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TMI Blog2024 (9) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Notice for sale through e-auction published by the Liquidator on 25th November, 2019, he did not receive any bid. As a result, the Liquidator reduced the reserve price of the subject property by 25 per cent to conduct a second auction on 23rd December, 2019 wherein the Auction Purchaser was declared as the successful bidder. In our view, the Liquidator cannot be faulted for having exercised the discretion vested in him under Rule 4A of Schedule I when the auction scheduled earlier, did not bear any positive result. In fact, Rule 4B empowers the Liquidator to reduce the reserve price fixed under Rule 4A for subsequent auctions with a rider that the price shall not be reduced to more than 10 per cent at a time. The said eventuality did not arise in the present case since the Auction Purchaser was declared as the successful bidder in the second round of auction - If the appellant was so confident that the subject property would have fetched a much higher price, nothing precluded him from identifying a bidder who was willing to offer a better price. The Liquidator had stated that If you are confident enough that the property may fetch for more than Rs. 100.00 Crores you are at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 33 of the IBBI Regulations, 2016 and its effect - HELD THAT:- In THE STATE OF BIHAR ORS. VERSUS BIHAR RAJYA BHUMI VIKAS BANK SAMITI [ 2018 (8) TMI 34 - SUPREME COURT] , referring to Section 34(5) of the Arbitration and Conciliation Act, 1996, this Court has held that the absence of any consequences for infraction of a procedural provision implies that such a provision ought to be interpreted to be directory and not mandatory. Rule 12 would have to be treated as mandatory in character for the reason that it contemplates a consequence in the event of non-payment of the balance sale consideration by the highest bidder within the stipulated timeline of 90 days, which is cancellation of the sale by the Liquidator. To that extent, there is substance in the submission made on behalf of the appellant that since the second proviso under Rule 12 contemplates a consequence of cancellation of the auction on non- payment of the balance sale consideration within 90 days, the Liquidator was not empowered to extend the timeline. In the present case, records reveal that when the Auction Purchaser had approached the Liquidator seeking extension of time to deposit the balance sale consideration. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority granting extension of time to the Auction Purchaser. For reasons best known to him, it took 19 months for the appellant to prefer an appeal before the Tribunal against the order passed by the Adjudicating Authority, as provided for in the IBC. Furthermore, the appellant resisted handing over possession of the subject property to the respondents thereby causing more delay. Given the facts noted, it is refrained from cancelling the sale or declaring the Sale Deed as void. Instead, it is deemed appropriate to balance the equities by directing the Auction Purchaser to pay an additional amount in respect of the subject property. Appeal partially allowed. - HIMA KOHLI And AHSANUDDIN AMANULLAH , JJ. For the Appellant : Mr. P Chidambaram, Sr. Adv Mr. Sriram P., AOR For the Respondent : Mr. C U Singh, Sr. Adv. Mr. K. V. Vijayakumar, AOR Mr. Arvind Datar, Sr. Adv. Mr. V Balachandran, Adv. Mr. Siddharth Naidu, Adv. Mr. J Prithviraj, Adv. M/s. KSN Co., AOR JUDGMENT HIMA KOHLI, J. A. BACKDROP 1. The appellant - V.S. Palanivel (shareholder/former Managing Director of M/s Sri Lakshmi Hotel Private Limited) has filed the present appeals against the judgment and order dated 16th Septembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tel and a bar from the said premises. In the year 2006, the company took a loan from a financial creditor to the tune of ₹1,57,25,000/- (Rupees One crore fifty seven lakh twenty five thousand only). When disputes arose between the company and the financial creditor, the latter invoked the arbitration clause governing the parties. The Arbitral Tribunal passed an award on 27th December, 2014, for a sum of ₹ 2,21,08,244/- (Rupees Two crore twenty one lakh eight thousand two hundred and forty four only) in favour of the financial creditor along with interest at the rate of 24 % per annum from the date of claim petition till the date of realisation. The company challenged the said award11 under Section 34 of the Arbitration and Conciliation Act, 1996, but the said petition was dismissed by the High Court of Madras vide order dated 16th November, 201711. 