IBC - Liquidator Can't Cancel Valid Auction On Mere Expectation Of Fetching Higher Price; No Unfettered Discretion : Supreme Court

The Supreme Court on Wednesday held that even though the highest bidder in an auction sale under the Insolvency and Bankruptcy Code 2016 has no indefeasible right to demand acceptance of his bid, the liquidator, if such a bid is rejected must furnish reasons for the same in the rejection order. A division bench of Justice B V Nagarathna and Justice Ujjal Bhuyan held that the mere expectation of the Liquidator that a higher price may be obtained is not a good ground to cancel an otherwise valid auction. The Court also held that once an auction is complete, the liquidator does not have absolute or unfettered discretion to cancel the auction, unless it is found that fraud or collusion had vitiated it.“..while the highest bidder has no indefeasible right to demand acceptance of his bid, the Liquidator if he does not want to accept the bid of the highest bidder has to apply his mind to the relevant factors. Such application of mind must be visible or manifest in the rejection order itself.” The Apex Court was considering an appeal against the order of the National Company Law Appellate Tribunal (NCLAT) that had held that the highest bidder had no vested right to claim the auction in its favour in a liquidation sale. The NCLAT had held that the liquidator had the power to cancel the auction in terms of the auction notice, if he thinks the price offered is inadequate. Setting aside the order of the NCLAT the Apex Court held: “..mere expectation of the Liquidator that a still higher price may be obtained can be no good ground to cancel an otherwise valid auction and go for another round of auction. Such a cause of action would not only lead to incurring of avoidable expenses but also erode credibility of the auction process itself. That apart, post auction it is not open to the Liquidator to act on third party communication and cancel an auction, unless it is found that fraud or collusion had vitiated the auction. The necessary corollary that follows therefrom is that there can be no absolute or unfettered discretion on the part of the Liquidator to cancel an auction which is otherwise valid. As it is in an administrative framework governed by the rule of law there can be no absolute or unfettered discretion of the Liquidator.” The Appellant (Eva Agro Feeds Private Limited) that had approached the NCLT, Kolkata bench, against the cancellation of the auction by the Liquidator, had contended that there was no material on record to support the perception of the Liquidator that cancelling the present auction and going for another round of auction would result in better price for the assets in question. The Tribunal had held that there cannot be an endless wait to obtain a better price. The Apex Court while restoring the order of the Tribunal said: “Merely because the Liquidator has the discretion of carrying out multiple auction it does not necessarily imply that he would abandon or cancel a valid auction fetching a reasonable price and opt for another round of auction process with the expectation of a better price. Tribunal had rightly held that there were no objective materials before the Liquidator to cancel the auction process and to opt for another round of auction” Background In the instant case, Punjab National Bank, being a financial creditor of the corporate debtor had approached the NCLAT against the order of the Adjudicating Authority of the NCLT, Kolkata Bench that had directed the Liquidator to proceed with the highest bidder in the auction, (Eva Agro Feeds Private Limited). The Bank and the Liquidator had argued that even if some bidder is highest, it does not amount to the auction being successfully completed and that the highest bidder does not get a vested or acquired right in law. The NCLAT set aside the order of the adjudicating authority and directed the Liquidator to initiate a fresh process of auction. Eva Agro Feeds Pvt. Ltd, subsequently approached the Apex Court against this order.Impugned Appellate Tribunal Order Appellate Tribunal while holding the cancellation of auction to be valid and justified gave liberty to the Liquidator to initiate fresh process of auction. The Appellate Tribunal noted that the appellant was the sole bidder and its bid was equal to the reserve price, and hence the liquidator was justified in cancelling the auction finding the amount to be inadequate. The NCLAT held that the Liquidator invoked Clause 3(k) of the E-Auction Process Information Document which allowed him to cancel the auction. The Appellate Tribunal also held that the terms of the auction sale notice provided absolute right to the Liquidator to accept or reject any bid or to cancel the auction without assigning any reason, and the appellant at the time of auction had accepted the same. The Appellate Tribunal had concluded that the Liquidator has the right to cancel the auction any time before the sale is concluded. The sale is successfully concluded only after the total amount is paid, the...

IBC - Liquidator Can't Cancel Valid Auction On Mere Expectation Of Fetching Higher Price; No Unfettered Discretion : Supreme Court

Sheryl Sebastian

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