and BankruptcyMaintainability of appeal - Liquidation of the Corporate Debtor to sell the Corporate Debtor as a going concern - E-auction - The contention that the Appellant Bank has no locus to file the Appeal is without any merit because as per section 61(1) of the IBC which starts with a non-obstante clause, any person aggrieved by the order passed by the Adjudicating Authority is entitled to file an appeal. The Appellant Bank being the lead Financial Creditor of the consortium of banks of the Corporate Debtor, who had opposed the intervention by NCLT in the auction, is well within its rights to approach this Hon'ble Appellate Tribunal. HELD THAT - It is found that R-2 to R-4 did not participate in the e-auction and filed an application as objectors and offering a higher price in order to create a lust for worth maximisation and thereby vitiated the whole process. In any case R-1 has also withdrawn the offer without there being any corresponding provision in the IBC and NCLT was entitled to forfeit their entire amount. Regulation 32, 32(A) and 33 of Insolvency and Bankruptcy Board of India liquidation process regulation 2016, provides for the mode of liquidation. Regulation 32 of Insolvency and Bankruptcy Board of India Liquidation Process Regulation 2016 the liquidator should originally sell the Corporate Debtor through an auction and private auction is permitted only in certain classes of assets which are of perishable nature, assets likely to deteriorate in value if not sold immediately, if it is sold at a higher price than the Reserve Price of a failed auction etc. Hon'ble Supreme Court has already observed in Valji and Khimji Company v. Official liquidator of Hindustan nitro product (Gujarat) limited and others. 2008 (8) TMI 562 - SUPREME COURT where bids were received and were opened in the Court. The highest bid was that of the appellant M/s. Valji Khimji Company amounting to ₹ 3.51 crores. With the consent of the learned advocates representing the secured creditors, the said bid was accepted and the sale was confirmed on 30-7-2003. The Court directed the appellant to deposit 25% of the purchase price i.e. ₹ 63,98,000/- within 30 days from the said day and to deposit the balance amount within the next three months. The Court also directed that the amount may be deposited in instalments, but no instalment should be less than ₹ 5 lakhs. Accordingly Hon'ble Supreme Court confirmed the auction sale in favour of the Appellant. The appeal is, therefore, maintainable in view of the provision of Section 61 (1) of IBC as SBI has a large stake of ₹ 469.29 cr. - appeal allowed.
Issues Involved:
1. Validity of the public auction process. 2. Withdrawal of the successful bidder. 3. Jurisdiction and authority of NCLT to interfere in the auction process. 4. Compliance with the terms and conditions of the auction. 5. The role and conduct of the liquidator. 6. The locus standi of the appellant to file the appeal. 7. Imposition of penalties on respondents for derailing the liquidation process. Detailed Analysis: 1. Validity of the Public Auction Process: The auction process was initiated by the liquidator to sell the Corporate Debtor as a going concern. The first auction with a reserve price of ?80 Cr. received no response, leading to a second auction with a reduced reserve price of ?68 Cr. Respondent No. 1 (Maithan Alloys Limited) was declared the successful bidder, having complied with the terms and conditions by depositing the requisite amounts. 2. Withdrawal of the Successful Bidder: Respondent No. 1, Maithan Alloys Limited, after being declared the successful bidder and depositing 25% of the sale price, sought to withdraw from the auction process. The NCLT permitted this withdrawal and directed the liquidator to refund the amount deposited by Maithan Alloys Limited. The NCLT also entertained a higher bid from Respondents 2 to 4, which was made orally in court. 3. Jurisdiction and Authority of NCLT to Interfere in the Auction Process: The NCLT's interference in the auction process was challenged by the appellant. The appellant argued that there is no provision under the IBC or Liquidation Regulations that allows the NCLT to interfere with a public auction conducted by the liquidator. The NCLT's decision to entertain an oral offer and direct the liquidator to consider it was deemed erroneous. 4. Compliance with the Terms and Conditions of the Auction: The terms and conditions of the auction required the successful bidder to deposit 25% of the sale price within 7 days and the balance within 30 days. The NCLT's decision to allow Respondents 2 to 4 to participate and make a higher bid after the auction process was concluded was seen as a violation of these terms and conditions. 5. The Role and Conduct of the Liquidator: The liquidator acted in accordance with the terms and conditions of the auction by declaring Maithan Alloys Limited as the successful bidder. The liquidator also sought to ensure that the company was sold as a going concern to maximize the value of the assets. The liquidator's decision to reject the bid from Respondents 2 to 4 due to non-compliance with the eligibility criteria was supported by the appellant. 6. The Locus Standi of the Appellant to File the Appeal: The appellant, being the financial creditor with a significant stake of ?469.29 Cr. in the Corporate Debtor, was deemed to have the locus standi to file the appeal under Section 61(1) of the IBC, which allows any person aggrieved by the order of the Adjudicating Authority to file an appeal. 7. Imposition of Penalties on Respondents for Derailing the Liquidation Process: Respondents 2 to 4 were found to have derailed and delayed the liquidation process by filing objections and making a higher bid after the auction process was concluded. The NCLT's decision to entertain their bid and allow them to participate was seen as creating unnecessary delays and jeopardizing the liquidation process. Consequently, a fine of ?10 Lakhs each was imposed on Respondents 2 to 4. Conclusion: The appeal was allowed, and the impugned orders dated 25-9-2019, 23-10-2019, and 06-11-2019 were set aside. Maithan Alloys Limited was directed to complete the sale transaction by paying the balance sale consideration. Respondents 2 to 4 were fined ?10 Lakhs each for hampering and derailing the liquidation process. The judgment emphasized that allowing such interventions in public auctions would jeopardize the liquidation process and reduce the value of the Corporate Debtor's assets.
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