Kulwinder Singh Makhni, Suspended Director Vs. Mr. Sanjay Kumar Aggarwal, Liquidator - the copy of the valuation report needs to be shared with the applicant i.e. Member of Stakeholders’ Consultation Committee, as the same would be crucial in determining the reserve price of the asset of the corporate debtor.

 NCLT Chandigarh (08.07.2022) in Kulwinder Singh Makhni, Suspended Director of M/s Punjab Basmati Rice Ltd. Vs. Mr. Sanjay Kumar Aggarwal, Liquidator of M/s Punjab Basmati Rice Ltd.  [IA No.46/2022 in CP (IB) No.340/Chd/Pb/2018 ] held that;

• This Bench holds that to enable a Member of Stakeholders’ Consultation Committee to meet the mandate under Regulations 31-A(1) and as laid down in 31-A(5), the copy of the valuation report needs to be shared with the applicant i.e. Member of Stakeholders’ Consultation Committee, as the same would be crucial in determining the reserve price of the asset of the corporate debtor. 

 

Excerpts of the order;

This is an application filed under Section 60(5) of the IBC, 2016. In the present application, Kulwinder Singh Makhni, Suspended Director of M/s Punjab Basmati Rice Ltd. is the applicant, and Mr. Sanjay Kumar Aggarwal, Liquidator of M/s Punjab Basmati Rice Ltd., is the respondent. 

 

# 2. In the present application, the applicant prays that the Liquidator may be directed to supply the copy of valuation reports submitted by respondent/Liquidator in pursuance of order dated 09.11.2021 passed by Hon’ble Adjudicating Authority in IA No.550/2021 to the applicant being a member of SCC, in accordance with Regulation 31A of LP Regulations. 

 

# 3. The brief, the facts as outlined in the application are that the Applicant has filed an IA No.471/2021 challenging the mode and manner of the sale in the e-auction sale notice dated 13.08.2021 issued by the Liquidator. The main objection of the Applicant is that the assets of the corporate debtor are highly undervalued, and the Applicant sought direction to get a fresh valuation of the assets of the corporate debtor from the appointed valuers as encroachment has been removed from the property. Thereafter, IA No.550/2021 has been filed by the Applicant seeking a stay of the e-auction of sale notice dated 23.10.2021, wherein the reserved price of the assets of the corporate debtor is fixed at Rs.23.25 Crores, including plant and machinery at Rs.11.50 Crores and all land and building at Rs.11.75 Crores. This Adjudicating Authority by order dated 09.11.2021 directed the Liquidator to conduct a fresh valuation of the complete land and building and deferred the e-auction, which was fixed for 10.11.2021. When the matter was heard on 06.12.2021, the respondent submitted that a compliance report had been filed by Diary No.00222/2015 dated 29.11.2021 in pursuance of the order dated 09.11.2021. However, the Applicant has not been supplied a copy of the valuation report conducted by the Liquidator from the two appointed valuers. 

 

# 3.1 It is submitted that the Applicant is a member of the Stakeholders Consultation Committee (SCC) and is entitled to a copy of valuation reports got conducted by Liquidator from two appointed valuers under the provisions of Regulation 31A(1) and 31A(5) of the IBBI (Liquidation Process) Regulations, 2016. Before proceeding further with e-auction, it is mandatory for the Liquidator to supply a copy of fresh valuation reports to the ex-Director (applicant) and other members of SCC. 

 

# 4. The Respondent/Liquidator, in his reply filed by Diary No.00602/01 dated 09.02.2022, has stated that there is no provision in the Code to challenge the decision of the Liquidator on valuations conducted during the CIRP period in terms of Regulation 35 of Liquidation Process Regulations. The Applicant has no locus standi to challenge the reserve price fixed for the sale of assets of the corporate debtor or to seek copies of the valuation reports. The purpose of valuation reports is not Res-Integra and has been settled by the Hon'ble Supreme Court. The Law is settled that valuation being a question of fact cannot be challenged. Answering respondent is conducting the liquidation process in accordance with provisions of the Code and underlying Regulations. It is further stated that the applicant participated in the Stakeholders Consultation Committee and cannot question the fixation of reserve price subsequently and that the time is of the essence of the Code. 

