Summary
The Court restored the auction purchaser’s relief after a liquidator cancelled a successful bid at the reserve price without reasons or objective material supporting a better outcome. A disclaimer did not confer unfettered cancellation power, and the later express regulatory duty to give reasons recognised an existing obligation. The related-party objection also failed on the facts because the relevant former director had ceased involvement in the corporate debtor more than a decade earlier.
Issues
- Whether auction terms permitted a liquidator to reject the highest bid without reasons merely hoping for a higher price.
- Whether the express reasons requirement inserted after the auction displaced the pre-existing duty of fair decision-making.
- Whether the purchaser was disqualified by its director’s former relationship with the corporate debtor.
Provisions considered
- Schedule I, paragraphs 1(11), 1(11A), 1(12) and 1(13), Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016The auction framework permitted multiple rounds but not arbitrary rejection; the reasons provision made explicit an existing duty, while the payment provisions governed completion. (¶¶ 28.1, 29, 35, 37, 37.1, 38, 42)
- Sections 5(24), 5(24A), 29A and 35(1)(f), Insolvency and Bankruptcy Code, 2016The statutory eligibility restriction applied to liquidation sales, but the asserted historical relationship did not establish the purchaser’s ineligibility in the circumstances. (¶¶ 23.1, 44, 45, 46, 47, 48, 49, 50)
Held
- Although the highest bidder has no indefeasible right to acceptance, the liquidator must apply his mind to relevant factors and disclose reasons for rejection. Auction disclaimers cannot override the Code, Regulations or the duty to avoid arbitrariness. (¶¶ 29, 30, 31, 32, 33, 34, 34.1)
- The insertion of paragraph 1(11A) did not imply that earlier bids could be rejected without reasons. It expressly recognised the already applicable principle of reasoned decision-making. (¶¶ 28.1, 29, 35)
- Mere hope of a higher price did not justify cancelling this otherwise valid auction. There was no objective material supporting cancellation, and the next auction retained the very reserve price matched by the appellant. Later third-party interest could not justify upsetting the auction absent vitiating fraud or collusion. (¶¶ 38, 39, 40, 41, 42)
- The alleged related-party disqualification lacked substance on these facts: the person relied upon had ceased to be involved in the corporate debtor’s affairs over a decade earlier and was neither in charge nor influential when the appellant bid. The statutory relationships were assessed in their business context. (¶¶ 47, 47.1, 48, 48.1, 49, 50)
Result
Appeal allowed. NCLAT order dated 30 November 2021 set aside and NCLT order dated 12 August 2021 restored. No costs.