4. On non-payment of the amounts awarded under the Arbitral Award, the financial creditor filed an application12 under Section 7 of the IBC before the Adjudicating Authority for initiating corporate insolvency resolution process against the company. The said petition was admitted on 28th February, 2019 and the respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days from the date of demand. The Liquidator despatched a letter dated 24th December, 2019 to the Auction Purchaser demanding the balance sale amount. Though arguments were initially advanced on behalf of the appellant that the period of 90 days for paying the balance amount ought to be reckoned from 24th December, 2019 and not from 26th December, 2019, the date on which the Auction Purchaser received the communication from the Liquidator, later on the said plea was not seriously pressed. If one takes the outer limit for calculating the period of 90 days for the Auction Purchaser to pay the balance sale consideration reckoned from 26th December, 2019, the date when the Auction Purchaser received the letter despatched by the Liquidator, the said period would have expired on 25th March, 2020. It is not in dispute that the balance sale consideration was not paid by the Auction Purchaser within the period of 90 days. The said amount was paid only on 24th August, 2020. 8. The appellant filed a Miscellaneous Application4 before the Adjudicating Authority for setting aside the auction proceedings. The said application was dismissed by the Adjudicating Authority, vide common order dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor through an auction in the manner specified in Schedule I. Relying on the decision in C.N. Paramasivam and Another v. Sunrise Plaza through Partner and Others17, it has been contended that Schedule I, Rule 12 of the IBBI Regulations, 2016 is mandatory and any non-compliance thereof should result in cancellation of the sale. The decision in Sharif- ud-din v. Abdul Gani Lone18 was cited by learned counsel to make a point that when the rule provides a consequence for failure to comply, then it ought to be treated as mandatory and not directory in character. It was argued that having regard to the mandatory character of the regulations, the Tribunal has erred in failing to appreciate that the Auction Purchaser could neither have sought extension of time to deposit the balance sale consideration nor could such an indulgence have been granted to it. Dovetailed to the above, is the submission that the Liquidator was selective in applying the amended provisions of the IBBI Regulations, 2016, based on a Circular dated 26th August, 2019. 11. The second submission made by learned senior counsel appearing for the appellant was that the Tribunal ought not to have concurred with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the terms of the auction and on failure to do so, the Liquidator ought to have cancelled the sale instead of accommodating the Auction Purchaser. 13. Lastly, learned counsel submitted that even assuming that the last date for making the payment towards the balance sale consideration was 25th March, 2020, as was urged by the other side, the period of limitation would have recommenced on 23rd July, 2020, since the Liquidator had moved an application22 seeking exclusion of the period between 23rd March, 2020 and 23rd July, 2020. In view of the above, there was no justification for the Auction Purchaser to have made the payment on 24th August, 2020 i.e. after a period of one month reckoned from the date when the exclusion period had ended. D. ARGUMENTS ADVANCED BY LEARNED SENIOR COUNSEL FOR THE AUCTION PURCHASER 14. Rebutting the submissions made by learned counsel for the appellant, Mr. Arvind Datar, Senior Advocate appearing for the Auction Purchaser submitted that the time to complete all actions under the IBC stood extended from 15th March, 2020 onwards in view of the Covid-19 circulars and orders passed by this Court in the Suo Motu Writ Petition23 initiated by this Court rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... February, 2020, for extension of time to deposit the balance sale consideration after the Income Tax attachment orders were lifted. The Liquidator responded to the said communication only on 02nd April, 2020 stating that he did not have the powers to extend the time and for which, an application would have to be moved before the Adjudicating Authority after it resumed functioning partially. For purposes of clarification, it may be noted that Adjudicating Authority had issued a notification that it would hear only urgent matters between 16th March, 2020 and 27th March, 2020. On 22nd March, 2020, the Adjudicating Authority announced closure in the light of the lockdown and it was clarified that liquidation matters would not be considered as urgent. The Auction Purchaser filed an application31 before the Adjudicating Authority seeking extension of time. Vide order dated 5th May, 2020, the Adjudicating Authority allowed the said application and granted extension of time to the Auction Purchaser to deposit the balance sale consideration. It is submitted that the appellant did not take any steps to prefer an appeal against the aforesaid order within the period prescribed in Section 61 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Clause 12 of Schedule I under Regulation 33 of the IBBI Regulations, 2016 requires the successful bidder to pay the balance sale consideration within 90 days from the date of the demand which timeline could not be extended, learned senior counsel for the Auction Purchaser argued that the time limit fixed under Rule 12 of Schedule I has to be read in conjunction with Rule 13 of the IBBI Regulations, 2016 and in cases of attachment, the full amount has to be paid simultaneously with the completion and execution of the Sale Deed. In the present case, the said steps could be taken only after the attachment was lifted by the Income Tax authorities. 