 

# 5. Subsequently, the Applicant has filed written submission by Diary No.01048/3 dated 30.05.2022, reiterating that non-disclosure of valuation reports to the applicant being SCC member and other members of SCC is violative of Regulation 31-A(1) and 31-A(5) of Liquidation Process Regulations. It is further stated that Regulation 31-A(5) of Liquidation Process Regulations clearly mandate that the Stakeholders' Consultation Committee shall have access to all the relevant records and information as may be required to provide advice to the Liquidator under Regulation 31-A(1) on the matters relating to sale under Regulation 32, including mode and manner of sale and fixing of reserve price etc. Reliance has been placed on the decisions in the following cases:- 

• 1. The Hon'ble Supreme Court in the case of Vijay Kumar Jain Versus Standard Chartered Bank & Ors. cited at 2019(2) Scale Page 352/2019 AIR (SC) 2477 in para 12. 

• 2. NCLT, Ahmedabad Bench in case of Hemant Shantilal Shah and Anr. Vs. Care Office Ltd. through Resolution Professional Vikas Jain and Ors. cited at (2022) ibclaw.in 316 NCLT decided on 31.03.2022. 

• 3. The Hon'ble Supreme Court in the case of MSR Leathers Versus S Palaniapp Anr. cited at 22103 (1) SCC Page 177 (para 29). 

 

# 6. Similarly, the Respondent/Liquidator has filed written submission by Diary No.00851/2 dated 27.05.2022, inter alia placing reliance on the decisions in the following cases:- 

• 1. The Hon'ble NCLT Delhi vide order dated 26.08.2019 in the matter of Oriental Bank of Commerce V. Shekhar Resorts Limited in C.A. 260-261/2016 in C.P. (IB) No.22 of 2018. 

• 2. The Hon'ble Supreme Court in the matter of Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh & Ors. on 22.01.2020. 

• 3. The Hon'ble Supreme Court in the matter of State Bank of India Vs. Accord Life Spec Private Limited through director & Ors. vide judgement dated 28.02.2020. 

• 4. The Hon'ble Supreme Court in the matter of Duncans Industries Limited Vs. State of U.P. & Ors. (AIR 2000 SC 355). 

• 5. Order dated 09.12.2020 passed by this Adjudicating Authority in the matter of Satnam Agri Products Limited in I.A. 389/2020 in CP (IB) No.124/Chd/Pb/2018 wherein it has been held that the ex-director cannot question the fixation of the reserve price. 

 

# 7. The learned counsels for the Applicant and respondent-Liquidator have also filed short submissions by Diary No.0060/3 dated 23.06.2022 and Diary No.00060/4 dated 23.06.2022 respectively, citing the Regulations and judicial decisions relied upon. Both the parties have mostly repeated the contentions mentioned in their earlier written submissions. 

 

# 8. We have gone through the arguments along with the submissions filed by all the parties and have perused the records carefully. 

 

# 9. In the present application, the issue for adjudication before this Bench is whether the Liquidator is mandated under the Code to share a copy of the valuation report with the Applicant being an ex-director, shareholder, guarantor of the corporate debtor and member of stakeholders' consultation committee. 

 

# 10. In this context, the relevant Regulation of IBBI (Liquidation Process) Regulations, as amended on 30.09.2021,are extracted below:- "Regulation 31-A Stakeholders' Consultation Committee (as amended up to 30.09.2021): 

• The Liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31, to advise him on the matters relating to - 

• (a) xxx xxx xxx xxx 

• (b) Sale under regulation 32, including the manner of sale, pre-bid qualification, reserve price, amount of earnest money deposit, and marketing strategy. 

• Provided that the decision(s) taken by the Liquidator prior to the constitution of consultation committee shall be placed before the consultation committee for information in its first meeting." 

