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2023 (1) TMI 1052 - AT - Insolvency and BankruptcyLiquidation of Corporate Debtor - mode of sale - public auction - Section 33 of IBC - HELD THAT - In the present case, Respondent No.2 who was the Applicant making an offer to acquire the assets of the Corporate Debtor was at best an offeror whose offer was required to be tested with any other willing interested person and the Adjudicating Authority ought to have asked the liquidator to conduct the private sale and give opportunity to others to compete since the maximisation of the assets of the Corporate Debtor is the object of the IBC. Merely on the basis of one application and other by an intervenor, the Adjudicating Authority could not have concluded the sale in favour of the Respondent No.2. The liquidator has earlier rejected the offer given by the Respondent No.2 which clearly meant that the liquidator was not satisfied with the offer made by Respondent No.2 which was far below the last reserve price of Rs.181 Crores. The Adjudicating Authority by adopting a process of taking two bids, one by the Applicant and another by intervenor could not have concluded the sale of the Corporate Debtor without giving an opportunity to the liquidator to take steps for private sale. In the present case, the facts clearly indicate that the liquidator has not embarked upon private sale process nor had sought any permission from the Adjudicating Authority to proceed with the private sale. Thus, private sale procedure by the liquidator was not in place to know as to whether there are other interested bidders who are interested to acquire the Corporate Debtor by means of private sale. Without giving opportunity to the liquidator to take steps to sell the assets of the Corporate Debtor by private sale, the Adjudicating Authority itself has taken two bids and confirmed the sale, which according to us, is not the proper procedure for maximisation of the assets of the Corporate Debtor. We are unable to uphold the order of the Adjudicating Authority dated 16.06.2022 confirming the sale in favour of the Respondent No.2 on the basis of bids received by the Respondent No.2 and one intervenor before the Adjudicating Authority. The order passed by the Adjudicating Authority approving the private sale of the Corporate Debtor by private treaty in favour of Respondent No.2 is set aside - liquidator is permitted to conduct a private sale of the assets of the Corporate Debtor by adopting Swiss Challenge Method treating the bid offered by the Respondent No.2 as an Anchor Bid. Appeal disposed off.
Issues Involved:
1. Jurisdiction of the Adjudicating Authority in conducting private sale. 2. Compliance with the Insolvency and Bankruptcy Code (IBC) and IBBI (Liquidation Process) Regulations, 2016. 3. Validity of the sale confirmation by the Adjudicating Authority. 4. Rights and objections of the Financial Creditor and Stakeholders' Consultation Committee. 5. Procedures for private sale and maximization of asset realization. Issue-Wise Detailed Analysis: 1. Jurisdiction of the Adjudicating Authority in Conducting Private Sale: The Appellant argued that the Adjudicating Authority exceeded its jurisdiction by asking only two applicants to submit their bids and confirming the auction of assets based on these bids. The IBC mandates that the liquidator must conduct the sale of assets either by public auction or private sale as per Section 33, with a prescribed procedure for private sale under Schedule-I of the IBBI (Liquidation Process) Regulations, 2016. The Adjudicating Authority's action in conducting and confirming the private sale was deemed improper, as the liquidator had already rejected the offer from Respondent No.2, and the Stakeholders' Consultation Committee was not consulted. 2. Compliance with the Insolvency and Bankruptcy Code (IBC) and IBBI (Liquidation Process) Regulations, 2016: The liquidator is empowered to sell assets either through public auction or private sale, with specific conditions and procedures outlined in Regulation 33 and Schedule-I. The liquidator must prepare a strategy to approach interested buyers to maximize realizations. The Adjudicating Authority's process did not follow the prescribed private sale procedure, which requires broader participation to ensure maximization of asset value. The Supreme Court's judgment in "R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Ors." emphasized that the liquidator must comply with stringent conditions for private sales to protect the stakeholders' interests. 3. Validity of the Sale Confirmation by the Adjudicating Authority: The Adjudicating Authority confirmed the sale based on bids from Respondent No.2 and an intervenor, without allowing the liquidator to conduct a comprehensive private sale process. The Supreme Court's judgment highlighted that the liquidator should have the discretion to explore the best method for selling assets, including private sales, to maximize value. The Adjudicating Authority's decision to confirm the sale without broader participation was not aligned with the objective of maximizing asset realization. 4. Rights and Objections of the Financial Creditor and Stakeholders' Consultation Committee: The Appellant, a Financial Creditor and 36% shareholder in the Stakeholders' Consultation Committee, challenged the Adjudicating Authority's order, arguing that the Committee was not informed or consulted about the proceedings. The liquidator had also expressed objections to the offer from Respondent No.2. The Supreme Court underscored that the liquidator must consult stakeholders and provide reasons for acting against their advice, ensuring transparency and stakeholder involvement in the liquidation process. 5. Procedures for Private Sale and Maximization of Asset Realization: The liquidator must follow a structured procedure for private sales, including preparing a strategy to approach interested buyers and conducting the sale to maximize realizations. The Adjudicating Authority's approach of taking bids from only two parties did not meet this requirement. The Supreme Court's judgment in "R.K. Industries" reinforced that the liquidator should have the discretion to decide on the sale method and ensure compliance with the prescribed regulations to protect the assets and stakeholders' interests. Conclusion: The Appellate Tribunal set aside the Adjudicating Authority's order confirming the private sale to Respondent No.2. The liquidator was directed to conduct a private sale using the Swiss Challenge Method, treating Respondent No.2's bid as the Anchor Bid. The liquidator must issue a public notice and allow other interested bidders to participate. If a higher bid is received, the sale to the highest bidder will be confirmed, and the sale certificate issued to Respondent No.2 will be reversed. If no higher bid is received, Respondent No.2's bid will be confirmed. The process must be completed within three months, and the liquidator must report the outcome to the Adjudicating Authority.
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