18. Learned senior counsel relied on Pioneer Urban Land and Infrastructure Limited and Another v. Union of India and Others34 and Prakash Chandra Kapoor and Another v. Vijay Kumar Iyer and Another35, to contend that the model timeline for the liquidation process contemplated under Regulation 47 of the IBBI Regulations, 2016 for completing the liquidation process, are only directory in nature. 19. Learned senior counsel for the Auction Purchaser concluded by highlighting the conduct of the appellant and stated that he had repeatedly failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ep. 21. Refuting the submission made by the other side that the auction was conducted by the Liquidator without constituting a Stakeholders Consultation Committee, learned counsel submitted that there was no such requirement at the relevant point in time, which position has been clarified in the Explanation appended to Section 31A, that was inserted in the Regulations, vide Notification dated 25th July, 2019. In the present case, the liquidation process had commenced earlier to issuance of the said Notification. Further, the Tribunal has clarified that the amendment to Rule 12 of Schedule I under Regulation 33 of the IBBI Regulations, 2016 made by virtue of the same Notification would apply to pending liquidation process36. Learned senior counsel submitted that in any event, such an objection was taken by the appellant for the first time in the recall application filed by him on 25th September, 2020 by which date, the entire process of sale stood concluded. It was submitted that the appellant is estopped from taking such an objection for the reason that despite repeated requests made to him by the Liquidator to nominate a person in the Stakeholders Consultation Committee, he had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the appellant sought to distinguish the judgments of this Court relied on by the other side including in the case of Yashowanta Narayan Dixit v. Orient Insurance Company Limited39 and the orders passed on 2nd March, 2020 and 12th May, 2020 in Civil Appeal No. 1902 of 2020. Relying on the decision in Union Bank of India v. Rajat Infrastructure Private Limited and Others40, learned counsel submitted that this Court had noted that under Rule 9 (4) of the Security Interest (Enforcement) Rules, 200241, the balance of the purchase price payable had to be paid in the said case on or before the fifteenth day of the confirmation of sale and even if a liberal construction is given to the said sub-Rule, and the orders passed by the Court from time to time, the time to deposit the balance amount with interest could extend only upto 30th April, 2022 and no further extension of time could have been granted thereafter. This Court has also observed that Article 142 of the Constitution of India cannot be used to depart from the substantive law. It was submitted that even if the Auction Purchaser was permitted to take the benefit of the order dated 17th November, 2021 passed by the Adjudicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been in the knowledge of the respondents who cannot take a plea that the said order was communicated to them much later and therefore, they were oblivious thereto. It was further argued that the amount attached by the Income Tax Department was actually paid on 3rd August, 2020, from out of the earnest money deposited by the Auction Purchaser. While the Income Tax Department passed an order lifting the attachment in respect of the subject property only on 27th August, 2020, the Auction Purchaser did not wait until then to pay the balance amount. The balance sale consideration was deposited by the Auction Purchaser through RTGS on 24th August, 2020, which was three days before the date the Income Tax Department passed the order on 27th August, 2020. That being the position, the balance amount could have easily been paid by the Auction Purchaser in a similar manner (through RTGS) on or before 25th March, 2020, on the expiry of the period of 90 days, which it miserably failed to do. 27. Refuting the plea taken by the Auction Purchaser that under Section 281 of the IT Act, a sale shall be treated as void against any claim by the Income Tax Department which was a reason offered by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch, 2020 passed by this Court in the Suo Moto Writ Petition on account of the lockdown due to the Covid-19 pandemic read with Regulation 47A of the IBBI Regulations, 2016, in the light of the order dated 17th November, 2021 passed by the Adjudicating Authority, the last date for making the