• ……xx…xx…..xx……xx… 

• 5. Subject to the provisions of the Code and these regulations, representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the Liquidator under sub-regulation (1) 

• 6. xxx xxx xxx xxx (emphasis supplied) 

 

# 10.1 It is apparent from the above extracts from the Regulations that the Member of Stakeholders' Consultation Committee(SCC) shall have access to all relevant records and information as may be required to provide advice to Liquidator on matters relating to the sale, fixing of reserve price etc. For advising on matters of sale and fixing the reserve price of assets of the corporate debtor, the critical record is their valuation reports. It is not easy to contemplate how without any access to valuation reports, the SCC Member can effectively advise the Liquidator on matters of sale as envisaged under Section 31-A(1). Denying the member of the SCC access to the valuation reports and other relevant documents will only defeat the very object for which the provisions have been framed. In this context, a reference is made to the decision of the Hon'ble Supreme Court in the case of MSR Leathers (Supra), wherein it was held that “one of the salutary principles of interpretation of statutes is to adopt an interpretation which promotes and advances the object sought to be achieved by the legislation, in preference to an interpretation which defeats such object. This Court has, in a long line of decisions, recognised purposive interpretation as a sound principle for the courts to adopt while interpreting statutory provisions. In this decision, the Hon'ble Apex Court also referred to its decision in the case of New India Sugar Mills Ltd. Vs. CST (AIR) p. 1213, para 8) wherein the Court observed as under: 

• "8……It is a recognised rule of interpretation of statutes that the expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuate the object of the legislature. If an expression is susceptible of a narrow or technical meaning, as well as popular meaning, the court would be justified in assuming that the legislature used the expression in the sense which would carry out its object and reject that which renders the exercise of its power invalid." 

 

# 10.2 We are also aware of the decision of our Coordinate Bench of NCLT, Ahmedabad Bench, in the case of Hemant Shantilal Shah (Supra), which made the following observations:- 

• "In the present case it is the valuation report which is in question. Whether it can be shared by Resolution Professional with ex-directors, specially when the ex-management alleges and apprehends that properties of the corporate debtor are being valued and offered at throw away price. In our view, the ex-management is the appropriate concerned party to comment on the valuation of properties of corporate debtor. The corporate debtor is the body of Ex-management and they were in control and handling the same till CIRP initiation. It would be prejudicial if they are not even allowed to view the valuation and point out the shortfalls in valuation if any. The intent of the Code being maximization of value while insolvency resolution process, all concerned should be given access to the document which will be crucial for deciding the worth of the corporate debtor which is intended to be given new lease of life. There is no specific provision to not to share a copy of valuation report with ex-directors, we hold that in the interest of Justice, the copy of valuation report needs to be supplied to ex-directors, as already directed the Predecessor Bench.” 

 

# 10.3 This Bench also observes that the decisions mentioned in para 6 above relied upon by the respondent, do not advance his case as the facts involved in these cases are entirely different from the facts of the present case. The decision in the case of Oriental Bank of Commerce (Supra), deals with the CIRP process in which the non- cooperative suspended Board was held to be acting in a malfide manner and liquidation process was not involved.. Furthermore,there was no occasion for NCLAT to deal with the interpretation of Regulation 31-A of LP Regulations, 2016 in this order. Similarly, the issue involved in the Maharashtra Seamless Limited (Supra) is whether the resolution plan value has to meet the liquidation value and whether the commercial wisdom of CoC during CIRP can be interfered with by the Adjudicating Authority. In the case of Duncans Industries Limited (Supra), the issue of challenge of valuation arrived at for the purpose of stamp duty was before the writ court. Lastly, Satnam Agri Products Limited (Supra) does not directly deal with the issue of sharing of valuation reports with the Members of Stakeholders’ Consultation Committee. 

 

# 11. In view of the above discussions, this Bench holds that to enable a Member of Stakeholders’ Consultation Committee to meet the mandate under Regulations 31-A(1) and as laid down in 31-A(5), the copy of the valuation report needs to be shared with the applicant i.e. Member of Stakeholders’ Consultation Committee, as the same would be crucial in determining the reserve price of the asset of the corporate debtor. Regarding confidentiality of the document, the Liquidator can take an undertaking from the applicant to maintain the same as per his powers under Regulation 7(2)(h) of Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, read with paragraph 21 of First Schedule thereto. This could be in the form of a non-disclosure agreement in which Liquidator could be indemnified in case information was not kept strictly confidential. 

