Delay In Issuance Of Sale Certificate Due To Restraint Order By NCLT, Auction Purchaser Not Entitled To Interest On Sale Consideration: NCLAT Delhi

Background Facts

JVL Agro Industries Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. Subsequently, on 19.08.2020 the NCLT ordered liquidation of the Corporate Debtor.

On 04.03.2022, the Liquidator issued a Sale Notice for sale of Corporate Debtor's assets through E-auction. The Clause 4 of E-Auction Process Information Document stated that the Bidder shall not be entitled under any law to claim for any loss, damage, cost or expense arising from anything contained in the E- Auction Document or otherwise.

The Employee Welfare Trust filed an application (IA No.98 of 2022) before the NCLT challenging the Sale Notice dated 04.03.2022.

On 04.04.2022, the NCLT permitted the Liquidator to proceed with auction sale, but directed him not to issue any Sale Certificate without seeking prior approval of NCLT.

Mr. Supriyo Kumar Chaudhuri (“Auction Purchaser/Appellant”) emerged as the successful auction purchaser. The Letter of Intent dated 29.04.2022 issued by the Liquidator to the Auction Purchaser disclosed the contents of order dated 04.04.2022 passed by NCLT. Thereafter, on 01.06.2022 the Auction Purchaser deposited the entire sale consideration with the Liquidator.

The Auction Purchaser filed an application on 04.11.2022 before the NCLT, seeking issuance of Sale Certificate, which was stayed vide order dated 04.04.2022.

The NCLT vide an order dated 01.06.2023 dismissed the application filed by Employee Welfare Trust and directed the Liquidator for issuance of Sale Certificate.

The Auction Purchaser filed an appeal before the NCLAT against order dated 01.06.2023. The Auction Purchaser claimed interest on the sale consideration amount, since the Liquidator failed to obtain prior approval of NCLT for issuance of Sale Certificate. Further, the Auction Purchaser had availed loan for payment of sale consideration and could not adhere to the terms of loan due to non-issuance of Sale Certificate.

NCLAT Verdict

The Bench noted that Clause 4 of the E-Auction Process Information Document restrained the Bidder from claiming for any loss, damage, cost or expense arising from anything contained in the E- Auction Process Information Document or otherwise. It was opined that the Liquidator cannot be blamed for the delay in issuing Sale Certificate, which had occured due to restraint order of the NCLT.

“As noted above, when the Sale Certificate was prohibited by the Adjudicating Authority and the Sale Certificate could be issued only after order dated 01.06.2023 passed by the Adjudicating Authority, rejecting IA Nos.89 and 98 of 2022, no blame can be put on the Liquidator for not issuing Sale Certificate, immediately after the deposit of sale consideration by the Appellant.

It was observed that when the restraint order was vacated by the NCLT on 01.06.2023, the Liquidator immediately handed over the Sale Certificate and assets to the Auction Purchaser. Further, no party can be said to be prejudiced by the order of a Court.

“The present is a case where assets have been handed over to the Appellant. Present is not a case where due to any reason, the Appellant is entitled for refund of sale consideration. In event the Appellant may be entitled for refund of sale consideration the prayer for refund of the sale consideration along with interest could have been considered. But, here the sale consideration, which was deposited and which has earned interest is in lieu of the assets, which have been ultimately sold to the Appellant and handed over to him.”

On the issue of refund of interest accrued on sale consideration amount, the Bench opined that sale consideration amount is to be distributed to the stakeholders. The Auction Purchaser would be entitled to interest if prayers were made for refund of sale consideration amount. However, since the assets have been sold and handed over to the Auction Purchaser, the question of refund of interest does not arise. The Bench dismissed the appeal and upheld the NCLT order.

Case title: Gokul Agro Resources Ltd. v Mr. Supriyo Kumar Chaudhuri

Case No.: Company Appeal (AT) (Insolvency) No. 1070 of 2023

Counsel for Appellants: Mr. Krishnendu Datta, Sr. Advocate along with Mr.Saumitra Chaturvedi, Mr. Himanshu Chaubey, Mr. Srijan Sinha, Mr. Siddharth Garg and Mr. Shubham Solanki, Advocates.

Counsel for Respondent: Ms. Swati Dalmia and Mr. Palzer Moktan Advocates.

Click Here to Read/Download Order