deposit by the Auction Purchaser could be extended upto 23rd July, 2020 and not beyond that. 30. Learned senior counsel concluded by vehemently contesting the submission made by the other side that the appellant s conduct showed that he was obstructing the liquidation process. He sought to distinguish the judgment in Bombay Mercantile Corporative Bank Limited v. U.P. Gun House and Others43 cited by the other side on facts and submitted that vide order dated 5th December, 2023, that this Court had passed in the present Appeals, the Auction Purchaser was restrained from creating any third-party rights. It was argued that had the sale been cancelled under Rule 12, second proviso to Schedule I under Regulation 33 of the IBBI Regulations, 2016 and the subject property put to auction once again, there was a strong possibility that the same would have fetched a much higher amount. But due to the casual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y days shall attract interest at the rate of 12%. Default in deposit of the balance amount by the successful bidder within the time limit as mentioned in the LOI would entail forfeiture of the 10% of the amount deposited (EMD) by the Successful Bidder. xxxxx 10. The Liquidator has the absolute right to accept or reject any or all offer(s) or adjourn/postpone/cancel the e-Auction or withdraw any property or portion thereof from the auction proceeding at any stage without assigning any reason thereof. xxxxx 12. The sale shall be subject to provisions of Insolvency and bankruptcy code 2016 and regulations made thereunder. xxxxx 32.2 The e-auction of the subject property took place on 23rd December, 2019. Going by the Notice for sale issued by the Liquidator, the period of 90 days available to the Auction Purchaser to deposit the balance sale consideration, if reckoned from 24th December, 2019, the date when the Liquidator informed that it was the successful bidder, would have expired on 23rd March, 2020. However, the Letter of Intent44 issued by the Liquidator on 24th December, 2019, was received by the Auction Purchaser on 26th December, 2019. The period of 90 days reckoned from 26th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of limitation for any suit, appeal, application or proceeding, the period from 15-3-2020 till 14-3-2021 shall stand excluded. Consequently, the balance period of limitation remaining as on 15-3-2020, if any, shall become available with effect from 15-3-2021. 2.2. In cases where the limitation would have expired during the period between 15-3-2020 till 14-3-2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 15-3-2021. In the event the actual balance period of limitation remaining, with effect from 15-3-2021, is greater than 90 days, that longer period shall apply. 2.3. The period from 15-3-2020 till 14-3-2021 shall also stand excluded in computing the periods prescribed under Sections 23(4) and 29-A of the Arbitration and Conciliation Act, 1996, Section 12-A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings. 2.4. The Government of India shall amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch, 2020 that was extended from time to time, the Auction Purchaser ought to have deposited the balance sale consideration within the stipulated 90 days. In such a situation, a lenient view would have to be taken by the Court. 32.7 The factual matrix of the case also needs to be kept in mind. The Covid-19 pandemic had broken out in the month of March, 2020. A curfew was clamped by the Central Government on 22nd March, 2020, restricting the movement of the public. The Adjudicating Authority had issued a notification that only urgent matters would be taken up between 16th March, 2020 and 27th March, 2020. Before completion of the aforesaid period, the Central Government had declared a nationwide lockdown for 21 days till 14th April, 2020, which period was subsequently extended till 03rd May, 2020. In this backdrop, came the order of this Court on 23rd March, 2020 extending the period of limitation w.e.f. 15th March, 2020 till further orders, which order was extended from time to time. The Governing Board of the Insolvency and Bankruptcy Board of India also decided on 17th April, 2020 to amend the IBBI Regulations, 2016 due to nationwide lockdown and incorporated Regulation 47A. 32. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by learned counsel for the appellant to urge that the Auction Purchaser cannot claim the benefit of the order passed by this Court on 23rd March, 2020, is distinguishable on facts. In the said case, the statutory period of 45 days available to the appellant therein to prefer an appeal against an order passed by the Adjudicating Authority had expired on 02nd February, 2020 and the additional period of 45 days that could have been condoned by the Tribunal by virtue of the proviso to Section 421(3) of the Companies Act, 2013 had expired on 18th March, 2020 whereas the appeal was actually preferred on 20th July, 2020. Noting that the lockdown was imposed on 24th March, 2020 and there was no impediment for the appellant in the aforesaid case to have filed the appeal before 18th March, 2020, this Court had refused to permit the party to take refuge of the order dated 23rd March, 2020, passed in the Suo Moto Writ Petition and had opined that the said order was intended to benefit those who were vigilant about their rights. 