 

# 12. Consequently, IA No.46/2022 is allowed and accordingly stands disposed of.

 

----------------------------------------------

 

 

Mr. Prateek Gupta & Ors. Vs. Kotak Mahindra Bank Limited & Anr. - Even the Liquidator when he sells the property under the liquidation, he has to follow the procedure under the SARFAESI Act, 2002 for sale of the property.

 NCLAT (07.03.2022) in Mr. Prateek Gupta & Ors. Vs. Kotak Mahindra Bank Limited & Anr.  [Company Appeal (AT) (Insolvency) No. 147 of 2022] held that;

• Even the Liquidator when he sells the property under the liquidation, he has to follow the procedure under the SARFAESI Act, 2002 for sale of the property.

Excerpts of the order;

07.03.2022: Heard Mr. Kunal Tandon, Advocate for the Appellant, Mr. Jayant Kr. Mehta, Sr. Advocate for the Kotak Mahindra Bank, Mr. Ashwani Kr. Gupta, for Liquidator and Learned Counsel appearing for the Liquidator.

 

# 2. This Appeal has been filed against the Ex-Directors of the Corporate Debtor challenging the Order dated 04.01.2022 of the Adjudicating Authority (National Company Law Tribunal, New Delhi, Court-III) passed in IA-6014/2021 filed by the Kotak Mahindra Bank Limited-Financial Creditor.

 

# 3. In the Liquidation Proceeding of the Corporate Debtor, Kotak Mahindra Bank Limited-Financial Creditor has filed an Application IA-6014/2021 wherein following prayers have been made:

• “a. The suitable directions to be issued to Respondent for handing over vacant physical possession of 260 sq. yards plot standing in the name of Corporate Debtor under the provisions of the SARFAESI Act to limited extent of conducting a public E Auction under SARFAESI Act;

• b. the suitable directions be issued to applicant (Kotak Mahindra Bank) for sale of land admeasuring 260 sq. yards belonging to corporate debtor under the provisions of the SARFAESI Act, 2002 along with another three plots of land admeasuring 1400 square yards belonging to suspended directors/mortgagors;

• c. Authorise and permit the Authorised Officer of the Applicant Bank to conduct joint E-Auction of the entire property admeasuring :-1660 sq. yards, as mentioned hereinabove;

• d. Pro-rata of Sale Price deposited with the Applicant Bank be transferred to the Liquidator for further distribution by the Authorised Officer of the Applicant on conclusion of the joint E-Auction Proceedings;

• e. any other or further relief, may be granted in favour of applicant, as deemed fit in the aforesaid circumstances.”

 

# 4. The necessary facts to be noticed for deciding the Appeal are:

 

That Corporate Debtor holds a plot of land admeasuring 260 sq. yards situated at Nangloi. There is another 1400 sq. yards land which was under the Promoters of the Corporate Debtor who are appellant before us. 1400 sq. yards land was mortgaged with the Kotak Mahindra Bank Limited and it is the case of the Bank that they have already issued Notice under Section 13(2) of the SARFAESI Act, 2002 on 28.09.2017 and has taken various steps under Section 13(4) for having physical and symbolic possession of the 1400 sq. yards. It is further on record that with regard to the measures taken by Bank under Section 13(4) of the SARFAESI Act, 2002 with regard to 1400 sq. yards an Application under Section 17 of the SARFAESI Act, 2002 has been filed by the Appellant before the Debt Recovery Tribunal (DRT in short) being Application No. 396 of 2019 which is pending consideration before the DRT.  260 sq. yards admeasuring land belonging to the Corporate Debtor is in the liquidation estate and the Application filed by the Kotak Mahindra Bank Limited i.e. I.A. No. 6014 of 2017 where the Bank has requested that Liquidator may give possession of the 260 sq. yards to the Bank so that the said land belonging Corporate Debtor may be sold under the SARFAESI Act along with area admeasuring 1400 sq. yards. This application has been allowed vide Impugned Order dated 04.01.2022 by the Adjudicating Authority. The Liquidator has made statement before the Adjudicating Authority that Liquidator has no objection in any of the prayers made in the I.A., consequently the result is that after allowing the Application the entire land 1660 sq. yards shall be sold as per SARFAESI Act, 2002 and the amount proportionate pertaining to 260 sq. yards shall be handed over to the Liquidator after the sale of the entire property.

