Private Sale Conducted In Non-Transparent Manner & In Absence of Several SCC Members, NCLT Indore Directs Liquidator To Re-Conduct Bidding

The Bench observed that the Liquidator failed to make genuine efforts to sale the Corporate Debtor under Liquidation through Public Auction. Thereafter, the Liquidator conducted Private Sale hastily and without giving proper prior notice to Stakeholders Consultation Committee (“SCC”) to attend the bidding. Consequently, only one SCC member could attend the bidding.

On an application filed by unsuccessful bidder, the Bench has directed the Liquidator to re-conduct the Private Sale bidding in presence and consultation of SCC members, including the Commercial Tax Department.

Background Facts

On 17.08.2021, the NCLT admitted M/s Girdharilal Sugar and Allied Industries Limited (“Corporate Debtor”) into Corporate Insolvency Resolution Process (“CIRP”). Subsequently on 05.08.2022, the NCLT ordered liquidation of the Corporate Debtor.

The Liquidator proceeded with the private sale of assets, since the public auction to sell the Corporate Debtor as a going concern failed as none of the bidders could qualify.

In private sale, M/s Radheshyam Dairy (“Successful Bidder”) was declared as the H-1 bidder with an offer of Rs. 15.91 Crore. Whereas, the Stakeholders Consultation Committee (SCC) was in favour of Labhanshi Multitrade Pvt Ltd. (“Applicant”), which turned out to be H-2 bidder with an offer of Rs. 15.71 Crore.

The Applicant filed an application before NCLT challenging the sale process conducted by the Liquidator, seeking cancellation of private sale and award of the Corporate Debtor to the Applicant as per the SCC's commercial wisdom.

The Applicant contended that the public auction was unlawfully evaded, private sale was improperly conducted to benefit the Successful Bidder and the Liquidator did not act in accordance with SCC's decision.

One of the respondents to the application, the Commercial Tax Department, submitted that CTO-Indore is one of the SCC members but the various relevant SCC meetings were conducted so hurriedly that only one SCC member i.e. Canara Bank could attend them.

NCLT Verdict

The Bench observed that Section 33 of IBC requires the liquidator to ordinarily sale the assets of the Corporate Debtor through a public auction. However, the liquidator did not make genuine attempt for sale through public auction and everything was done in haste.

“As per the process document the ineligibility criterion for the bidders in first auction was only on account of provisions of Section 29A. The conditions on which all the bidders were declared disqualified was not mentioned in the process document. The decision of the liquidator, even on the basis of the consultation with the SCC member Canara Bank, is not in the manner as provided under the relevant regulations”, the Bench noted.”

In the interest of justice, the Bench ordered bidding to be reconducted between two parties, i.e. the Successful Bidder and the Applicant, and the Liquidator has been directed to notify the SCC five days ahead of the meeting.

“All these goes to show that the process had not been transparent. In the facts of the case, we would have cancelled the entire process and ordered for the afresh process by way of E-auction. But keeping in view the fact that while resorting to the process of private sale, the liquidator had at least made the public announcement by way of advertisement in the newspapers and had also informed all those prospective buyers who were declared by him as ineligible in the process of first E-auction, we looked into if even this process is done in the transparent manner. We find that herein too, the liquidator not only had acted in undue haste but had also not given fair chance to the other bidders particularly Labhanshi Multitrade Pvt Ltd for bidding and offer higher amount, if any, over and above Rs. 15.91 crore offered by Radheshyam Dairy. We also take note of the fact that a lot of time has already been gone into process of the liquidation and the litigation thereof. Therefore, considering the facts in totality we are of the view that end of justice would be achieved if the bidding is again ordered between two parties namely Radheshyam Dairy and Labhanshi Multitrade Pvt Ltd. For this purpose, we direct the liquidator to call for a meeting of the SCC giving notice at least five days prior to the date of meeting so that other SCC members could also attend the said meeting for further negotiations and bidding by the aforesaid two parties.”

The Bench further directed the Liquidator to ensure that notice is delivered to the Commercial Tax Department and the bidding between the two parties be done in presence and consultation of SCC members.

“The liquidator will also ensure that the notice is delivered either by hand or by post and email to the CTO-Indore in the office of Commercial Tax Department and a copy is also sent to the learned PCA Ms. Teena Saraswat Pandey appearing for the Commercial Tax Department so that in turn she could also intimate the Commercial Tax Department. The bidding between the said two parties then to be done in the presence and with consultation with the members of the SCC and accordingly the liquidator is directed to finalize the successful bidder in the liquidation process.”

Case Title: Hira International Limited v M/s Girdharilal Sugar and Allied Industries Limited

Case No.: CP(IB) 591 of 2019

Counsel for Labhanshi Multitrade Pvt. Ltd: Ld. Sr. Adv. Mr. Navin Pahwa (Online) Ld. Adv. Mr. Rohit Dubey (Physical) a.w Ld. Adv. Mr. Sandeep Pandey (Physical)

Counsel for Commercial Tax Dept: Ld. PCA Ms. Teena Saraswat Pandey (Online)

Counsel For the Liquidator: Ld. Sr. Adv. Mr. Sukumar Pattjoshi (Online) a.w. Mr. Amresh Shukla (in-person) (Online)

Counsel For the Canara Bank: Ld. Adv. Mr. Hitesh Sachar (Online)

Counsel For M/s Radheshyam Dairy: Ld. Sr. Adv. Mr. Krishnendu Datta (Online)

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