32.11 The decision in Rajat Infrastructure Private Limited (supra) alluded to by learned senior counsel for the appellant is also based on its own peculiar facts whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... readily realizable assets (Regulation 37A), distribution of unsold assets (Regulation 38), recovery of monies due (Regulation 39) and realization of uncalled capital/unpaid capital contribution (Regulation 40). It can be seen that all the aforesaid regulations that fall under Chapter VI, are primarily concerned with realization of assets and the Liquidator has been tasked with several duties related to the said realization. 33.2 Regulation 33 stipulates that a Liquidator shall ordinarily sell the assets of the Corporate Debtor through an auction in the manner specified in Schedule I. Regulation 35 permits the Liquidator to appoint two Registered valuers to determine the realizable value of the assets or businesses listed in Regulation 32. On the Registered Valuers conducting a physical verification of the assets of the Corporate Debtor and submitting the estimate of the realizable value of the asset/business, the average of the two estimates received are to be taken as the value of the asset/business. It was in the light of the said Regulations that the Liquidator herein had engaged two Registered Valuers to give an estimate of the valuation of the subject property and the average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter price to participate in the auction process. The appellant did not follow up after that. 33.6 Therefore, the appellant cannot be permitted to argue that since the tax value of the subject property was estimated by the Registered Valuers at above ₹ 48 crores, the Liquidator ought not to have fixed the reserve price at ₹39,41,28,500/- (Rupees Thirty nine crore forty one lakh twenty eight thousand five hundred only) for the simple reason that though the reports of the Registered Valuers mentioned the tax value of the subject property at a little above ₹ 48 crores, but the liquidation value in both the reports was much lower and the Liquidator arrived at the average of the two estimated liquidation values to fix the reserve price of the subject property. 34. NON-CONSTITUTION OF A STAKEHOLDERS CONSULTATION COMMITTEE AND ITS EFFECT 34.1 It has been argued that the Liquidator has violated Regulation 31A of the IBBI Regulations, 2016 that requires him to constitute a Stakeholders Consultation Committee. For purposes of ready-reference, Regulation 31A is reproduced below: 31A. Stakeholders consultation committee. (1) The liquidator shall constitute a consultation comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the Stakeholders Consultation Committee is not binding on the Liquidator. The safeguard provided in the Regulation is that if the Liquidator arrives at a decision which is at variance with the advice given by the Stakeholders Consultation Committee, he must record in writing reasons for doing so and mention it in the next progress report. We may usefully extract the following para of the captioned case: 55. On a conjoint reading of the aforesaid provisions of IBC and the Liquidation Regulations, it is evident that the liquidator is authorised to sell the immovable and movable property of the corporate debtor in liquidation through a public auction or a private contract, either collectively, or in a piecemeal manner. The underlying object of the statute is to protect and preserve the assets of the corporate debtor in liquidation and proceed to sell them at the best possible price. Towards this object, the provisions of IBC have empowered the liquidator to go in for a public auction or a private contract as a mode of sale. Besides reporting the progress made, the liquidator can also apply to the adjudicating authority (NCLT) for appropriate orders and directions considered nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the instance of the appellant that in the absence of any explanation appended to Regulation 31A as it stood before 25th July, 2019, it was incumbent for the Liquidator to have constituted a Stakeholders Consultation Committee in view of his own conduct noticed above. Further, such an objection was taken for the first time at the stage the appellant filed a recall application before Adjudicating Authority on 25th September, 2020 by which time the entire sale transaction was over. 35. ALLEGATION OF VIOLTION OF REGULATION 33 OF THE IBBI REGULATIONS, 2016 AND ITS EFFECT 35.1 The appellant has raised serious objections regarding violation of Regulation 33 of the IBBI Regulation, 2016 by the Liquidator. Regulation 33 that deals with the mode of sale of assets has already been extracted above. Schedule I under Regulation 33 lays down the manner in which the assets of the Corporate Debtor are to be sold by the Liquidator. Schedule I is sub-divided into two segments, the first part deals with sale of an asset through auction and the manner in which such a sale shall be conducted by the Liquidator and the second part deals with private sales. The relevant clauses of Schedule I for purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 stipulates the outer limit for payment and states that if the payment is not received within 90 days, then the sale shall stand cancelled. 