Without Allegations Of Fraud, Objections Raised By Applicant Cannot Be Entertained At Belated Stage After Sale Has Already Been Confirmed: NCLT

The National Company Law Tribunal (NCLT), Mumbai Bench, comprising shri Kuldip Kumar Kareer (Judicial Member) and Shri Anil Raj Chellan (Technical Member), dismissed an application filed under section 60(5) of the Insolvency and Bankruptcy Code (IBC) by a prospective bidder in which e-auction sale of the corporate debtor in liquidation was challenged. The Tribunal observed that the sale was conducted in accordance with Liquidation Regulations, 2016 and objections raised by the applicant were belated and without merit.

Brief Facts

The corporate debtor in liquidation was purchased by Sherisha Powertech Pvt. Ltd. (Respondent No. 2) as a going concern in an e-auction conducted by the liquidator (Respondent No. 1). In an order passed by the NCLT on September 9, 2022, some reliefs and concessions were provided to successful bidder with respect to the corporate debtor.

Prospective bidder (applicant) filed this application under section 60(5) of the IBC to challenge the sale in favour of the respondent no 1.

Contentions

It was submitted by the applicant that it became aware of the sale of corporate debtor on in October, 2023. It was argued that e-auction was conducted in an opaque manner as no advertisement related to the sale was published which made it difficult for prospective bidders to participate in the auction. It was further contended that the liquidator failed to follow the required marketing strategy under IBBI regulations. It was further argued that the liquidator conducted the sale with only one bid by which it failed to realise the maximum value for the assets of the corporate debtor. The applicant challenged the reserved price as no formula for its determination was provided and it offered more price than the successful bidder offered.

Per Contra, the respondent liquidator submitted that the applicant did not have locus standi to file this application as it had not taken part in the auction process. It was further contended that the auction was conducted in a proper manner and in accordance with IBBI regulations and multiple advertisements were published in various newspapers. It was further argued that the sale had already been completed and no grounds existed to recall the concluded sale. It was further submitted that there was no fraud or misrepresentation in the auction process as it was conducted on an as is where is basis which is the standard practice in liquidation sales.

NCLT's Analysis

The NCLT analysed various documents and observed that advertisement notices were published in various newspapers as prescribed by the IBBI regulations. The Tribunal rejected the argument of the applicant and held that publication of notice of auction was proper and in line with the regulations. It was observed as under:

“However, perusal of the record reveals that auction notices dated 10.12.2021 was published in The Free Press Journal as well as Lokmat. Thereafter, the liquidator, in consultation with the stakeholders issued second e-auction notice in accordance with the Liquidation Regulation 12(3)(a) on 08.03.2022 in Free Press Journal, Navshakti, Financial Express English and Gujarati-Ahmedabad edition, Lokmat, Jalgaon edition It, therefore, cannot be said that the publication of the auction notices was not proper or dehors Regulations”.

The NCLT further rejected the argument of the applicant that relief and concessions were given to the successful bidder. The tribunal held that reliefs and concessions were standard practice in liquidation sales which are granted to the successful bidder and they do not tantamount to any fraud or misrepresentation. The tribunal observed that reserve price was set in consultation with various stakeholders and proper practices were followed by the liquidator. It further held that no objections can be entertained after the sale was confirmed. It was held as under:

“There is nothing wrong if the successful bidder approached the Hon'ble NCLT for various reliefs and concessions with respect to 'clean slate' and for transfer of assets without encumbrances and if the appropriate reliefs and concessions were granted as per the settled law. It cannot be said to be a dampener for value maximization if the auction notice contained 'as is where is clause' or subsequently the relief of clean slate was granted as per law. It is a matter of common knowledge that in case of sale of a corporate debtor as going concern, this relief is usually granted and it cannot be said that this resulted in a deterrent for the prospective buyers to participate in the auction proceedings as they were not aware that the company was being sold on clean slate basis rather than on as is where is basis”.

The NCLT further held that judgment of the Supreme Court in Greater Noida Industrial Development Authority Vs. Prabhjit Singh Soni and Others in Civil Appeal No. 7590-7591/2023 is not applicable in the facts of the present case as no evidence has been presented by the applicant to show that the sale was conducted in a fraudulent manner therefore the order of confirming the sale cannot be recalled. It was held as under:

“we are of the considered view that in the absence of any fraud having been established by the Applicant, the order dated 09.09.2022 cannot be recalled. Similarly, the argument that the auction notice was issued on 'as is where is basis' while the sale was approved on clean slate basis can also not be a ground for recall of the impugned order. It cannot be disputed that a successful bidder of a property in liquidation proceedings under the IBC is always at liberty to seek certain reliefs and concessions on the principle of clean slate and, therefore, if respondent no. 2 subsequently successfully obtained certain reliefs and concessions, on this ground it cannot be said that there was some misrepresentation or fraud. Besides, the Applicant has not pleaded any fraud in the application. Therefore, in our considered view, the law laid down in Greater Noida Industrial Development Authority Vs. Prabhjit Singh Soni and Others (supra) cannot be applied to the facts and circumstances of the instant case”.

The NCLT further observed that the challenge of the applicant was too late as the sale had already been completed and executed. Concluded sale cannot be reopened on the ground that the applicant was offering higher price than the successful bidder. There was a delay and laches on the part of the applicant the benefit of which cannot be given now. It was held as under:

“Having considered the above contentions of the parties, we are of the considered view that at this belated stage, after the sale has already been confirmed, the objections raised by the Applicant cannot be entertain especially when there is no allegation of fraud. Besides, the Applicant was never in picture ever since the CIRP commenced against the Corporate Debtor. Therefore, simply on the ground that the Applicant did not get to know about the auction proceedings or that it is willing to offer higher price, the auction process cannot be set aside at this belated stage”.

The NCLT also referred to the Supreme Court judgment in Valji Khimji & Co. Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. and others (2008) 9 SCC 299 whereby the Hon'ble Supreme Court held that if every confirmed sale can be set aside, the result would be that no option sale will ever be complete because there would always be somebody who can come after the auction or its confirmation offering a higher amount.

Conclusion

The NCLT concluded that the applicant was not entitled to reopen the confirmed sale as the sale had already been confirmed and executed. Besides, the sale was conducted in accordance with the regulations and there was no fraud or misrepresentation in conducting the entire process. Accordingly, the application was dismissed.

Case Title: JSK Estate Pvt. Ltd. v. Mr. Sundaresh Bhat (Liquidator) and Anr.

Court: National Company Law Tribunal, Mumbai

Case Reference: I.A. No. 5330/2023 in CP(IB) No. 2849(MB)/2018

Judgment Date: 02/09/2024

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