Liquidator under IBC cannot cancel auction on expectation of higher bids: Supreme Court

The Supreme Court on Wednesday held that a liquidator who is part of the corporate insolvency and resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC) cannot cancel an auction merely on the expectation that a higher price may be bid for the sale of assets. [Eva Agro Feeds Private Limited v. Punjab National Bank and anr].The Court explained that cancelling a valid auction on such expectations could erode the credibility of the auction process. A Bench of Justices BV Nagarathna and Ujjal Bhuyan made it clear that liquidators of corporate debtors do not hold 'absolute or unfettered discretion' to cancel an auction that is otherwise valid."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," the judgment said..The Court added that after an auction, it is not open to the liquidator to act on third-party communication and cancel the auction unless it is found that fraud or collusion has vitiated the auction."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.".The Court made these observations while setting aside a November 2021 order passed by the National Company Law Appellate Tribunal (NCLAT), New Delhi.In the order under challenge, the NCLAT had allowed a fresh e-auction by the liquidator overseeing the CIRP process of one Amrit Feeds Limited (corporate debtor). Earlier, the National Company Law Tribunal (NCLT), Kolkata had admitted a petition by Huvepharma Sea (Pune) Private Limited against Amrit Feeds, which led to the commencement of the CIRP.The auction held to sell the corporate debtor's assets saw Eva Agro Feeds Limited emerge as the winner, with a bid amount of ₹10 crore. However, the auction was later canceled and Eva Agro Feeds was informed that a fresh auction would be conducted.This prompted Eva Agro Feeds to approach the NCLT for relief. The tribunal disposed of the plea by Eva Agro Feeds after asking it to deposit the balance sale consideration within the time frame mentioned in the e-auction. The liquidator accepted this NCLT order.However, one of the financial creditors of Amrit Feeds Limited, Punjab National Bank (PNB), moved the NCLAT against the NCLT order.The appellate tribunal ruled in PNB's favour, and gave liberty to hold a fresh auction, leading to an appeal before the top court by Eva Agro Feeds Limited.In January 2022, the Supreme Court issued notice in the matter and directed a stay on the scheduled auction..In its judgment passed on Wednesday, the Court found that no reasons were assigned by the liquidator to cancel the earlier auction. "Absence of reasons may be a good reason to draw inference that the decision making process was arbitrary."The top court noted that in the fresh auction, the liquidator had again fixed the reserve price of the property at ₹10 crore. "If this is the position, we fail to find any rationale or justification in rejecting the bid of the appellant and going for another round of auction at the same reserve price," the Court pointed out. .The Court ultimately allowed the appeal and set aside the NCLAT order under challenge..Senior Advocate Neeraj Kishan Kaul appeared for Eva Agro Feeds Private Limited (appellant). He was assisted by a team from AZB & Partners led by Partners Varun Lamba and Parag Maini, Senior Associate Raghav Chadha, and advocate Ira Mahajan.Advocate Rajesh Kumar Gautam appeared for the Punjab National Bank.Advocate Krishnaraj Thakker appeared for Sunil Mohan Acharya, the liquidator of Amrit Feeds Limited.Senior Advocate Siddharth Bhatnagar appeared for an intervenor, Harish Bagla..[Read judgment]