35.4 To test the argument advanced by learned counsel for the appellant that the word used in Rule 12 of Schedule I is shall and not may and therefore, the prescriptions laid down in Rule 12 ought to be treated as mandatory and not directory in character, we may usefully refer to the observations made in Sharif-ud-din (supra) where a distinction was drawn between a mandatory rule and a directory rule in the following words: 9. The difference between a mandatory rule and a directory rule is that while the former must be strictly observed, in the case of the latter substantial compliance may be sufficient to achieve the object regarding which the rule is enacted. Certain broad propositions which can be deduced from several decisions of courts regarding the rules of construction that should be followed in determining whether a provision of law is directory or mandatory may be summarised thus: The fact that the statute uses the word shall while laying down a duty is not conclusive on the question whether it is a mandatory or directory provision. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion about the provision being imperative may be rebutted by other considerations such as the scope of the enactment and the consequences flowing from the construction. 65. It is well settled that the first and foremost principle of interpretation of a statute is the rule of literal interpretation, as held by this Court in Lalita Kumari v. State of U.P. [(2014) 2 SCC 1, para 14 : (2014) 1 SCC (Cri) 524] If Section 7(5)(a) IBC is construed literally the provision must be held to confer a discretion on the adjudicating authority (NCLT). xxxx 74. Sub-section (5) of Section 9 IBC provides that the adjudicating authority (NCLT) shall, within 14 days of the receipt of an application of an operational creditor under sub-section (2) of Section 9, admit the application and communicate the decision to the operational creditor and the corporate debtor, provided, the conditions stipulated in clauses (a) to (e) of Section 9(5)(i) IBC are satisfied. The adjudicating authority (NCLT) must reject the application of the operational creditor in the circumstances specified in clauses (a) to (e) of Section 9(5)(ii) IBC. 75. Significantly, the legislature has in its wisdom used the word may in Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laration, a deposit of twenty-five per cent on the amount of his purchase money, to the officer conducting the sale; and, in default of such deposit, the property shall forthwith be resold. (2) The full amount of purchase money payable shall be paid by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of the sale of the property. It is clear from a plain reading of the above that the provision is mandatory in character. The use of the word shall is both textually and contextually indicative of the making of the deposit of the amount being a mandatory requirement. 28. The provisions of Rules 57 and 58 of the Income Tax Rules have their equivalent in Order 21 Rules 84, 85 and 86 CPC which are pari materia in language, sweep and effect and have been held to be mandatory by this Court in Manilal Mohanlal Shah v. Sardar Sayed Ahmed Sayed Mahmad [AIR 1954 SC 349] in the following words: (AIR pp. 351-52, paras 8-9 11) 8. The provision regarding the deposit of 25 per cent by the purchaser other than the decree-holder is mandatory as the language of the rule suggests. The full amount of the purchase money must be paid within fifteen days from the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y requiring the executing court to proceed under Rule 86 and property has to be resold unless the judgment-debtor satisfies the decree by making the payment before the resale. The argument that the executing court has inherent power to extend time on the ground of its own mistake was also expressly rejected. 30. We may also refer to the decisions of this Court in Rao Mahmood Ahmad Khan v. Ranbir Singh [1995 Supp (4) SCC275],Gangabai Gopaldas Mohata v. Fulchand [(1997) 10 SCC 387] , Himadri Coke Petro Ltd. v. Soneko Developers (P) Ltd. [(2005) 12 SCC 364] and Shilpa Shares and Securities v. National Coop. Bank Ltd. [(2007) 12 SCC 165] , wherein the same position has been taken. 