NCLAT Delhi Imposes Cost Of Rs. 2 Lakhs On Bidder Who Initiated Misconceived Litigation

Background Facts

The Adjudicating Authority had admitted KMG A to Z System Pvt. Ltd. ("Corporate Debtor") into Corporate Insolvency Resolution Process on 06.08.2019. Subsequently an order for Liquidation was passed appointed on 13.05.2021. Thereafter, on 28.11.2021 the Liquidator had published the tender documents for auctioning the properties of the Corporate Debtor in Liquidation. The Clause 1.15 of the tender document laid down the eligibility criteria of bidders and it was stated that bidder should have a turnover of Rs. 20 Crores and net worth of Rs.3 Crores for each set of Land and Building. The eligibility criteria were set by the Stakeholders Consultation Committee.

On 06.12.2021, M/s. SGA Fashion Pvt. Ltd. ("Appellant") submitted its bid documents to the Liquidator for both the properties under auction i.e. the Industrial Land and Buildings situated at C-48 and C-49 at Sector 81, Noida. The Liquidator rejected the Appellant's bid contending that the Appellant did not meet the eligibility criteria.

On 10.12.2021, the Appellant sent an email to the Liquidator stating that it was eligible to bid for one of the properties i.e. C-49 at Sector 81 NOIDA, and it should be allowed to bid for the same. On the same day, the Appellant had filed an application before the Adjudicating Authority seeking direction to the Liquidator to allow the Appellant to participate in the auction. The Appellant also challenged the criteria of turnover being Rs. 20 Crore and Net Worth of Rs. 3 Crore for bidding for each property and argued that pre-bid qualification will not bind the bidders.

While the application was pending hearing, the Liquidator approved the request of the Appellant vide email dated 11.12.2021.

Thereafter, the application was listed for hearing before the Adjudicating Authority on 14.12.2021, i.e. the day of auction. The Adjudicating Authority observed that the Appellant had not challenged the terms and conditions of auction and cannot seek modification of eligibility criteria for his case alone, as it would amount to rewriting of bid documents. The Bench held that the Appellant had wasted the time of Tribunal on the day of e-auction. The argument that pre-bid qualification would not bind the bidders was rejected as eligibility criteria is an essential component of bidding process, in the absence of which the auction process would be jeopardized. The Adjudicating Authority, after hearing arguments for over 2 hours, vide an order dated 14.12.2021 rejected the application and imposed a cost of Rs. 9 Lakhs on the Appellant over grounds of misconceived litigation. The Appellant filed an appeal before NCLAT against the order dated 14.12.2021.

Contentions Of The Appellant

The Appellant argued that it had nowhere delayed the Liquidation Process and it is the fault of the Liquidator to reject both the bids of the Appellant instead of one of them. The cost of Rs. 9 Lakhs has been erroneously imposed on the Appellant.

Contentions Of The Respondent

The Liquidator submitted that it had accorded opportunities to the Appellant to prove its eligibility but the latter had failed. Further, on Appellant's request the Liquidator had allowed him to bid in one property, for which he had bid but again left proving their mala fide intent. The Appellant sought to cancel the bid by filing an Application before the Adjudicating Authority on the day of bid i.e. on 14.12.2021.

Decision Of NCLAT

The Bench observed that after having sought participation in the bidding process, the Appellant cannot turn around and contend that pre-bid qualification will not bind the bidders, as such a situation would negatively affect the efforts of the Liquidator to 'maximize the value of the asset' and delay the proceedings as all sundry would participate in the bidding process.

It was further observed that on 09.12.2021 and 11.12.2021 the Liquidator had confirmed the eligibility of the Appellant in respect of one property based on his turnover and his net worth and hence opportunity to participate was granted. Having participated in the bidding process, the conduct of the Appellant in turning around and stating that the eligibility criteria is erroneous, without challenging the said condition in any appropriate forum, is truly misconceived.

"We are also conscious of the fact that the Learned Adjudicating Authority has recorded in their Order that the Application preferred by the Appellant/Applicant was taken up as it was the last date for the bidding and spent two long hours in futility and vexed with the conduct of the Appellant herein for wasting the time and energy of the Court by indulging in these misconceived litigation, has imposed a cost of Rs.9 Lakhs/-."

The Bench upheld that Appellant had indulged in frivolous litigation however, the cost imposed by the Adjudicating Authority was reduced from Rs. 9 Lakhs to Rs. 2 Lakhs in the interest of justice.

Case Title: M/s. SGA Fashion Pvt. Ltd. v CMA Sandeep Kumar Bhatt

Case No.: Company Appeal (At) (Insolvency) No. 117 Of 2022

Counsel For Appellant: Mr. Rishi Sood, Mr. Ashutosh Gupta & Mr. Gaurav Gupta, Advocates.

Counsel For Respondent: Mr. Mohit Nanda, Advocate.

Click Here To Read/Download Order