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TMI Blog2022 (3) TMI 1444X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by the bidder start from Page-61. There is a provision for physical verification and the site visit at Page 62 and also there is a provision for conducting due diligence - Inspection for the assets of the company by the intending bidders was fixed on or before 7th of September, 2021 thus thereby giving a time of around 12 days. However, when the liquidator did not get even a single bid on or before the schedule fixed by him in his notice dated 24th of August, 2021, he extended the time by issuing the corrigendum dated 8th of September,2021 thereby extending the date of submission of EMD till 11th of September, 2021 and date of e-auction on 13th of September, 2021. It is apparent from the facts on record, the time of completion of the liquidation process was till April, 2022 (without extension) and why there was so hurry with the liquidator to extend the time only for three days when he was having not even a single bidder in response to its first notice and at the same time inviting bids afresh without affording anyone the opportunity of conducting physical inspection of the huge and high value assets of the company and conducting due diligence and mentioned in earlier no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation vide order dated April 30, 2021 passed by this Adjudicating Authority and Mr. Raj Singhania, was appointed as Liquidator. Applicants in these IAs filed under section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal Rule, 2016, seek setting aside of the e-auction held on September 13,2021 by the liquidator. 3. Before we proceed further, the brief facts and contentions of applicants as contained in each these IAs are summarised as under, I.A. 830 of 2021 This is an Interlocutory Application filed by Chinar Steel Segment Centre Private Limited ( Applicant ) against Raj Singhania, Liquidator of Gontermann-Peipers (India) Limited ( Liquidator ) and Snaefell Heights LLP ( Snaefell Heights ) praying for as follows: A. The e-auction process for the sale of the assets of the corporate debtor be set aside, B. Stay of all further proceeding of sale of the assets of the corporate debtor till the disposal of the application. i. Injunction restraining the liquidator and Respondent No.1 to take any further action and giving further effect to e auction held on 13-09-2021. ii. Alternatively, Respondent No. 1 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated April 30, 2020 the liquidator on August 24, 2021 has published an e-auction sale notice, and September 07, 2021 was the last date to submit EMD. ii. The Applicant is based in Mumbai and belatedly came to know about the advertisement published by the Liquidator. Under these circumstances, the Applicant was unable to apply and submit the documents and EMD within the specified period. iii. The Applicant is an interested party for purchasing the assets of the Corporate Debtor. iv. Later, on September 13, 2021 the Applicant came to know that the e-auction was not held on September 09, 2021 but rather on September 13, 2021 and the bidders who deposited the EMD on September 13, 2021, were also permitted to participate in the e-auction. v. All along the Applicant was interested to participate in the bidding process of the Corporate Debtor. Further, the auction process of the Corporate Debtor was vitiated by Procedural Irregularities, inasmuch as, the liquidator could not have accepted the EMD after September 11, 2021 and proceeded with the sale. vi. He did not have sufficient time to furnish the bid. I.A. 962 of 2021 This is an Interlocutory Application fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rested in acquiring the Corporate Debtor as a going concern and reviving its steel business but could not participate in the E-Auction process. viii. The successful bidder is an LLP incorporated in the year 2019 with a turnover for the Financial Year ending on March 31, 2019, Match 31, 2020 and Match 31, 2021 as NIL. ix. The liquidator has failed to do a proper due-diligence and to verify as to how an LLP with Rupees One Lakh as the Capital will be able to continue the Corporate Debtor as a going concern. x. There are also two prospective bidders who could not submit their bid and have filed an intervention application. The Applicant also submits that there are approx. 500 workmen and employees on the muster roll of the Corporate Debtor on the insolvency commencement date and the workmen and the employees are keen for the steel operation of the Corporate Debtor be revised instead of the real estate. xi. The Applicant is willing to offer 90 Cr in the event this Adjudicating Tribunal allows for the re-bidding of the Corporate Debtor. It is settled law that the Liquidator is the custodian of the interest of the Corporate Debtor and has to exercise its power in bona-fide. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d there is a possibility that some engineering concern will participate in the process and if successful, they can run the corporate debtor's undertaking as a going concern and saving the livelihood around 500 workers / employees. vi. The applicants state that JSW is a leading steel manufacturing company in the country. The applicants have come to know that JSW is interested to take over the corporate debtor and run the factory by employing those 500 workers/employees who became jobless due to liquidation. In this regard the applicants had fruitful discussions with JSW and have appreciated their bonafide intention. vii. Hence, this application praying for re-auction of the bidding process of the Corporate Debtor. I.A. 969 of 2021 This is an Interlocutory Application filed by DTC Projects Private Limited ( Applicant/Prospective Bidder ) praying for as follows: A. Cancel the previous E auction conducted by Liquidator on 09-09-2021 and 13-09-2021; B. Liquidator be directed to reconvene/re-conduct the auction sale last held on 13.09.2021 C. Allow the prospective Bidder to participate in the reconvened re-auction; i. It has been stated in this application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and during the extended period, a bid of Respondent No.2 of Rs.88.00 Crores was received on the portal which was in excess of the Applicant s last bid of Rs.87.75 Crores. The Applicant wanted to give a higher incremental bid of Rs.88.25 Crores but despite best efforts, due to lack of connectivity and network issues, the Applicant was unable to register the incremental bid of Rs.88.25 Crores. As such, the last bid made by the Respondent No.2 at Rs. 88.00 Crores was not registered by the e-auction portal as the highest bid. 6. It is submitted that an email, written on behalf of the Applicant in IA 962/2021, seeking refund of the EMD, immediately after the auction, has been relied upon to suggest that the Applicant had accepted the fate of the auction. What needs to be referred to is the subsequent email by which the Applicant specifically informed the Liquidator that the previous mail seeking refund was sent inadvertently by a staff of the Applicant without consultation with the management. Immediately upon coming to know of such fact, such letter was withdrawn and the Liquidator was directed not to consider such request. 7. It is further submitted that though much has been sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrol could not lodge a higher bid. It has also been unequivocally admitted what transpired on participated in the auction process, but for reasons beyond its control could not lodge a higher bid. It has also been unequivocally admitted what transpired on 16.09.2021 before this Adjudicating Authority and the oral directions (paragraph (m) at page 7 of his reply affidavit). Strangely enough, the reply affidavit is silent as to why, despite the applicant having offered to give a higher bid which is not only in the interest of the stakeholders of the Corporate Debtor but towards the object of the IBC Code, qua, maximization of value, the Liquidator after 1 and months changed his stand and purportedly issued the LoI. It is also evident that between 13.09.2021 and 31.10.2021 no steps have been taken by the Liquidator. However, surprisingly, stakeholders, meeting appears to have been conducted, though there are no documents in support thereof, where the H/1 bidder s offer was allegedly agreed to be accepted. It is stated that the consultation with stakeholders was uncalled for and in any event, it is preposterous to suggest that the stakeholders would agree to accept a lower bid when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2021, the reserve price for the proposed e-auction process was fixed at Rs. 86 crore with EMD of Rs.8.6 crore. The last date of submission of EMD was initially fixed on 07.09.2021 and the e-auction was schedule to be held on 09.09.2021. Although number of intended buyers did show their interest in the proposed auction sale of the Corporate Debtor as a going concern, till the last date of submission of EMD i.e., 07.09.2021, the Liquidator did not receive any EMD from interested buyers. In view of the same, the Liquidator decided to extend the date of e-auction and accordingly he published an addendum (corrigendum) to the earlier e-auction sale notice on 08.09.2021 in the same newspapers and extended the date of e-auction from 09.09.2021 to 13.09.2021. As per addendum dated 08.09.2021, the last date of submission of EMD was 11.09.2021 and the date of e-auction was 13.09.2021. As on the last date of submission of EBD on 11.09.2021, the Liquidator received EMD from only one interested bidder but did not receive any bid documents from them. It is further submitted that on the next day, i.e. on 12.09.2021, Liquidator received advance copy of an application being filed with NCLT, Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the issue of applicant s contention regarding technical glitches, the Liquidator apprised this Adjudicating Authority that he has received one e-mail for extension of time which he allowed but was not in a position to confirm if at all there was any technical issue later on during the process. Upon hearing the parties, this Adjudicating Authority proceeded to orally direct, inter alia, the following to the Liquidator:- i. Consider if the Liquidator would want to file an application for conducting re-auction upon citing reasons and justification for the same. ii. Not to declare Successful Bidder or issue LOI to H1 bidder in the meantime till proposed application (s) impugning the auction process are listed before the bench for consideration. (However, there is nothing on record before this Adjudicating Authority as such). 24. It is further submitted that the Liquidator subsequently received copies of applications being filed by two different parties under section 60(5) of the Code with the Adjudicating Authority seeking setting aside the e23 auction already conducted and concluded by the Liquidator on 13.09.2021 and asking the Liquidator to conduct a fresh auction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor proceeded to convene a meeting of the SCC on 30.10.2021. In course of the said meeting, the Liquidator appraised the stakeholders of the various developments, as mentioned hereinabove. 