 

# 5. The Learned Counsel for the Appellant challenging the Impugned Order contends that there is no occasion to permit the sale of the 260 sq. yards belonging to the Corporate Debtor along with the sale of 1400 sq. yards which belong to the promoters of the Corporate Debtor. It is submitted that the sale of the plot of land admeasuring 260 sq. yards ought to be sold under the IBC, 2016 Proceedings and the other plots admeasuring 1400 sq. yards will be sold under SARFAESI Act, 2002 and the Liquidator ought not to have given to the Bank for composite sale. It is submitted by the Appellant that he has filed an Application under Section 17 challenging the measures taken by the Bank under Section 13(4) of the SARFAESI Act, 2002 for the sale of 1400 sq. yards which application is pending.

 

# 6. In the present case, there is no doubt that 260 sq. yards land belongs to the Corporate Debtor which is in the liquidation estate. The Liquidator who is present before us submits that in view of the peculiar facts and circumstances of the case 1400 sq. yards and 260 sq. yards are not separable and sale of composite property can obtain the maximum revenue for the said land and joints sale of the property is material to have more revenue for the property which may be beneficial to the liquidation estate.

 

# 7. After considering the submissions which have been made by the Learned Counsel for the Appellant, we are of the view that in the peculiar facts and circumstances of the case, no error can be found with the Order of the Adjudicating Authority directing for composite sale of land of both the parts under the SARFAESI Act, 2002. Even the Liquidator when he sells the property under the liquidation, he has to follow the procedure under the SARFAESI Act, 2002 for sale of the property. In the peculiar facts and circumstances of the case, the property which is a composite one, we are of the view that no illegality can be said to have been committed by the Adjudicating Authority in directing the joint sale of the property. The proportionate amount will be given to the Liquidator which shall be in the liquidation estate hence, the Corporate Debtor cannot suffer any loss in the aforesaid sale.

 

# 8. We are thus of the view that there is no sufficient ground to entertain this Appeal, the Appeal is dismissed. We make it clear that it shall be open for the Appellant to proceed with the Application under Section 17 which is pending before the DRT.

 

---------------------------------------------------

Ayan Mallick Vs. Pratim Bayal, Liquidator & Ors. - When the Adjudicating Authority is satisfied that joint sale shall bring maximization of assets of the Corporate Debtor and the possession of the properties of the Guarantors have already been taken under SARFAESI and both land and factory need to be sold together to maximize the value of the assets, we fail to see that how the Appellant shall be prejudiced in any manner.

 NCLAT (13.05.2022) in Ayan Mallick Vs. Pratim Bayal, Liquidator & Ors.  [Company Appeal (AT) (Insolvency) No. 456 of 2022] held that;

• When the Adjudicating Authority is satisfied that joint sale shall bring maximization of assets of the Corporate Debtor and the possession of the properties of the Guarantors have already been taken under SARFAESI and both land and factory need to be sold together to maximize the value of the assets,  we fail to see that how the Appellant shall be prejudiced in any manner.

Excerpts of the order;

13.05.2022: Heard learned counsel for the Appellant, Shri Ashish Makhija, learned counsel for the Liquidator and learned counsel appearing for the Bank. This Appeal has been field against the order dated 01.02.2022 by which the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata has dismissed the I.A. No. 32/KB/2022 filed by the Applicant/Appellant. In the I.A. the prayer made by the Appellant who is Suspended Director of the Corporate Debtor was that e-auction sale notice dated 16.12.2021 for sale of the assets of the Corporate Debtor under liquidation and assets of the guarantor under SARFAESI Act be stayed until the disposal of the I.A.

