TMI Blog2021 (12) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... already been spent in the liquidation process without any fruitful results. The specific context in which an auction is carried out can only elucidate the aspect of arbitrariness and favouritism or otherwise. Thus, in the present appeal where the Impugned Order challenging the stoppage of second Swiss Challenge Process and taking up a fresh private sale process has been challenged, it is seen that the decision of the stakeholders and the liquidator, upon which the Adjudicating Authority has based its order does not grant any particular party any favour. It is driven by the stakeholders wish to get the liquidation process concluded early without losing sight of maximization of value of assets. Also, even though this is a private sale as opposed to sale by a government authority, we are of the opinion that the standards and norms of transparency, fairness and responsibility should be adopted without any qualification or reservation and all prospective bidders should get sufficient notice and time to enable them to participate in the bidding in an effective manner. The process should be taken up after proper notice to prospective buyers and not limited to chosen few. The impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on process till next date of hearing. 3. M/s. Welspun Steel Resources Private Limited(in short WSRPL , Respondent No.8 in this Appeal) approached the Hon ble Supreme Court assailing the order passed by this Tribunal on 2.9.2021 (supra). The Hon ble Supreme Court was pleased to pass the following order in Civil Appeal No. 5855 of 2021 (D.No.21206/2021):- Taking into consideration the fact that the instant appeal has been filed against an interim order, and the Company Appeal is listed for hearing on 27.9.2021, before the NCLAT, without expressing any opinion on the merits of the case, we direct the NCLAT to dispose of the matter, pending adjudication before it, in accordance with law expeditiously, preferably within two months. 4. The above order of Hon ble Supreme Court was presented before us on 27.9.2021. This Tribunal, on the request of the Learned Senior Counsels for M/s. Welspun Steel Resources Private Limited and M/s Kanter Steel India Private Limited, ordered that both M/s. Welspun Steel Resources Private Limited and M/s. Kanter Steel India Private Limited be impleaded as respondents. Consequently, the Appellant (R.K. Industries (Unit II) LLP) impleaded M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in buying the Dahej metals and scrap (hereinafter called Dahej Materials ) at amounts higher than the reserve price of the Dahej Materials fixed in the last fifth-round of the e-auction, which was ₹ 516 crores. After the stakeholders committee decided to go for sale of Dahej Materials after taking note of the offer, and also decided that prospective bidders should be encouraged to participate in the Swiss Challenge Process for private sale of the Corporate Debtor s assets, the liquidator undertook the sale of Dahej Materials through private sale adopting the Swiss Challenge Process. 9. In pursuance of this order for private sale, the Swiss Challenge Process was adopted for sale of assets. The first stage of the first Swiss Challenge Process (which was to decide the anchor bidder) started on 12.3.2021 wherein the liquidator received the highest offer of ₹ 510 crores (against the base price of ₹ 523 crores) from one of the potential buyers (called the highest offerer ). The highest offerer failed to deposit the earnest money amount of 10% of the reserve price, have the process halted and became unsuccessful. It was decided by the Stakeholders Consultative c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. This IA No. 273 of 2021 was decided by the Adjudicating Authority vide order dated 7.4.2021 qua which the Liquidator was directed to complete the second Swiss Challenge Process up to announcement of highest bidder and carry out further process after 12.4.2021. The stay order granted by the Adjudicating Authority on 7.4.2021 was extended twice as IA No. 273/ 2021 could not be decided and was pending consideration. Thereafter R. K. Industries filed CA (AT)(Ins) 374-375/2021 before Hon ble NCLAT against orders dated 7.4.2021 and 27.4.2021 passed in IA no. 273/2021. This Tribunal in its order dated 18.6.2021 in CA (AT)(INS) No. 374-375 of 2021 directed the Adjudicating Authority to decide application IA 273/2021on priority basis, preferably by 20.7.2021. This application IA no. 273 was finally decided on 16.8.2021 through the Impugned order. 13. Around the same time, Kanter Steel India Pvt. Ltd. and Chinar Steel Segment Center Pvt. Limited filed IAs No. 379 of 2021 and 527 of 2021 respectively, for quashing the second Swiss Challenge Process. 