National Company Law Appellate Tribunal (NCLAT) Principal Bench comprising of Justice Ashok Bhushan and Ms. Shreesha Merla in the case of Ayan Mallick versus Pratime Bayal upheld the Order of NCLT, Kolkata wherein NCLT held that a joint auction under the provision of Insolvency and Bankruptcy Code, 2016 (IBC/Code) and SARFAESI, 2002 is permissible in order to maximise the value of the assets of the Corporate Debtor.
The Suspended director of the Corporate Debtor filed the appeal before the NCLAT under Section 61 of the Code against the order dated 01.02.2022 passed by NCLT Kolkata wherein it has allowed the joint auction sale of the assets of Corporate Debtor under IBC and the guarantor under SARFAESI.
The Liquidator of the Corporate Debtor namely A K power Industries Pvt Ltd. published a e-auction notice dated 16.12.2021 consisting of Factory of the Corporate Debtor and the land on which the factory is situated. However, the land on which the factor is situated belongs to the suspended director of the Corporate Debtor who is also the guarantor to the financial creditor of the Corporate Debtor.
The Financial Creditor of the Corporate Debtor vide notice dated 27.02.2017 have initiated action against the Suspended Director/Guarantor under the SARFAESI Act and have taken symbolic possession of the land vide notice dated 16.06.20117 on which factory of the Corporate Debtor is situated.
Suspended Director challenged the joint e auction notice before NCLT, Kolkata by filing an application under Rule 11 of the NCLT Rules, 2016 and the same was dismissed by NCLT.
Contentions Of The Suspended Director
It was contended by the Suspended Director that the joint e auction notice is bad in law as the property of the guarantor is not under any insolvency or liquidation proceedings. It was also contended that the banks have already taken possession of the land under the SARFAESI Act and therefore, the Liquidator cannot publish a joint e auction notice under the provisions of IBC which includes the assets of the Suspended Director which are subject matter of proceedings in a altogether different act i.e., SARFASI Act.
It was further contended by the Suspended Director that no distinction has been made qua the properties of the Suspended Director and Corporate Debtor and a consolidated reserve price of INR 16.15 Crore has been quoted without demarcating the assets of the Corporate Debtor and Suspended Director.
Contentions Of The Liquidator
It was contended on behalf of the liquidator that banks namely Indian Bank and the State Bank of India have proceeded for sale of the land of guarantor under SARFAESI Act, 2002 and have assessed the reserve price for the same at INR 3.65 Crores and the Liquidator has also assessed the price of factory of corporate Debtor at INR 12.50 Crores. These two reserve prices have been combined to create a joint auction of both the assets.
It was further contended by the Liquidator that there is no violation of any provision of law and a joint auction of these two assets would fetch a higher price and the land and factory are put to sale together otherwise no one will but the factory without the land.
Decision Of NCLAT.
NCLT though noticed that there may be a procedural lapse in conducting a combined auction but held that selling these assets together can maximize the value of the assets of the Corporate Debtor. NCLT held that the Suspended should not be prejudice in any manner as the joint auction will also get a better value for the guarantor.
NCLAT upheld the order of NCLT by observing that when NCLT is satisfied that a joint sale shall bring maximization for the assets of the Corporate Debtor as well as guarantor, the suspended director cannot be prejudiced in any manner.