 

# 2. The e-auction notice was issued for sale of factory and land. Apart from the assets of the Corporate Debtor, the land was owned by the Promoter/ Guarantor, hence, e-auction notice was for a joint sale of the assets. It was submitted before the Adjudicating Authority that joint sale will maximize the value of assets of the Corporate Debtor, hence the Court should permit the same. After hearing the learned counsel for the parties, the Adjudicating Authority rejected the application and observed that if there is maximization of the assets, selling it as a combined should not prejudice the applicant in any manner as it is going to get a better value for the corporate guarantor.

 

# 3. With regard to value of both properties i.e. of the Corporate Debtor and the guarantors, Rs.16.15 crores is the joint reserved price mentioned in the e-auction notice. Learned counsel for the Appellant submits that by selling the assets of the guarantors also, he will lose his rights which are given under SARFAESI Act, 2002 qua the properties.

 

# 4. Learned counsel for the Respondent has also referred to judgment of this Tribunal in Company Appeal (AT) (Ins.) No.147/2022 – ‘Prateek Gupta and Ors. vs. Kotak Mahindra Bank Ltd. and Anr.’. The above judgment do support the submissions raised by learned counsel for the Respondent.

 

# 5. We have considered submissions of learned counsel for the parties and perused the record. When the Adjudicating Authority is satisfied that joint sale shall bring maximization of assets of the Corporate Debtor and the possession of the properties of the Guarantors have already been taken under SARFAESI and both land and factory need to be sold together to maximize the value of the assets, we fail to see that how the Appellant shall be prejudiced in any manner. We do not find any error in the order of the Adjudicating Authority rejecting the I.A. We dismiss the Appeal. We, however, observe that it shall be open to the Appellant to take such remedy under SARFAESI with regard to auction in accordance with law.

 

-----------------------------------------------

Blogger’s comments; The following questions needs to be answered;

1. Whether Liquidator can include the property of guarantor in the Liquidation Estate.

2. Whether Liquidator can deal/auction any property outside the Liquidation Estate.

3. Whether Liquidator has powers to take into possession any property under the provisions of SARFAESI.

4. Whether a bank/financial institution can appoint Liquidator as its authorised officer to deal with the property (secured asset) under the provisions of SARFAESI.

5. Whether a Liquidator can work as representative of a stakeholder during the liquidation process.

6. In joint reserve price /joint auction notice how the money will be distributed of the realisation post auction.

 

Now lets look into various provisions of the Code & regulations’

.

# Section 36. Liquidation estate. -

(1) For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the corporate debtor.

XXXXX

(3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following: -

(a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor;

XXXX

(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: -

XXXXXX

(c) personal assets of any shareholder or partner of a corporate debtor as the case may be provided such assets are not held on account of avoidance transactions that may b avoided under this Chapter;

 

As per the provisions of the Code, personal assets of any shareholder can not be the part of the “Liquidation Estate” and can not be used for recovery in the liquidation process under the Code. However, a bank (SFC) can deal/realise mortgaged properties, other than those owned by CD , held by the bank as collateral security, outside the liquidation process as per existent laws.

.

Although, Liquidator, in his personal capacity, can accept assignment for disposal of properties mortgaged (owned by shareholders) to the bank,, as authorised agent/representative of the bank, but the moment Liquidator, agrees to act as agent/representative of a stakeholder (bank), he renders himself ineligible to work as Liquidator & has to voluntarily vacate the office of Liquidator.

 

Liquidation Regulations

# Regulation 3. Eligibility for appointment as liquidator.

(1) An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director, is independent of the corporate debtor.

XXXXXX

(3) An insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation process.

 

To my mind the only option in the present situation is for the bank to enforce its security interest for the property of CD (Factory) under section 52 and realise the same, as permitted under section 52 (4) read with Liquidation Regulation 37(7), along with the property of guarantor (Land), under the provisions of SARFAESI.

