2022 (10) TMI 96 - AT - Insolvency and Bankruptcy

Sale of the Corporate Debtor as a Going Concern - Correctness of e- Auction Process conducted by the Liquidator - direction for initiation of fresh bidding process for sale of the Assets of Corporate Debtor - direction to complete the entire process within specified time from the date of Order, inviting fresh bids and according an opportunity to the interested bidders - whether the Appellant-Liquidator committed any material irregularity in conducting e-Auction of Corporate Debtor as a going Concern, if so the irregularity is material which vitiates the entire Auction process and whether the Auction is liable to be set aside? HELD THAT - In the present facts of the case, the Liquidator/Appellant issued corrigendum extending time not an addenda. Irrespective of nomenclature of the Notification, the purport of the Notification if taken as it is, the Notification dated 24.08.2021 i.e., by the corrigendum is intended to extend time for submission of documents of EMD and change of date and time of Auction. Admittedly, the Liquidator received no documents of EMD till expiry of time limited in the Original Notification dated 24.06.2021 and thus nobody intends to participate in the e-Auction Process. Therefore, it is the duty of the Liquidator to afford an opportunity to inspect the Corporate Debtor enabling the participant or interested bidders to submit the EMD Application, as participation in the e-Auction Process is to maximize the Assets of the Corporate Debtor. On account of failure to fix date and time for inspection of Corporate Debtor by the interested bidders before conducting the Auction, possibility for submission of documents of EMD to participate in the e-Auction would not arise normally, thereby the questions of maximization doesn t arise hence it is a matter of serious material irregularity, which vitiates the entire e-Auction Process. In the present case, the Liquidator made an attempt to sell the Corporate Debtor as a Going Concern by Public Auction but committed a serious material irregularity in issuing corrigendum for extension of time for both submission of EMD documents and date and time for Auction, without specified date and time of inspection of Corporate Debtor which vitiates the entire process. Time Limitation - HELD THAT - The completion of Liquidation Process within one year in terms of Regulation 32A(4) is not mandatory. The main endeavor of the Liquidator must be value of maximization of the Corporate Debtor in case of holding the Auction in a hurried manner without complying the procedure, it would vitiate the entire proceedings. The Appellant has thus committed a material irregularity which resulted in reduction of amount to be distributed among the Creditors and against the interest of the Committee of Creditors and so also failed to maximize the value of the Corporate Debtor . Though, Regulation 32A(4) is not mandatory - there are no ground to interfere with the well- considered Order of the Adjudicating Authority, warranting interference of this Tribunal. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the e-Auction Process.
2. Allegations of procedural irregularities.
3. Maximization of asset value.
4. Compliance with Insolvency and Bankruptcy Code (IBC) and Liquidation Regulations.
5. Consideration of technical issues during the auction.
6. Impact of corrigendum on the auction process.
7. Rights and interests of bidders and stakeholders.

Detailed Analysis:

1. Validity of the e-Auction Process:
The appeals challenge the order passed by the National Company Law Tribunal (NCLT), Kolkata Bench, which set aside the entire e-Auction Process conducted by the Liquidator on 13.09.2021. The NCLT directed the Liquidator to initiate a fresh bidding process for the sale of the assets of the Corporate Debtor and complete the process within a specified time, inviting fresh bids and providing an opportunity to interested bidders.

2. Allegations of Procedural Irregularities:
Several respondents filed interlocutory applications claiming procedural irregularities in the e-Auction process. For instance, Chinar Steel Segment Centre Pvt. Ltd. faced connectivity issues during the bidding process and was unable to register a higher bid due to technical glitches. HR Commercials Private Limited alleged that they were unable to participate due to insufficient time to submit the Earnest Money Deposit (EMD). JSW Steel Limited argued that the auction process was vitiated as the Liquidator did not restrict bidders to the steel industry, which would have ensured the Corporate Debtor's continuity as a going concern.

3. Maximization of Asset Value:
The respondents argued that the auction process did not maximize the value of the Corporate Debtor's assets. For instance, JSW Steel Limited contended that the Liquidator failed to conduct proper due diligence and allowed a real estate company to bid, which could defeat the objective of the IBC. The respondents also highlighted that the Liquidator did not provide a fair opportunity for inspection of the Corporate Debtor's assets, which could have attracted more bidders and higher bids.

4. Compliance with IBC and Liquidation Regulations:
The Liquidator contended that the e-Auction Process was conducted in strict accordance with the IBC and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The Liquidator argued that the auction was fair and transparent, and the highest bid was received. However, the NCLT found that the Liquidator committed a material irregularity by not providing an opportunity for inspection of the Corporate Debtor's assets in the corrigendum extending the auction date and time.

5. Consideration of Technical Issues During the Auction:
The NCLT considered the technical issues faced by bidders during the auction process. For instance, Chinar Steel Segment Centre Pvt. Ltd. faced connectivity issues and was unable to register a higher bid due to network problems. The Liquidator extended the auction time by 30 minutes, but the technical issues persisted, preventing the bidder from participating effectively. The NCLT found that these technical issues constituted a material irregularity that vitiated the entire auction process.

6. Impact of Corrigendum on the Auction Process:
The NCLT found that the corrigendum issued by the Liquidator extending the time for submission of EMD and the auction date did not provide a fair opportunity for inspection of the Corporate Debtor's assets. The corrigendum was silent on the date and time for inspection, which deprived interested bidders of their right to inspect the assets and participate in the auction process. This failure to provide an opportunity for inspection was deemed a material irregularity that vitiated the entire auction process.

7. Rights and Interests of Bidders and Stakeholders:
The NCLT emphasized the importance of maximizing the value of the Corporate Debtor's assets for the benefit of the creditors and stakeholders. The failure to provide a fair opportunity for inspection and the technical issues faced by bidders during the auction process were found to have deprived the stakeholders of the maximum possible value for the Corporate Debtor's assets. The NCLT directed the Liquidator to conduct a fresh auction, ensuring compliance with the IBC and Liquidation Regulations and providing a fair opportunity for all interested bidders.

Conclusion:
The NCLT set aside the e-Auction Process conducted on 13.09.2021 due to material irregularities, including the failure to provide an opportunity for inspection and technical issues faced by bidders. The NCLT directed the Liquidator to initiate a fresh bidding process, ensuring compliance with the IBC and Liquidation Regulations and maximizing the value of the Corporate Debtor's assets for the benefit of the creditors and stakeholders. The appeals challenging the NCLT's order were dismissed, upholding the decision to set aside the auction and conduct a fresh bidding process.