27. It is submitted that in the said 3rd meeting of the SCC, the representatives of the financial creditors once again unanimously expressed their satisfaction with the H1 bid amount of Rs.88 Crores received by the Liquidator and suggested that the Liquidator should immediately declare the H1 bidder as Successful Bidder and proceed to issue the LoI. They also mentioned the fact that although the applications for cancellation of e-auction process held on 13.09.2021 and seeking re-auction is filed before this Adjudicating Authority, there has been no stay or injunction upon the Liquidator to hold the Liquidation process. They stated that as per the Order dated 28.09.2021 which was uploaded on 28.10.2021, the only direction was for filing of reply by the respondents. Furthermore, despite specific prayer to that effect by the applicant, the order does not grant any stay and/or injunction of the liquidation process, and as such, the same must be deemed to have been refused. Accordingly, there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess and more particularly if the Corporate Debtor is to be sold as a going concern as per Regulation 32( e), the time limit at his disposal is very limited. 31. It is submitted that pursuant to the suggestion of the majority of the stakeholder consultation committee members, and particularly on the unanimous recommendation of the secured creditors of the Corporate Debtor to confirm the H1 Bidder as the successful auction purchaser, the Liquidator issued the letter of intent (LoI) to the highest bidder, viz. M/s Snaefell Heights LLP, in the successfully conducted e-auction process for sale of the Corporate Debtor as a going concern on 02.11.2021. 32. It is submitted that as would be evident from the perusal of the log report obtained by the Liquidator upon enquiry into the alleged technical glitch preventing the petitioner from enhancing its bid by the incremental bid amount despite extension of time by 45 minutes by the Liquidator, that there was no technical infirmity and/or irregularity whatsoever in the eauction portal at the relevant time and as such the entire e-auction process was free from any glitz and /or infirmity whatsoever. Furthermore, the eauction process do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the petitioner has no locus standi to challenge the instant auction process in any manner whatsoever insofar as it has failed to participate and submit its incremental bid despite extension of time by 30 minutes beyond the stipulated bid period between 2 to 4 PM already extended by the Liquidator in good faith. 36.To I.A. No. 962/KB/2021,it is submitted that the petition is nothing but a desperate ploy to reopen the entire e-auction process and render it litigated by a disgruntled failed bidder who is now seeking to enhance the bid in hindsight. The aforementioned conduct of the intending bidder would also be evident from the fact that the petitioner had waived and relinquished its rights in respect of the auction process by voluntarily waiving its participation from the said e-auction process and seeking refund of the EMD immediately upon conclusion of the e-auction process on 13.09.2021 by seeking refund of its EMD upon conceding that they are not successful bidder. 37.It is submitted that the aforementioned email would unequivocally establish and evidence that the petitioner had waived and relinquished its rights and claims in relation to the e-auction proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nutes of the last incremental bid, in accordance with swiss bid mechanism without any technical issue. Ld. Counsel further submitted that after facing of the H1 bide of Rs.88 crores by Respondent No.2 at 4.49 p.m, the applicant although still logged into the system, never placed an incremental bid despite being logged into the e-auction portal. Thereafter, the applicant logged off at 4.56 p.m. without placing any incremental bid above H 1 bid of the respondent no.2. 42.It is submitted that this course of event would categorically establish that the applicant was logged into the portal without any technical network issues, till 4.56 p.m., and had adequate to place its incremental bid, but deliberately chose to not do so. It is submitted that any excuse of network issue/ technical issue is ex facie malafide, and completely erroneous and contrary to the technical records obtained from the e-auction service provider. F. 43.It is further argued by the Ld. Counsel for the Liquidator that the applicant had addressed an email dated 13.09.2021 at 7.31 p.m., post conclusion of the e-auction process seeking refund of its EMD on the ground that it was not successful bidder . This would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to us. 47.Similarly detailed arguments have been advanced on behalf of Liquidator to rebut the contentions of applicants and to show that the liquidator has acted in accordance with law, in best of its wisdom under circumstances, and achieved maximum value of assets put on auction by him strictly according to IBC 2016 and regulations made thereunder as applicable to the process of Liquidation. According to Ld. Counsel for the Liquidator and as per the affidavits filed by him, entire auction has been conducted in a transparent manner and after giving due public notice as required under applicable regulation on the day. According to the