 

---------------------------------------------------

Arrhum Tradelink Pvt. Ltd. Vs. Vineeta Maheshwari Liquidator of Kaneria Granito Ltd. - At end of e-auction, if two or more bidders have finally offered the same amount, bidder who has given offer for sale of the Corporate Debtor as a going concern shall be declared as successful bidder

NCLT Ahmedabad (20.06.2022) in Arrhum Tradelink Pvt. Ltd. Vs. Vineeta Maheshwari Liquidator of Kaneria Granito Ltd. [IA No. 238 of 2022 in CP(IB) 320 of 2018] held that;

• In case of highest bidder under auction option no. 1 and 2 are equal, then, bidder who has given offer for sale of the Corporate Debtor as a going concern shall be declared as successful bidder”.

• It is true that the Applicant ought to have raised the amount of Rs. 5 Lakh but in our considered opinion, the liquidator ought to have taken into consideration of the broad object of Insolvency and Bankruptcy Code, 2016 to sell the Corporate Debtor as a going concern and it was the pre-condition for e-auction set out by the liquidator herself.

• It is the object of the Insolvency and Bankruptcy Code, 2016 i.e., to maximize the value of the assets of the corporate person and to promote entrepreneurship etc.

• It is the duty of the liquidator to protect the existence of the Corporate Debtor as far as possible and avoid its death by ultimately pushing the Corporate Debtor to be dissolved.

 

Excerpts of the order;

# 1. This application under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC, 2016”) is filed by the unsuccessful bidder with prayer to direct the liquidator to declare the applicant as the successful bidder and cancel the bid of M/s. Torrecid India Pvt. Ltd. (R-3) which has been accepted by the liquidator.

 

# 2. The following facts are not in dispute:

i. On 28.02.2020, the liquidator held e-auction of the assets of the Corporate Debtor in the liquidation process. She had decided to sell the assets by e-auction adopting two methods simultaneously. (i) to sell the assets on a stand-alone basis, and (ii) to sell the Corporate Debtor as a going concern.

 

# 3. In the e-auction, there were two bidders i.e., the applicant and the declared successful bidder i.e., Respondent No. 3. It is seen from the record that both the applicant and declared successful bidder had offered the same amount i.e., Rs. 38.40 Crores. However, the applicant was ready to take the Corporate Debtor as a going concern whereas the successful bidder had offered the same amount as the price of the assets of the Corporate Debtor on a stand-alone basis.

 

# 4. The applicant by this application requested this Adjudicating Authority to direct the liquidator to accept its bid because the applicant is ready to purchase the Corporate Debtor as a going concern-which is the main object of the Insolvency and Bankruptcy Code, 2016.

 

# 5. We heard Learned Senior Counsel Mr. Navin Pahwa for the applicant, Learned Senior Counsel Mr. Manish R. Bhatt, and Learned Senior Counsel Mr. Saurabh Soparkar for the successful bidder (R-3).

 

# 6. In view of the material on record and arguments made at the bar, we are faced with the question for our determination whether we should accept and certify the result of the e-auction sale in respect of the successful bidder or we should direct the liquidator to accept the bid of the applicant who has offered to purchase the Corporate Debtor as a going concern.?

 

# 7. It is because the amount offered by both of them is the same i.e, Rs. 38.40 Crores. The liquidator declared Respondent No. 3- M/s. Torrecid India Pvt. Ltd. as the successful bidder because the system by which e-auction was held had accepted the bid of Respondent No. 3 at 3.21 pm. The record reveals that at that point of time, i.e., 3.21 pm, the applicant had offered the same amount of Rs. 38.25 Crores. It was less than the amount offered by the successful bidder. But it is also admitted fact that immediately at 3.23 pm, the applicant had also offered the same amount as Rs. 38.40 Crores but the system rejected the same.

 

# 8. The admitted facts before us are that at 3.21 pm, the successful bidder had offered Rs. 38.40 Crores. It was accepted by the system. In fact, at the point of time, the liquidator ought to have closed the e-auction process itself but within two minutes and before the auction process declared to be completed by the liquidator, the applicant offered the same amount as has been offered by the successful bidder. It is not in dispute that even at that point of time, the system was on. 

