04 十月 2023

Insolvency – No unfettered discretion with Liquidator to cancel valid auction on mere expectation of higher price in future

In a case where the Liquidator after issuing the certificate that the appellant had won the auction of the subject property, cancelled the e-auction without giving any justification or reason for such cancellation, the Supreme Court has stated that it is incomprehensible that an administrative authority can take a decision without disclosing the reasons for taking such a decision.

On the contention that there was no requirement for the Liquidator to give reasons for cancellation of the bid during the period prior to 30 September 2021, the Court was of the view that while para 1(11A) came to be inserted in Schedule 1 to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 only with effect from 30 September 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.

Allowing the appeal filed against the NCLAT decision, the Apex Court in EVA Agro Feeds Private Limited v. Punjab National Bank [Judgement dated 6 September 2023], was also of the view that 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.

The Supreme Court in this regard observed that even after cancelling the highest bid of the appellant, in the subsequent sale notice, the Liquidator had again fixed the reserve price of the subject property at INR 10 crore, which was the reserve price in the previous round of auction sale and which was also the bid value of the appellant.

The Court hence ruled that that there can be no absolute or unfettered discretion on the part of the Liquidator to cancel an auction which is otherwise valid.

Former promoter director is not a ‘related person’ in case of bidding of assets

Further, the Court also rejected the contention that since the director and principal shareholder of the appellant was also one of the promotor director and principal shareholder of the corporate debtor, he is a ‘related party’ of the corporate debtor and as such is not eligible.

The Apex Court for this purpose noted that that the ‘related party’ had ceased to be in the helm of affairs of the corporate debtor more than a decade ago and that 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.

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