Liquidator, all the IAs are frivolous and attempt to thwart the entire E auction process for some ulterior motives. After perusal of the pleadings of the parties, hearing their arguments and also going through the various judgments cited by them at the bar, we find the following significant facts/ contentions to decide the question of granting the prayer of applicants or refusing it. From the record the following position that emerges is summarized as under; 48.As is evident from, auction notice was issued for the Sale of Gontermann- Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isk and cost. 52.Overview of the assets and properties of CD is contained at Page-56 of the bidding document. The details of document required to be submitted by the bidder start from Page-61. There is a provision for physical verification and the site visit at Page 62 and also there is a provision for conducting due diligence. The particulars of assets are mentioned at Page-63 of this IA and internal Page-21 of the bidding document. It is further mentioned at Page-72 ,The Intending Bidder (s)) should make their own independent inquiries regarding the encumbrances, title of assets put on auction and claims/rights/dues/affecting the assets and should conduct their own due diligence prior to submitting their bid. The bidding document was accompanied by format of an affidavit to be sworn by the intending bidder, bid application form, declaration to be given by the bidder. 53.Description of assets to be sold starts at Page-42 and continues till Page- 59 of this document. The description of assets contain land, building details including particulars and type of constructions, plant and machinery, electrical installations which comprises of 537 items. Then it also gives the detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bidder in response to its first notice and at the same time inviting bids afresh without affording anyone the opportunity of conducting physical inspection of the huge and high value assets of the company and conducting due diligence and mentioned in earlier notice inviting bids, per se speaks of failure on the part of Liquidator to conduct the sale in fair and in the manner to get the maximum value of the assets. According to the Ld. Senior Counsel, this in itself speaks volumes of arbitrariness on behalf of the liquidator and has caused serious doubts regarding his effort, as claimed by him, to have the best value of these assets under liquidation. According to the applicants, reasonable time should have been granted to conduct the site inspection and due diligence when the liquidator was extending the time for want of even a single bidder. 57.Our attention has also been drawn to the fact that the corrigendum dated 8th of September,2021 of bidding was intended to invite bidders from whole of the country and thus a reasonable opportunity ought to have been given for inspection for physical inspection and due diligence of the assets to the applicant and other intending bidders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonably and in accordance with relevant law could have reached', And as held by Hon ble Supreme Court in Manoj I Naik Associates vs Official Liquidator on 28 October, 2014 in SLP Nos 34782-34783 OF 2012, There can be no speck of doubt that the properties of a company under liquidation when sold, there has to be a proper auction, a fair one. It must fetch the maximum price. It takes care of statutory dues, dues of the workmen and the creditors. It has its own public character And law laid down in Bank of India v. Enfield Apparels Limited and Ors. (MANU/NC/5994/2020), Pgs. 240 to 246 of Compilation, para 9, 40 The sanctity of auction process has to be maintained i.e., once it is closed, normally it should not be reopened as generally understood. As stated earlier, generally the same can be done only on two grounds i.e., fraud or material irregularity occurred in the process of auction. However, another ground is added by IBC, 2016 i.e., maximization of value of assets of corporate debtor. Thus, when a situation of challenge to auction process arises on the ground of assets not being sold at the maximum possible value, then, also in our considered view, auction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is a complete silence on this by liquidator or Stakeholder s Committee except for taking technical plea/s to oppose it. We find that there is force in the argument of Ld. Sr. Counsel, that the liquidator did not enter upon due-diligence to verify as to how an LLP with Rupees One Lakh as the Capital will be able to continue the Corporate Debtor as a going concern and pay to its 500 employees. Having authorization to conduct multiple auctions and while having time in his hand and with a view to get best possible offer, when he did not receive even a single bid initially, it was imperative on the part of the liquidator to have extended the auction by reasonable time to enable the intending bidders to participate in the process and place their bids in accordance with terms of original notice inviting bid; C. Upon the basis of above-mentioned material irregularities/flaws have no option except to auction set aside the entire process, in pursuance to the e- auction notice dated 27th of August, 2021 followed by the corrigendum dated 8th of September, 2021 and the LOI issued by the liquidator to M/s Snaefell Heights LLP and the auction process impugned is hereby set aside. D. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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