14. On 19.5.2021, WSRPL (Respondent No.7) informed the liquidator regarding its interest in buying the Dahej materials and land of ABG s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g entertaining a consolidated offer from WSRPL whereupon order was passed by the Adjudicating Authority on 16.8.2021 (the Impugned Order) allowing the liquidator to cancel the second Swiss Challenge Process and consider the offer of WSRPL for sale of composite assets while allowing other interested bidders to participate in the bidding process. 18. We heard detailed arguments presented by the Learned Senior Counsels/Counsels of all the parties and the appeal memo, pleadings and written submissions were also duly considered. 19. The Learned Counsel for Appellant has argued that while the second Swiss Challenge Process was going on, the liquidator asked WSRPL (Respondent No.7) to deposit an amount of ₹ 32.50 crores, which is 5% of the offer price of ₹ 650.00 crores in the form of the bank guarantee without any order from the Adjudicating Authority. This shows undue haste and apparent malafide on the part of the liquidator to create rights in favour of WSPRL. He has further argued that the liquidator asked WSRPL to submit confidentiality agreement and affidavit under section 29A of the IBC without any formal order from the Adjudicating Authority till that time. He ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is on 30 years lease under an agreement dated 26.3.2008 with Gujarat Maritime Board(GMB) andthe liquidator cannot conduct sale of such land which is acquired on lease without the approval GMB, as is stipulated in clause 24 of the agreement (attached at page 607 of the Appeal paperbook, Vol. III). Thus it is clear that in accepting the offer of WSRPL, the liquidator is playing along with the WSRPL whose aim is to subvert the ongoing Swiss Challenge Process. 22. In addition, the Learned Counsel for Appellant presented the following arguments :- (i) The liquidator has made a statement before the Adjudicating Authority that the removal of metals and scrap material from Dahej site would take 15 to 18 months even though the Appellant has stated in his e-mail dated 23.3.2021 (attached at pg. 110 0f Appeal paperbook, Vol.I) addressed to the liquidator that he would require atleast 15 to 18 months to pick up the assets and the corresponding time given in Bid Documents is 9-12 months. Thus the liquidator has over-stated the period as 15 to 20 months (as recorded in the Impugned Order at pp.73-74 of the Appeal paperbook) to only strengthen a misleading argument to remove the Dahej M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess will not yield beneficial results and could result in delay the sale process. While the Appellant has no vested right and is only the anchor bidder in the second Swiss Challenge Process, it is raising the issues of lack of transparency, reasonableness and following of due procedure of law in this appeal. 23. Arguments of the Learned Counsel of the Liquidator (Respondent No. 2) (i) The Appellant has no vested right to challenge the private sale process, as mere participation or selection of the Appellant as the anchor bidder in the second Swiss Challenge Process does not give him any right to have the process concluded in his favour. Moreover, the Appellant had submitted an affidavit dated 23.3.2021 (attached at pages 83-88 of the reply affidavit of Respondent No. 2 Liquidator, Dy. No. 29873 dated 20.9.2021) binding himself unconditionally and irrevocably to the terms of the Swiss Challenge Process document, which includes being bound by the decision of the liquidator to cancel/abandon/modify the Swiss Challenge Process at any time solely at his discretion. Having accepted the terms of anchor bid process document, it does not lie with the Appellant to challenge the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjudicating Authority dated 9.8.2021 and there are no orders recorded to that effect. 24. Arguments of Learned Counsel of WSPRL:- (i) The objective of IBC is maximisation of value of assets of Corporate Debtor and their disposal in a time-bound manner. Therefore, time taken in disposal is critical for realising maximum value from the assets. (ii) Time required for removal of metal scrap from the site would be about 12 to 18 months and sale of other assets can only commence after the metals and scrap is removed. (iii) The Swiss Challenge Process began in March 2021 and in April 2021 it was stayed vide order of Adjudicating Authority. In the meanwhile, WSRPL wrote to liquidator about its interest in the purchase of assets without including the assets that are sub-judice. It was given permission to inspect the assets on the order of the Adjudicating Authority, which was not challenged. (iv) The Stakeholders Committee, after considering all the facts, took the decision to cancel the second Swiss Challenge Process and the Adjudicating Authority has recognised this fact in the Impugned Order. (v) The