2025 (5) TMI 1616 - HC - Indian Laws

Challenged the DRAT order directing to deposit 50% of the disputed amount as a condition for appeal - Principles of auction sales under the Recovery of Debts Due to Banks and Financial Institutions Act - Sanctity of auction - locus standi - Acceptance of a higher bid after acceptance of initial bid and partial compliance - HELD THAT - In view of the statement made by Shri Ravi that the offer made by GRT Hotels and Resorts Private Limited is acceptable to respondent No.1 Shri Omprakash states that petitioners will not pursue the appeal before the DRAT. Shri Ravi states that the amount deposited by respondent No.6 will be refunded upon the Registrar General transferring the amount of Rs. 120 Crores to respondent No.1. Shri Ravi hastened to add that the request for release of the amount will be made upon confirmation of sale to the GRT Hotels and Resorts Private Limited. The sale certificate shall be handed over simultaneously with the receipt of the amount Rs. 120 Crores either from the Registrar General or directly. The Registrar General shall transfer the amount to respondent No.1 without any deduction with accumulated interest if any within one week of receiving a request from petitioners/respondent No.1 Petition is disposed of accordingly. There shall be no order as to costs. WMP No.1244 of 2025 filed to permit the petitioners to file a single writ petition is allowed inasmuch as they have paid separate court-fee. Other interim applications stand closed. We make it clear that we have not decided or considered whether petitioners have locus to maintain the appeal before the DRAT or on any other issues raised by petitioners in the proceedings before the DRT DRAT NCLT or NCLAT. This order has been passed only to record respondent No.1 has agreed to accept the offer of GRT Hotels and Resorts Private Limited and return respondent No.6 s deposit.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the petitioners can be directed to deposit 50% of the disputed amount as a condition for maintaining the appeal before the Debt Recovery Appellate Tribunal (DRAT).

- Whether the financial creditor (respondent No.1) can accept a higher offer from a third party after having accepted the bid of respondent No.6 and partially complied with the conditions of sale.

- Whether the sanctity of the auction process is violated if a higher bid is accepted after conclusion of sale and partial compliance by the initial bidder.

- The locus standi of the petitioners to file an appeal before the DRAT.

- The legality and propriety of the arrangement entered into between respondent No.1 and GRT Hotels and Resorts Private Limited (the intending purchaser introduced by petitioners) to accept a higher bid and refund the initial bidder's deposit.

- Whether the Court should interfere with the order of the DRAT directing deposit of 50% of the disputed amount.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Direction to deposit 50% of the disputed amount as a condition for appeal

The petitioners challenged the DRAT order directing them to deposit Rs. 35.96 crores (50% of Rs. 71.93 crores) to maintain their appeal. The petitioners argued that such a condition is onerous and should not be imposed on them.

The Court did not directly decide on the propriety of this condition or the locus of petitioners to appeal before the DRAT. Instead, it observed that it had not considered or decided on these issues. The Court's order was limited to recording the acceptance of a higher bid by the financial creditor and related procedural directions. Hence, the question of the deposit condition was left open for adjudication by the appropriate forum.

Issue 2: Acceptance of a higher bid after acceptance of initial bid and partial compliance

The core legal framework governing this issue involves the principles of auction sales under the Recovery of Debts Due to Banks and Financial Institutions Act and related rules, which emphasize the finality and sanctity of auction sales conducted by the Authorized Officer.

Respondent No.6 had offered Rs. 108 crores, which was accepted by respondent No.1, and respondent No.6 had partially complied with the conditions of sale by depositing Rs. 71.93 crores. Petitioners, through GRT Hotels and Resorts Private Limited, offered Rs. 120 crores, a higher amount.

Counsel for respondent No.6 contended that allowing the financial creditor to accept a higher offer after concluding the sale and partial compliance by the initial bidder would defeat the sanctity of auction and violate the legal framework governing such sales.

The Court, however, considered the interest of value maximization for the creditor, noting that the debt was approximately Rs. 135 crores, and a better price would benefit the financial creditor and ultimately the asset reconstruction company (ARC).

On instructions, respondent No.1 agreed to accept the higher bid of Rs. 120 crores and refund the amount deposited by respondent No.6, subject to confirmation of sale and procedural compliance.

The Court did not expressly rule on the legal correctness of accepting a higher bid post-acceptance but allowed the arrangement in the interest of maximizing recovery, implicitly recognizing the creditor's discretion in sale acceptance to realize better value.

Issue 3: Sanctity of auction process and effect of accepting higher bid

The competing argument was that accepting a higher bid after sale conclusion and partial deposit by the initial bidder undermines the auction's sanctity and finality.

The Court balanced this concern against the creditor's right to maximize recovery and the public interest in realizing the highest value for the mortgaged property, especially given the debt amount exceeding the initial bid.

The Court's order reflects a pragmatic approach, prioritizing value realization over rigid adherence to auction finality in this context.

Issue 4: Locus standi of petitioners to file appeal before DRAT

Respondent No.6 challenged the petitioners' locus to file appeal before DRAT, suggesting that they should comply with the DRAT order and agitate all points before that forum.

The Court explicitly stated that it has not decided or considered the petitioners' locus to maintain the appeal or any substantive issues raised before DRT, DRAT, NCLT, or NCLAT.

This issue remains open for determination by the appropriate tribunal.

Issue 5: Legality of arrangement between respondent No.1 and GRT Hotels and Resorts Pvt. Ltd.

The arrangement involved GRT Hotels and Resorts Pvt. Ltd. depositing Rs. 120 crores with the Registrar General, which respondent No.1 agreed to accept as a higher bid, with the condition that respondent No.6's deposit be refunded upon confirmation of sale.

Respondent No.6 opposed this arrangement as contrary to law.

The Court, however, recorded the acceptance of this arrangement by respondent No.1 and directed procedural compliance, including transfer of funds and issuance of sale certificate, without expressing any legal objection to the arrangement.

This reflects the Court's recognition of the parties' autonomy to agree on sale terms within the legal framework, provided procedural safeguards are met.

Issue 6: Interference with DRAT order directing deposit

The Court did not interfere with the DRAT order. Instead, it disposed of the petition on the basis of the parties' agreement to accept the higher bid and refund the earlier deposit.

The Court clarified that it has not adjudicated on the merits of the DRAT order or the petitioners' locus, limiting its order to the procedural aspect of acceptance of the higher bid and related directions.

3. SIGNIFICANT HOLDINGS

"We make it clear that we have not decided or considered whether petitioners have locus to maintain the appeal before the DRAT or on any other issues raised by petitioners in the proceedings before the DRT, DRAT, NCLT or NCLAT. This order has been passed only to record respondent No.1 has agreed to accept the offer of GRT Hotels and Resorts Private Limited and return respondent No.6's deposit."

This statement preserves the Court's limited scope of intervention, emphasizing that substantive issues remain open for adjudication by the appropriate forums.

The Court established the principle that the financial creditor may accept a higher bid post-acceptance of an earlier bid if it serves the interest of value maximization and recovery, subject to procedural safeguards and parties' consent.

The final determination was to allow the higher bid of Rs. 120 crores to be accepted, direct the refund of the earlier deposit, and dispose of the petition accordingly, without costs.