31. In the light of the above we see no reason to hold that Rules 57 and 58 of the Income Tax Rules are anything but mandatory in nature, so that a breach of the requirements under those Rules will render the auction non est in the eye of the law. (emphasis added) 35.7 In State of Bihar v. Bihar Rajya Bhumi Vikas Bank Samiti52, referring to Section 34(5) of the Arbitration and Conciliation Act, 1996, this Court has held that the absence of any consequences for infraction of a procedural provision implies that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r circumstances relating to the sale of an asset through auction. Wherever the underlying intention is to maximize realization from the sale of assets, discretion has been vested in the Liquidator to sell the asset through auction in the best interest of the creditors, but not otherwise. For the rest of the steps towards sale of an asset, the mandate of the Statute is in the affirmative. In other words, a particular step if prescribed, is necessarily required to be taken by the Liquidator in the manner prescribed in the Rules under Schedule I. He is not left with any discretion to condone the delay. 35.10 When broken down, Rule 12 states that (a) the highest bidder in an auction shall be called upon to provide the balance sale consideration within 90 days from the date of such a demand; (b) any payments made after 30 days from such a demand shall attract interest at the rate of 12 per cent; (c) if the payment is not received within the period of 90 days, the sale shall be cancelled. The word shall has been used thrice in Rule 12. Coming next to Rule 13, the same states that (a) the sale shall stand completed on the payment of the full amount; (b) the Liquidator shall execute a sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the timelines contained in the provisos to Sections 7(5), 9(5) and 10(4) of the Code are all directory and not mandatory. This is for the obvious reason that no consequence is provided if the periods so mentioned are exceeded. Though this decision is not in the context of the 14-day period provided by Section 7(4), we are of the view that this judgment would apply squarely on all fours so that the period of 14 days given to NCLT for decision under Section 7(4) would be directory. We are conscious of the fact that under Section 64(1) of the Code, NCLT President or the Chairperson of Nclat may, after taking into account reasons by NCLT or Nclat for exceeding the period mentioned by statute, extend the period of 14 days by a period not exceeding 10 days. We may note that even this provision is directory, in that no consequence is provided either if the period is not extended, or after the extension expires. This is also for the good reason that an act of the court cannot harm the litigant before it. Unfortunately, both NCLT and Nclat do not have sufficient members to deal with the flood of applications and appeals that is before them. The time taken in the queue by applicants w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial in nature and character. Section 35(1) itself enunciated that the powers and duties which are entrusted to the Liquidator are subject to the directions of the Adjudicating Authority . The Liquidator, in other words, exercises functions which have been made amenable to the jurisdiction of NCLT, acting as the Adjudicating Authority .. . 35.16 In the facts of the present case, the Adjudicating Authority exercised statutory powers under Section 35 of the IBC read with its inherent powers under Rule 11 of the NCLT Rules, 2016 for extending the time to deposit the balance sale consideration on sufficient cause being shown, i.e., in view of the countrywide lockdown due to the Covid- 19 pandemic. This latitude that was given in the aforesaid extraordinary circumstances to meet the ends of justice, cannot be faulted. 36. IMPACT OF THE ATTACHMENT ORDER BY THE INCOME TAX AUTHORITIES ON THE SALE OF THE AUCTIONED PROPERTY 36.1 All things even, having held that there was sufficient reason to grant extension of time to the Auction Purchaser to deposit the balance sale consideration in terms of orders passed by this Court in the Suo Moto Writ Petition read with the provisions of Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid in order of priority as provided under Insolvency Bankruptcy Code 2016 and the registration of property on successful bidding has no relevance to the same. In case of any objection from the SRO the same shall be brought before the Tribunal and suitable order shall be obtained by the Liquidator so as to proceed with the registration. 36.4 It can be seen from the two clarifications given by the Liquidator to the Auction Purchaser that registration of the subject property in favour of the successful bidder was not to be linked with the income tax attachment order for the reason that the Income Tax Department had already lodged a claim before the Liquidator and payment was to be released to the Department in the order of priority, as stipulated under the IBC. Despite that, the Auction Purchaser did not proceed further. 