The Hon’ble Apex Court while setting aside the order of the NCLAT held that by a conjoint reading of Paras 1(11) to (13) of the Schedule I to the Bankruptcy Board of India (Liquidation Process) Regulations, 2016, the liquidator should typically accept the highest bid unless there are legal issues, collusion, or fraud involved in the bidding process. If the liquidator decides not to accept the highest bid, the official liquidator is required to consider pertinent factors carefully and give a reasoned order.
This case arises from the decision of the adjudicating authority of the NCLT to proceed with the highest bidder in the auction during the liquidation proceeding. The respondents, the financial creditor and the liquidator, challenged this decision before the NCLAT, contending that being the highest bidder did not automatically grant a legal right and did not indicate the successful conclusion of the auction.
The NCLAT overturned the adjudicating authority’s decision and instructed the liquidator to initiate a new auction process. The NCLAT justified the auction cancellation, as there was no other bidder other than ‘Eva’ whose bid matched the reserve price. The NCLAT further highlighted clause 3 (k) of the auction-sale notice terms, granting the liquidator an absolute right to accept or reject any bid or to cancel the auction without providing a reason. The NCLAT had concluded that the liquidator had the authority to cancel the auction before finalizing the sale, and that the sale would be considered successful only upon complete payment. Aggrieved by the NCLAT's decision, the auction bidder, Eva appealed to the Hon’ble Supreme Court.
The Hon’ble Supreme Court noted that, while para 1(11) of schedule I of Bankruptcy Board of India (Liquidation Process) Regulations, 2016 gives the liquidator the authority to conduct multiple rounds of auction to optimize asset realization and protect creditors' interests, Para 1(11-A) of Schedule I of the Regulations mandates the liquidator to provide reasons for rejecting the highest bid in the auction to the highest bidder and document this in the subsequent progress report. The Hon’ble Court further stressed that it is well-established that providing reasons is not merely procedural but serves as a safeguard against arbitrary exercise of power and further ensures that the authority has duly considered relevant factors before making a decision.
This case underscores the critical balance between maximizing asset realization and safeguarding the rights of creditors, reflecting the judiciary's commitment to upholding principles of natural justice in insolvency proceedings.
Eva Agro Feeds (P) Ltd. v. Punjab National Bank
(2023) 10 SCC 189.
Comments