Mere Allegations Of Fraud Can't Invalidate Auction When Unsuccessful Bidder Failed To Put In Bid Despite Opportunity: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Yogesh Khanna and Mr. Indevar Pandey (Technical Member) has held that mere bald assertions or allegations of fraud cannot invalidate an otherwise valid auction, especially when the unsuccessful bidder was given ample opportunity to log in to the system but failed to place a valid bid. The present appeal has been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against an order passed by National Company Law Tribunal (NCLT) by which it dismissed an application filed by an unsuccessful bidder to set aside the auction. The Appellant submitted that the main object of liquidation under the IBC is maximization of value, but in the instant case, the Liquidator, acting in collusion with another party, introduced an unauthorized bidder at the eleventh hour in a non-transparent manner, thereby completely vitiating the sanctity of the process. Per contra, the Respondent submitted that the only purpose of the present Appeal is to blackmail and malign the Liquidator. The Appellant never intended to participate bona fide in the auction, but entered the process only to obstruct liquidation and drag the Liquidator into vexatious litigation. The Tribunal at the outset observed that if allegations of manipulation are found correct, then the auction itself collapses, defeating the very purpose of liquidation. However, if such allegations are speculative or unsupported, interference with a concluded auction would unsettle the certainty of liquidation, delay distribution to creditors, and encourage frivolous litigation. It further observed that the second bidder viz. Novelty Textiles was validly registered for e-auction and was eligible as per the terms and conditions of the e-auction. Thus, the contention of the Appellant that a new bidder was introduced suddenly at the last moment is factually incorrect and unsustainable. The Tribunal further observed that the technical records show that the Appellant logged in from his own computer system and not from any external source. The mere presence of his father in the Liquidator's office does not establish that the Liquidator accessed or interfered with his portal credentials. No contemporaneous complaint was filed by the Appellant which renders this allegation completely baseless. It further observed that the third allegation is that the Liquidator demanded illegal gratification from the Appellant's father to secure success in the auction. There are no documents to establish this allegation. Neither was any complaint lodged with the IBBI nor the police against the Liquidator. In Law, fraud or corruption must be specifically pleaded and proved, mere assertion cannot invalidate an otherwise valid auction. The Tribunal concluded that “the material on record clearly demonstrates that the auction was conducted fairly and transparently; that the rival bidder was validly registered; that the Appellant was continuously logged in during the entire period and was fully aware of the bidding position; that he failed to place a valid higher bid despite opportunity.” Accordingly, the present appeal was dismissed. Case Title: Jai Agarwal Versus Satyendra Prasad Khorania Case Number: Company Appeal (AT) (Ins.) No. 30 of 2024 Order Date: 02/09/2025 Click Here To Read/Download The Order

Mere Allegations Of Fraud Can't Invalidate Auction When Unsuccessful Bidder Failed To Put In Bid Despite Opportunity: NCLAT

Mohd Malik Chauhan

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