The aforesaid appeal was filed by the Punjab National Bank against the order dated 12.08.2021 passed by the National Company Law Tribunal (Para 2)
Filed an application under Section 9 of the Code against M/s. Amrit Feeds Limited i.e. corporate debtor before the Tribunal. (Para 3(i))
On 19.02.2021, the Tribunal passed an order for liquidation of the corporate debtor. Respondent No.2 was appointed as the Liquidator to oversee the corporate insolvency resolution process. (Para 3(ii))
While the last date/time for submission of bid was 20.07.2021 at 14:30 hours, appellant had submitted its bid on 19.07.2021 for a sum of Rs.10 crores which was equivalent to the reserve price as notified in the bid which ended at 14:30 hours on 20.07.2021. (Para 3(vi))
On 20.07.2021, appellant received an E-auction certificate from Respondent No.2 certifying that it had won the auction for the assets of the corporate debtor put up for auction sale (Para 3(vii))
Received an e-mail of the aforesaid date from Respondent No.2 informing that Respondent No.2 had cancelled the E-auction held on 20.07.2021 (Para 3(vii))
While the Liquidator accepted the order of the Tribunal, one of the financial creditors i.e. Punjab National Bank (Respondent No.1) filed an appeal before the Appellate Tribunal under Section 61 of the Code against the order dated 12.08.2021 passed by the Tribunal. The appeal was contested by the appellant. However, by the impugned order dated 30.11.2021, Appellate Tribunal allowed the appeal and set aside the order dated 12.08.2021 passed by the Tribunal. Consequently, the steps taken pursuant to the said order were also reversed. Liquidator was given liberty to initiate fresh process of auction in accordance with the provisions of the Code read with The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (briefly the ‘Regulations’ hereinafter). (Para 3(10))
that the impugned order of the Appellate Tribunal upholding the decision of the Liquidator to cancel the auction sale is fully justified. Appellant was the sole bidder and quoted exactly the reserve price. Reasoning given by the Appellate Tribunal in paragraphs 11 to 22 of the impugned order are just and proper and calls for no interference. In this connection, Respondent No.1 has referred to Clause 3 (k) of the auction sale notice which says that the Liquidator has the absolute right to accept or reject any or all the bids or adjourn/postpone/cancel the E-auction or withdraw any asset/property or portion thereof from the E-auction at any stage without assigning any reason. (Para 5)
According to Respondent No.2, the subject property had a cost of Rs.17.30 crores and written down book value of Rs.8.59 crores as compared to Lot No.2, which had cost of Rs.9.28 crores and written down book value of only Rs.2.45 crores. However, Lot No.2 was sold for Rs.14.39 crores as against its reserve price of Rs.8.50 crores. Respondent No.2 therefore expected a price higher than Rs.10 crores for the subject property as Lot No.2 despite having a substantially lower worth as per the available record had fetched bids higher than Rs.10 crores. (Para 6.3)
For the aforesaid reasons and to maximise the value of the subject property which would enure to the benefit of all stakeholders, Respondent No.2 thought it prudent to explore the possibility of further price enhancement in respect of the subject property and therefore decided to cancel the auction for the subject property. (Para 6.4)
By order dated 12.08.2021, Tribunal allowed the application of the appellant and directed Respondent No.2 to send a communication to the appellant for depositing the balance sale consideration within the time specified in the E-auction notice. (Para 6.10)
Punjab National Bank i.e., Respondent No.1, a financial creditor of the corporate debtor, having claims of Rs.136,61,93,948/- assailed the order dated 12.08.2021 before the Appellate Tribunal. In such proceedings, Respondent No.2 supported the stand of Respondent No.1. Appellate Tribunal by order dated 30.11.2021 allowed the appeal of Punjab National Bank and directed Respondent No.2 to initiate a fresh process of auction in accordance with the provisions of the Code and the Regulations. (Para 6.11)
From the aforesaid, we find that no reasons were assigned by the Liquidator for cancellation of the E-auction held on 20.07.2021. Appellant was simply informed that the E-auction was cancelled in terms of Clause 3(k) of the E-Auction Process Information Document. Clause 3 (k) as discussed above only declares that the Liquidator has absolute right to accept or reject any or all bids or adjourn/postpone/cancel the E-auction etc., at any stage without assigning any reason therefor. We will advert to this clause a little later. (Para 20.1)
We are afraid we cannot accept such a contention made on behalf of the intervenor. While it is true that para 1(11A) came to be inserted in Schedule 1 to the Regulations with effect from 30.09.2021, it does not imply that an auction sale or the highest bid prior to the aforesaid date could be cancelled by the Liquidator exercising unfettered discretion and without furnishing any reason. (Para 29)
Mere expectation of the Liquidator that a still higher price may be obtained can be no good ground to cancel an otherwise valid auction and go for another round of auction. (Para 42)
At this stage, we may advert to Section 5(24) of the Code which defines the expression ‘related party’ in relation to a corporate debtor. Section 5(24) reads as follows (Para 44)
Thus, as per Section 29A(g), a person shall not be eligible to submit a resolution plan if such person or any other person acting jointly or in concert with such person has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the adjudicating authority. Clause (j) says that a person shall not be eligible to submit a resolution plan if such person or any other person acting jointly or in concert with such person has a connected person not eligible under Clauses (a) to (i). As per Explanation (i), the expression ‘connected person’ means-(i) any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in the management or control of the business of the corporate debtor during the implementation of the resolution plan; etc. (Para 46.1)
It is clearly manifest that the disqualification sought to be attached to the appellant is without any substance as the related party had ceased to be in the helm of affairs of the corporate debtor more than a decade ago. He was not in charge of the company or an influential member of the company i.e., the corporate debtor when the appellant had made its bid pursuant to the auction sale notice. (Para 50)
We have no hesitation in coming to the conclusion that Appellate Tribunal was not justified in setting aside the order of the Tribunal dated 12.08.2021. Consequently, we set aside the order dated 30.11.2021 passed by the Appellate Tribunal and restore the order dated 12.08.2021. The appeal is accordingly allowed. However, there shall be no order as to costs. (Para 51)
SUPREME COURT OF INDIA
2023 STPL(Web) 254 SC
[2023 INSC 809]
Eva Agro Feeds Private Limited Vs. Punjab National Bank And Anr.
Civil Appeal No.7906 of 2021-Decided on 6-9-2023
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