Mere Expectation of a Higher Price Not a Valid Ground for Cancellation of a Valid Auction: Supreme Court
In a landmark decision dated September 6, 2023, a bench comprising Justice B. V. Nagarathna and Justice Ujjal Bhuyan of the Supreme Court clarified the scope of a Liquidator’s discretionary powers and the eligibility criteria for ‘related parties’ in an auction under the Insolvency and Bankruptcy Code, 2016.
The case revolved around an auction for a property conducted by a Liquidator. The appellant emerged as the highest bidder but later found their bid canceled by the Liquidator. The Appellate Tribunal set aside the original Tribunal’s order, leading the appellant to appeal to the Supreme Court.
The Court observed that the “highest bid in an auction should ordinarily be accepted by the Liquidator unless marred by statutory infirmities, collusion, or fraud.” The Court further noted that the Liquidator “does not possess absolute or unfettered discretion to cancel an auction” and must act within an administrative framework governed by the rule of law.
The Court also clarified the eligibility criteria for ‘related parties’ under Section 29A of the Insolvency and Bankruptcy Code, 2016. The Court stated that the appellant was not disqualified as a ‘related party’ as the related party had “ceased to be in control of the corporate debtor more than a decade ago.”
The Supreme Court set aside the Appellate Tribunal’s order and restored the original Tribunal’s order. The Court concluded that the Appellate Tribunal was “not justified in setting aside the order of the Tribunal.”
This judgment is expected to have far-reaching implications on the auction and liquidation process in insolvency cases. It sets a precedent for the limitations on the discretionary powers of Liquidators and clarifies the eligibility criteria for ‘related parties’ in auctions.
Date of Decision: 06.09.2023
EVA AGRO FEEDS PRIVATE LIMITED vs PUNJAB NATIONAL BANK AND ANR.
