IBC | 'Auction-Purchaser Entitled To Benefit Of COVID Limitation Extension' : Supreme Court Refuses To Cancel Sale Over Delayed Deposit

The Supreme Court recently refused to cancel an e-auction despite the Auction Purchaser making a glaring default in making a deposit of the balance sale consideration on grounds that the subject matter of the auction has been utilised and the appellant failed to approach the court on time.A bench of Justices Hima Kohli and Ahsanuddin Amanullah noted: "Much water has flown under the bridge by now. The subject land has been utilized by the Auction Purchaser to build a 200-bed Mother and Child hospital which is operational. Huge amounts have been pumped into the project by the Auction Purchaser. The hospital is fully functional providing medical facilities to seven surrounding districts."In contrast, it noted that the appellant who moved the court in appeal to cancel the auction has not been a vigilant litigation. It observed: "His conduct shows that he has dragged his feet at every stage. Records reveal that belated applications have been filed by him for seeking recall of the orders passed by the Adjudicating Authority granting extension of time to the Auction Purchaser. For reasons best known to him, it took 19 months for the appellant to prefer an appeal before the Tribunal against the order passed by the Adjudicating Authority, as provided for in the IBC. Furthermore, the appellant resisted handing over possession of the subject property to the respondents thereby causing more delay."Brief factsIn this case, the appellant-V.S. Palanivel (shareholder/former Managing Director of Lakshmi Hotel Private Limited) has filed appeals against the judgment of the National Company Appellant Tribunal, Chennai Branch, dated September 16, 2022.As per the facts, a Company, Sri Lakshmi Hotels Private Limited, purchased a loan from a financial creditor for Rs. 1,57, 25,000. A dispute arose between the Company and the financial creditor and the latter involved arbitration. On December 27, 2014, an arbitration award was given in favour of the financial creditor for a sum of Rs. 2,21,08,244 with 24 percent interest per annum from the date of the claim petition till the date of realisation. The Company challenged the arbitration before the Madras High Court which was dismissed. On non-payment of the amount awarded under arbitration award, the financial creditor initiated a corporate insolvency resolution process against the Company before the Adjudicatory Authority under the Insolvency and Bankruptcy Code (IBC).When no resolution plan for the revival of the Company was received, it was recommended that the Company be liquidated. The Adjudicating Authority vide order dated July 17, 2019 accepted the recommendation for liquidation. The liquidator appointed engaged two registered valuers for an estimated valuation of the property (hotel). An average value of Rs. 39,41,28,500 was made and an action was scheduled based on this reserved price. Valuer 1's liquidation value was Rs. 40,82,57,000. Whereas, valuer 2's was 38,00,00,000.The appellant objected to the fixation of the reserve price and stated that the tax value of the subject property was estimated by the registered valuers at above Rs 48 crores. However, this objection was rejected. When no bid was received in the first auction, the second auction was scheduled by with a 25 percent reduction in the reserve price, which came down to Rs. 29,55,96,375.KMC Speciality Hospitals (India) Limited was the sole bidder and deposited Rs. 2,95,59,698. KMC (Auction Purchaser) was required to pay the balance sale consideration within 90 days from the date of demand. However, KMC failed to pay the balance sale consideration within 90 days. It had applied to the COVID-19 pandemic seeking an extension of time to pay. On May 5, 2020, the Adjudicatory Authority granted time to deposit the balance sale consideration till the lockdown was lifted by the Central Government. Dissatisfied with the order, the appellant filed a company appeal after 19 months. However, before this, the Auction Purchaser paid the balance sale consideration on August 24, 2020 and a sale deed was executed on August 28.On September 25, 2020, the appellant sought recall of the May 5 order of the Adjudicating Authority and challenged the execution of sale deed. The Adjudicating Authority rejected all applications for stalling the e-auction and for setting aside the sale deed through a common order dated November 17, 2021. This dismissal was challenged by the appellant before the Tribunal, which was rejected on September 16, 2022. The September 16 order is the subject matter of present appeals.Arguments of parties AppellantSenior advocate P. Chidambaram, for the appellant, argued that the Tribunal failed to appreciate that the auction conducted by the Liquidator was in violation of the provisions of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (IBBI Regulations,2016) particularly, Regulation 31A which requires a Liquidator to constitute a Stakeholders' Consultation Committee and...

IBC | 'Auction-Purchaser Entitled To Benefit Of COVID Limitation Extension' : Supreme Court Refuses To Cancel Sale Over Delayed Deposit

Gursimran Kaur Bakshi

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