process document dated 22.3.2021 for selection of anchor bidder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of arguments has submitted that IAs have been filed objecting the e-auction process undertaken by the Liquidator for the sale of Dahej metal, scraps and assets. He further submitted that the removal of metals scrap will take 15 to 20 months and after removal of the same he has to go in for sale of land and buildings, which will delay the Liquidation process. He further submitted that he has received a bid for purchase of metals Scrap and land and Buildings at Dahej. If these assets are sold in one go, it will save time and maximise value to the stakeholders. Hence, he is going for cancellation of present auction process in consultation with the stakeholders as terms and conditions of auction process document provide for the same and initiate a new auction for sale of Metals Scrap and Land and Buildings as a whole at Dahej. Since, the Liquidator is going for new auction, and the tender document allows him to do so, the objections of the Applicant in various IAs except No. 332 of 20212 and I.A. No. 371 of 2021 will not survive. It is seen from the record that the sale process is delayed for almost three years. Hence, we direct the Liquidator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets. The Appellant M/s. HR Commercials Private Limited was declared as anchor bidder in the second Swiss Challenge Process on 23.4.2021 and had deposited ₹ 43.10 crores as 10% of the bid amount along with affidavit of undertaking as proof of its seriousness to go through the second Swiss Challenge Process. IAs were filed by M/s. HR Commercials Private Limited (Respondent No. 1) before the Adjudicating Authority, whereupon a partial stay was imposed on 7.4.2021 and again on 3.5.2021. During the pendency of this IA, WSRPL sent an e-mail dated 19.5.2021 to the liquidator evincing interest in the consolidated assets. 32. It is thus clear that there were no takers for the composite assets of the Corporate Debtor at the announced reserve price in the five failed rounds of e-auction. 33. The various rounds of open sale (all of which failed), the two Swiss Challenge Processes and the offer from WSRPL have been tabulated below for ready reference: S.no Process Date Decided in SCC/ Adjudicating Authority Date when process started by liquidator Assets Included Reserve Price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced below:- 33. Mode of sale. (1) The liquidator shall ordinarily sell the assets of the corporate debtor through an auction in the manner specified in Schedule I. (2) The liquidator may sell the assets of the corporate debtor by means of private sale in the manner specified in Schedule I when (a) the asset is perishable; (b) the asset is likely to deteriorate in value significantly if not sold immediately; (c) the asset is sold at a price higher than the reserve price of a failed auction; (d) the prior permission of the Adjudicating Authority has been obtained for such sale: Provided that the liquidator shall not sell the assets, without prior permission of the adjudicating Authority, by way of private sale to (a) a related party of the corporate debtor; (b) his related party; or (c) any professional appointed by him. 35. The relevant provisions regarding Stakeholders Consultation Committee in Section 35 (2) of IBC and Regulation 8 of Liquidation Regulations, 2016 are as follows:- Section 35 (2) of IBC:- The liquidator shall have the power to consult any of the stakeholders entitled to a distributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efusing the bid must be free from arbitrariness or favouritism. Also, Hon ble Supreme Court has held in Laxmikant and Ors. vs. Satyawan and Ors. (supra) that the right of the highest bidder has to be examined in the context of the conditions under which such auction has been held, and no right had accrued to the highest bidder under conditions of the sale which were notified before the public auction was held Hon ble Supreme Court has held in Ramana Dayaram Shetty vs. International Airport Authority of India and Ors. (supra) that International Airport Authority of India had allowed another inexperienced tenderer to participate and the same was awarded, and others were denied equality of opportunity and, in the circumstances, acceptance of tender was invalid as being violative of equality clause of Constitution as also of rule of administrative law inhibiting arbitrary action. 39. It is clear from the ratio of the above mentioned judgments that the specific context in which an auction is carried out can only elucidate the aspect of arbitrariness and favouritism or otherwise. Thus, in the present appeal where the Impugned Order challenging the stoppage of second Swiss Challenge Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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