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2020 (8) TMI 915 - AT - Insolvency and BankruptcyAuction sale - Appellant's claim of having statutory lien and charge on the plant and machinery supplied by the Appellant rejected - valuation challenged - rejection on the ground that no security interest has been created, as such - undue unexplained urgency in auction sale - inconsistencies and contradictions in valuation reports procured/relied upon by the Liquidator - case of improper valuation - Plant & machinery sold to the auction purchaser is different from what was valued for auction - Assets advertised under the head "land and building" were sold as part of "plant and machinery" - Items sold to the auction purchaser are undervalued - shell company. Publication of sale notice - HELD THAT:- It is not the case that Stakeholders agreed to shifting of items from Category of "Building" to "Plant and Machinery" after issue of Sale Notice (Annexure - 9). The Liquidator has not argued nor explained before us as to why there is such major difference between Annexure - V of Sale Notice compared with Annexure - V of the information document. Clearly what was sold as "Plant and Machinery" was different and much more than what was advertised in the Sale Notice. How can Reserve Price for "Plant and Machinery" remain same even after embedded huge "structures" were shifted from Block 'A' to Block 'B' in that category? They could not have and should not have been shifted. What was later taken away by the Respondent No. 2 was shocking and still worst. We will discuss that after sometime. Here, we record that there is material difference between what was advertised in Public Notice and what was put in the information document and actually passed on by way of Sale Certificate. The above factors are themselves sufficient to set aside such auction which must be said to be vitiated as there is fundamental defect in putting up the articles for auction. Liquidator failed to prescribe pre-bid Qualifications - Defective Auction process - HELD THAT:- The Regulations required the Liquidator to prescribe pre-bid qualifications. This does not appear to have been done in spite of value and volume of material and thus, with practically one bidder, the auction appears to have been completed of plant and machinery which was in Block 'B'. When the credentials of second bidder did not support it to even deposit 10% EMD (which is returnable), even if it somehow on its own or on behest of someone deposits the EMD, it does not make it genuine bidder. Liquidator failed to prescribe pre-bid qualifications as per Regulations to secure real competition and failed in his duty. This is yet another factor hitting at the auction process which has been conducted. It was defective Auction process with no genuine bidding. Improper Valuations relied on - HELD THAT:- Going through the Valuation Reports, although these are documents by experts, it appears that the Valuers treated different items differently. Someone picked/left some items in building category and someone picked/left the same in plant and machinery category and vice versa. No clear instructions appear to have been given to Valuers by Liquidator (who was earlier RP even in CIRP) with regard to particulars and categories of the assets. The Liquidator appointed Valuers during liquidation but gave up on them midway after taking tentative valuation and jumped to the valuation got done in CIRP - What was the basis for such figure is also not clear. Section 18(1)(a) requires IRP to collect all information relating to the assets of Corporate Debtor. Section 18(1)(f) requires IRP to take control and custody of any asset over which Corporate Debtor has ownership rights. Section 36 of IBC shows how Liquidation Estate is formed. There could not be confusion relating to particulars of the assets. It does appear that there was confusion in Valuation Reports even for categorisation of items of assets in different Blocks and thus, the Reports were improper and not comparable to arrive at liquidation value or to fix average for "Reserve Price". Conduct of Liquidator - HELD THAT:- It is immaterial here as to what were/are the merits of lien/charge or being Secured Creditor claimed by the Appellant. Material is that the Liquidator - a semi-judicial statutory authority behaved in a manner one would not expect such authority to behave. Incidents post issue of Sale Certificate - HELD THAT:- On record, we have Notice dated 28th May, 2019 (Annexure - 14 - Page 429 @ 430) issued by the Appellant to both the Respondents sent by e-mail and courier reminding of its pending claims and details of the developments in litigation and how unknown persons claiming to be representatives of Respondent No. 2 had come to take away plant and machinery from project site claiming that there was Sale Certificate, Schedule of which shows it included Plant and Machinery over which lien/charge is claimed; and that large quantity of Plant and Machinery is removed by them. Appellant claims to have then filed CA 684 of 2019 (Annexure - 15) against the auction on 3rd June, 2019. No proper system put in place by Liquidator - HELD THAT:- On 7th August, 2019, this Tribunal had in Company Appeal (AT) (Ins) No. 802 of 2019 (Annexure - 22) directed the Adjudicating Authority to decide the Appeal of Appellant on an early date and in the meantime, Liquidator was directed not to allow any person to remove the assets in question even if it is sold but if not yet removed. On that date of 07.08.2019, Counsel for Respondent No. 1 kept opposing the Appellant, not telling us that on 05.08.2019, his representative "visited the project site and found" Respondent No. 2 had already removed items worth Rs. 20 Crores illegally and Respondent No. 1 had filed Police Complaint dated 06.08.2019 (see Annexure - 7 - Diary No. 17759). So, after leaving the project site open for Respondent No. 2 (since Sale Certificate dated 20.05.2019), the Representative visits on 05.08.2019 which means none responsible was posted. Else before wrong/illegal lifting of such magnitude, Respondent No. 1 would have known. Respondent No. 1 lacked information and control - HELD THAT:- We do not find that the reasons recorded by the Adjudicating Authority in Paragraphs 91 to 101 of the Impugned Order can be maintained. When there were Orders dated 12th June, 2019 (Annexure - 17) "that movement of goods would be subject to outcome of proceedings", the outcome cannot change only because there was movement of goods. Even if the plant and machinery had been dismantled, that could not have been reason to deny the relief of return of material. The other reason that the Applicant/Appellant was only an Unsecured Creditor and higher proceeds would not go to the Applicant - Appellant was no reason not to cancel the auction. Appellant is admittedly Operational Creditor. Illegality in the process and illegal loss to Corporate Debtor is bound to affect the beneficiaries down the line of Section 53 of IBC. If the auction is illegal, without proper valuation and there was also confusion with regard to what is lifted, declining to take action would amount to rewarding the wrong done. The Appellant had not pursued the provision of Letter of Credit, was also no reason to refuse to cancel the auction - There was no material before the Adjudicating Authority to refer to the Respondent No. 2 as "bona fide purchaser". The reference was made in the passing. When Adjudicating Authority held that it was wrong on the part of Liquidator, to first not decide question of lien/charge and Secured Creditor and could not have issued Sale Certificate clearly dispute was pending litigation. Respondent No. 2 who did not check up, cannot claim to be bona fide purchaser. Similarly, the Adjudicating Authority erred in not giving any restitution. It expressed helplessness claiming that disciplinary proceedings against a Resolution Professional can be taken only by IBBI and that if somebody has unlawfully gained and restitution is to be provided to the person who has suffered loss, the same also can be done only by IBBI. Appellant cannot be treated as Secured Creditor under IBC - HELD THAT:- Considering the provisions (as discussed in detail by the Adjudicating Authority) as found in Section 3(30) which defines "Secured Creditor" and Sections 3(31), 3(33) read with Section 238 of IBC, if benefit is to be taken under the provisions of IBC, it can be done if there was a contractual arrangement/transaction creating security interest in favour of the Creditor. It has to be a security interest which is "created" as such. IBC is complete Code in itself. The Appellant is claiming to be Secured Creditor on statutory basis. Admittedly, the Appellant is not relying on any contractual provision, or transaction creating security interest to claim benefits of lien/charge - the Appellant cannot be treated as Secured Creditor. Appeal allowed.
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