E-Auction Can’t Be Set Aside On Trivial Technical Grounds For No Fault Of Successful Bidder: NCLT Hyderabad
The National Company Law Tribunal (NCLT), Hyderabad Bench, comprising of Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Shri Charan Singh (Technical Member), has held that an e-auction of Corporate Debtor’s asset done by Liquidator cannot be set aside on trivial technical grounds, for no fault of the successful bidder. The application for setting e-auction was...
The National Company Law Tribunal (NCLT), Hyderabad Bench, comprising of Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Shri Charan Singh (Technical Member), has held that an e-auction of Corporate Debtor’s asset done by Liquidator cannot be set aside on trivial technical grounds, for no fault of the successful bidder. The application for setting e-auction was filed after the distribution of proceeds as per Section 53 of IBC had taken place and the changes in Board of Directors were effectuated.
One of the creditors of the Corporate Debtor had challenged the e-auction on the ground that the Liquidator in collusion with the Successful Bidders had reduced the Reserve Price. The Bench found that the reduction in Reserve Price was made in accordance with Regulation 33(1) of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Further, there was no material on record to prove allegations of collusion.
Background Facts
M/s. Millenium Steel India Pvt. Ltd (“Applicant”) supplied coal to M/s Ind Barath Power Gencom Limited (“Corporate Debtor”). When payments were not received from the Corporate Debtor, the Applicant filed a Civil Suit before the High Court of Madras for recovery. The Applicant also filed an application seeking the garnishee i.e., TANGEDCO (“Garnishee”), to deposit the monies into the credit of the suit to secure the suit. The High Court directed the Garnishee to deposit a sum of Rs. 14,28,88,073/- into the credit of the suit and the same was deposited.
During the pendency of the suit, the Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (“CIRP”) by the NCLT.
In proceedings before NCLT, M/s. Trimex Industries Pvt. Ltd. filed an application seeking direction to the Resolution Professional to not withdraw, utilize or create third party rights over the amount deposited by Garnishee, without paying the claims of Trimex. The NCLT rejected the application while holding that it can’t interfere with the money lying in deposit in Civil Suit.
Subsequently, the NCLT ordered liquidation of the Corporate Debtor. The Liquidator had attempted to sell the Corporate Debtor four times, starting from the Reserve Price of Rs. 149 Crores. The Corporate Debtor was eventually sold to Respondent No. 3 & 4 (“Successful Bidder”) as a going concern for Rs. 98.762 Crores.
The Liquidator filed an application in Civil Suit seeking withdrawal of monies deposited by Corporate Debtor and the same is pending adjudication. The Liquidator also filed an affidavit stating that the Corporate Debtor has been sold in e-auction, hence it should be discharged from the Civil Suit.
The Applicant filed an application before NCLT seeking setting aside of the e-auction, alleging fraud played by Liquidator in collusion with successful bidders. Further, the e-auction could not have been done without the permission of High Court, which is the legal custodian of Corporate Debtor’s money.
The Applicant argued that the Liquidator could not have included the money deposited with the High Court in e-auction. Since the sum deposited with High Court was Rs. 50 Crores, the sale of Corporate Debtor for Rs.98.762 Crores reflected collusion between Liquidator and Successful Bidders.
NCLT Verdict
The Bench placed reliance on Regulation 33(1)(4A) of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The Regulation 33(1)(4A) states that where an auction fails at the reserve price, the Liquidator may reduce the reserve price by up to 25% of such value to conduct subsequent auction. Further, Regulation 33(1)(4B) states that where an auction fails at reduced price under clause (4A), the reserve price in subsequent auctions may be further reduced by not more than 10% at a time.
On the issue of collusion between Parties, the Bench opined that the Applicant failed to substantiate the allegation with any acceptable material.
“Admittedly four earlier auctions for sale of the subject asset did not fructify. Therefore, the liquidator has followed the above procedure and reduced the reserve price. Moreover, the Monitoring Committee of the corporate debtor under liquidation which admittedly comprises of the lenders would never be interested in selling away the liquidation estate at a price far below the price it can fetch, and thus act detrimental to its own interest. Except making a bald allegation of collusion, the applicant failed to substantiate the said allegation with any acceptable material. Therefore, we don’t find any reason much less a tenable to accept the plea of collusion put forth by the applicant.”
The Bench held that the e-auction could not be set aside for a trivial technical ground, for no mistake of the successful bidders.
“That apart, the corporate debtor has been sold as a going concern, the necessary changes in the Board of directors of the respondent company were affected consequent to the confirmation of the sale in favour of the respondents 3&4 herein. Distribution of the sale proceeds in terms of section 53 of the IB Code, has already been done. Therefore, under the circumstances setting aside the impugned sale on a trivial technical ground, and for no mistake of the successful bidders, is uncalled for and unsustainable under law or on facts.”
The application has been dismissed.
Case Title: M/s. Millenium Steel India Pvt. Ltd. v M/s Ind Barath Power Gencom Limited & Ors.
Case No.: CP(IB) No. 187/7/HDB/2019
Counsel For Petitioner: Shri Abdul Hameed, Sr. Counsel for Ms.Revathi Manivannan, Counsel.
Counsel for Respondent: Shri V.V.S.N. Raju, Counsel along with Shri Srikanth Rathi, Counsel for Liquidator Shri Rajesh Chillale, Shri Anirudh Reddy, Counsel.