IBC| Timeline To Pay Balance Sale Consideration By Auction Purchaser In Liquidation Proceedings Mandatory : Supreme Court

The Supreme Court recently interpreted Rule 12 of Schedule 1 under Regulation 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 as mandatory in character. Rule 12 relates to how assets of the Company (Corporate debtor) are to be sold by the Liquidator.

 Rule 12 reads: "On the close of the auction, the highest bidder shall be invited to provide balance sale consideration within ninety days of the date of such demand: Provided that payments made after thirty days shall attract interest at the rate of 12%. Provided further that the sale shall be cancelled if the payment is not received within ninety days."

Hearing a case where the appellant argued that since the balance sale consideration was not made within 90 days, the auction should be cancelled, the Court stated: "Rule 12 would have to be treated as mandatory in character for the reason that it contemplates a consequence in the event of non-payment of the balance sale consideration by the highest bidder within the stipulated timeline of 90 days, which is cancellation of the sale by the Liquidator. To that extent, there is substance in the submission made on behalf of the appellant that since the second proviso under Rule 12 contemplates a consequence of cancellation of the auction on nonpayment of the balance sale consideration within 90 days, the Liquidator was not empowered to extend the timeline."

Whereas, Rule 13 reads: "On payment of the full amount, the sale shall stand completed, the liquidator shall execute certificate of sale or sale deed to transfer such assets and the assets shall be delivered to him in the manner specified in the terms of sale."

In this case, the appellant had claimed that anything in Rule 12 would not be completed unless the sale deed was executed under Rule 13. In this case, the appellant had argued that the sale deed could not be executed between the liquidator and the Auction Purchaser because there was an attachment order relating to the subject property by the Income Tax authorities which required to be lifted. 

However, making a distinction between Rule 12 and Rule 13, the court said: "We have already held Rule 12 to be mandatory in character because non-payment within the timeline has consequences attached to it. However, in contrast thereto, there are no adverse consequences spelt out in Rule 13 for it to be treated as mandatory. The said Rule lays down the procedure for completion of the sale and would have to be treated as directory since some procedural steps have been set out for purposes of completion of the sale process, but nothing beyond that. We are therefore not inclined to accept the submissions made by the respondents that none of the activities as contemplated in Rule 12 could have been completed unless and until the attachment order passed by the Income Tax Authorities was lifted or that the Liquidator was not in a position to complete the sale under Rule13 on that count."

Also from the judgment- IBC | 'Auction-Purchaser Entitled To Benefit Of COVID Limitation Extension' : Supreme Court Refuses To Cancel Sale Over Delayed Deposit