36.5 In the light of the Notice for sale and the replies furnished to the Auction Purchaser well before the bidding process had commenced, we are of the considered view that it was for the Auction Purchaser as an intending bidder to have conducted a due diligence at its own end, gather all the relevant information pertaining to the subject property which included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Liquidator. The said order passed in open Court was duly conveyed by the Liquidator to the Auction Purchaser, though it is the stand of the latter that a physical copy of the said order passed on 10th February, 2020, was received by it much later, in the month of May, 2020. The escrow account55 was created on 3rd August, 2020 and the entire tax arrears amounting to ₹2,44,01,603/- (Rupees Two crore forty four lakhs one thousand six hundred and three only) were deposited in the escrow account on 24th August, 2020, though the income tax department lifted the attachment order three days later, on 27th August, 2020. This was duly conveyed to the office of the Sub-Registrar at Trichy on the same date. The second proviso to Section 281 of the IT Act did provide a window to the Auction Purchaser to approach the assessing officer for prior permission to transfer the subject property. But that option was exercised when the Liquidator moved an application for appropriate permission before the Adjudicating Authority which was granted on 10th February, 2020 under intimation to the Auction Purchaser. 36.8 The contention of the learned counsel for the Auction Purchaser is that Rule 13, Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- (Rupees Two crore forty four lakh one thousand six hundred and three only), which could have easily been paid out of the earnest money of ₹2,95,59,638/- (Rupees Two crore ninety five lakh fifty nine thousand six hundred and thirty eight only) deposited by it, still leaving some surplus funds. The Liquidator had also taken steps to apprise the Auction Purchaser of the said position and the order of priority that was to be given to the claim of the Income Tax Department. Yet the Auction Purchaser did not deposit the balance sale consideration. In view of the above, the plea taken by the Auction Purchaser that the income tax attachment order was a serious and an insurmountable impediment in completion of the sale and the subject property could not have been validly transferred in its favour by the Liquidator, is rather tenuous and not persuasive. 36.11 The anxiety of the Auction Purchaser was adequately addressed on the Adjudicating Authority passing an order on 10th February, 2020, lifting the attachment order. This order was communicated by the Liquidator to the Auction Purchaser well in time. Mere not receipt of a copy of the said order cannot be a ground for the Auction P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty to the respondents thereby causing more delay. 36.14 This Court must underscore the well settled legal position that once an auction is confirmed, it ought to be interfered with on fairly limited grounds. (Refer: Valji Khimji and Co. v. Hindustan Nitro Product (Gujarat) Ltd. (Official Liquidator)56 and Celir LLP v. Bafna Motors (Mumbai) Private Limited and others57). Repeated interferences in public auction also results in causing uncertainty and frustrates the very purpose of holding auctions. (Refer : K. Kumara Gupta v. Sri Markendaya and Sri Omkareswara Swamy Temple and others58). Unless there are some serious flaws in the conduct of the auction as for example perpetration of a fraud/collusion, grave irregularities that go to the root of such an auction, courts must ordinarily refrain from setting them aside keeping in mind the domino effect such an order would have. Given the facts noted above, we shall refrain from cancelling the sale or declaring the Sale Deed as void. Instead, it is deemed appropriate to balance the equities by directing the Auction Purchaser to pay an additional amount in respect of the subject property. CONCLUSION 36.15 For arriving at a just and fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 317 22 lA No. 202 of 2021 in CP/1140/IB/20181. 23 Suo Motu Writ Petition (C) No.3 of 2020 in Cognizance for Extension of Limitation, In Re , reported as (2020) 19 SCC 10 24 2022 SCC Online NCLAT 305 25 2021 SCC Online NCLAT 622 26 For short DRT 27 For short NCLT Rules, 2016 28 For short SARFAESI Act 29 Order dated 12th May, 2020 passed in Civil Appeal No.1902 of 2020 30 2020 SCC Online SC 1491 31 IA No. 335/IB/2020 in MA No.689 of 2019 in CP No./1140/IB/CB/2018 32 For short IT Act 33 BMM Ispat Ltd. v. Ramdas Ispat, 2019 SCC Online NCLT 21322, Allahabad Bank v. Biotor, 2019 SCC Online NCLT 26716, Sanjay Kr. Agarwal v. Tax Recovery Officer, 2019 SCC Online NCLT 28888, Abhudaya Coop. Bank v. Shivkripa, 2020 SCC Online NCLT, 11935, UBI v. Guruashish Construction, 2020 SCC Online NCLT 14829, Ashok Kr. Dewan v. AC of IT, 2021 SCC Online 4368, Mauritius Commercial Bank v. Varun Corporation, 2021 SCC Online NCLT 6814, Milind Kasodekar v. P. Mahajan, 2021 SCC Online NCLT 11616. 34 (2019) 8 SCC 416 35 2021 SCC Online NCLAT 622 36 Reliance has been placed In the matter of Sundaresh Bhat, 2021 SCC Online NCLAT 624 37 (2019) 8 SCC 216 38 (2019) 4 SCC 17 39 (2022) 15 SCC 569 40 (2023) 10 SCC 232 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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