 

# 9. At this stage, it is necessary to see what are the rules framed in the Insolvency and Bankruptcy Code, 2016 to regulate the process of the auction sale. Under Regulation 33 of IBBI (Liquidation Process) Regulations, 2016, certain rules are incorporated in Schedule-I to regulate the mode of sale. Clause-7 of those rules, speaks about the sale of assets thorugh electronic auction but those rules do not give any guidance as to when the liquidator is set to have declared the auction to be completed. In this case, Clause-12 of the tender document states that “the bidder having highest bid shall be the successful bidder. In case of highest bidder under auction option no. 1 and 2 are equal, then, bidder who has given offer for sale of the Corporate Debtor as a going concern shall be declared as successful bidder”.

 

# 10. As already noted above, in this case, the applicant and successful bidder offered the same price. The only difference is that at 3.21 pm, the successful bidder had offered Rs. 38.40 Crores and at 3.23 pm, the applicant offered the same amount whereas one of the conditions of e-auction was that a person taking part in the auction process has to offer Rs. 5 Lakh more than what has been offered by the earlier bidder. In this case, Respondent No. 3 has offered Rs. 38.40 Crores, the same is offered within two minutes by the Applicant but the applicant has given offer to purchase the Corporate Debtor as a going concern whereas the Respondent No. 3 offered same amount to purchase the assets of the Corporate Debtor on a stand-alone basis.

 

# 11. It is brought to our notice that during e-auction process, the Applicant had not raised the bid amount by Rs. 5 Lakhs intermittently which was mandated by the tender document and that point of time and that every point of time, the Applicant’s bid was rejected by the system itself. Considering the material on  record, we hold that during the entire e-auction process, if any party did not raise its offer by a certain sum of money that it is not sufficient to reject its bid unless and until its final offer is considered. Ultimately, the result of e-auction would depend on as to what amount is offered finally by the party taking part in the auction process. In this case, at end of e-auciton both the Applicant and successful bidder have finally offered the same amount but the Applicant had offered the amount to purchase the Corporate Debtor as a going concern. It is true that the Applicant ought to have raised the amount of Rs. 5 Lakh but in our considered opinion, the liquidator ought to have taken into consideration of the broad object of Insolvency and Bankruptcy Code, 2016 to sell the Corporate Debtor as a going concern and it was the pre-condition for e-auction set out by the liquidator herself. The liquidator put the clause in the tender document that in case the highest amount is offered by all the bidders and the bid amount is same then the bidder who wishes to purchase the Corporate Debtor as a going concern shall be declared to be the successful bidder. In this case, the Applicant had given the offer to purchase the Corporate Debtor as a going concern for the same amount as has been offered by the declared successful bidder i.e., Respondent No. 3.

 

# 12. In our considered opinion since the liquidator allowed the system to run even after the successful bidder had offered the highest amount and exactly at that point of time within two minutes the Applicant offered the same price. The fact is that the Applicant had offered the same price to purchase the Corporate Debtor as a going concern, the liquidator ought to have considered this aspect. It is the object of the Insolvency and Bankruptcy Code, 2016 i.e., to maximize the value of the assets of the corporate person and to promote entrepreneurship etc. It is not the object of the Insolvency and Bankruptcy Code, 2016 only to clear the debts of the creditors of such a corporate person. It is the duty of the liquidator to protect the existence of the Corporate Debtor as far as possible and avoid its death by ultimately pushing the Corporate Debtor to be dissolved.

 

# 13. For the above reasons, we allow this application and pass the following orders:

O R D E R

I. The liquidator is directed to declare the Applicant as a successful bidder upon the Applicant’s depositing with the liquidator a sum of Rs. 38.40 crores within seven days from the date of this order failing which liquidator to issue sell  certificate in favor of Respondent No. 3 i.e., M/s. Torrecid India Pvt. Ltd.

 

II. In case, the applicant deposits the amount as ordered above, the liquidator to refund the amount of the declared successful bidder with the interest as accrued on such amounts within two weeks therefrom.

 

# 14. With these directions, application stands allowed and disposed of.

 

------------------------------------------------------------