NCLAT held that an extension beyond 90 days for e-auction payment is impermissible, emphasizing the need for strict adherence to liquidation timelines.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed two appeals along with connected IAs and held that the mandatory timeline under Clause 1(12) of Schedule I of the Liquidation Process Regulations, 2016, must be strictly adhered to. It further clarified that neither the liquidator nor the adjudicating authority has the jurisdiction to grant an extension beyond the prescribed 90-day period for payment of balance consideration in an e-auction, rendering any such extension inconsistent with the regulatory framework governing the liquidation process.
The National Company Law Appellate Tribunal (NCLAT) adjudicated upon two appeals filed by a suspended director of the corporate debtor, challenging orders dated 27.02.2024 and 15.07.2024, issued by the National Company Law Tribunal (NCLT), Mumbai Bench, in IA No. 722 of 2024 and IA No. 1693 of 2024, respectively. The Corporate Insolvency Resolution Process (CIRP) against Trans Fab Power India Pvt. Ltd. commenced on 30.08.2019. The appellant, being a suspended director, had submitted a resolution plan, which was approved by the NCLT on 25.03.2021. However, upon failing to execute the plan, the Committee of Creditors (CoC) decided to liquidate the corporate debtor, leading to the adjudicating authority’s order of liquidation dated 28.06.2023.
Subsequently, the liquidator issued an e-auction notice dated 01.09.2023 for the sale of the corporate debtor as a going concern. The respondent, S.M. Electric Works, was declared the successful bidder in an auction held on 27.10.2023, with a bid value of Rs. 6,05,91,998/-. Following the issuance of the letter of intent on 30.10.2023, the successful bidder paid 25% of the bid amount on 25.01.2024, with the remaining 75% due by 28.01.2024. However, the bidder failed to make the balance payment within the stipulated timeline and sought an extension, which was considered in the 6th CoC meeting on 29.01.2024. The Stakeholders’ Consultation Committee (SCC) observed that the extension could not be granted under the Liquidation Process Regulations. Consequently, after 90 days, the liquidator refunded the sale consideration and issued a fresh re-auction notice on 05.02.2024. The successful bidder then filed IA No. 722 of 2024 before the NCLT, seeking an extension of time to make the payment. By an order dated 27.02.2024, the adjudicating authority directed the liquidator to accept post-dated cheques payable within 60 days, along with interest. Aggrieved, the appellant challenged this order before the NCLAT.
Following the NCLT’s order dated 27.02.2024, the successful bidder paid the total consideration along with interest. The liquidator then filed IA No. 1693 of 2024, seeking approval of the sale and certain reliefs and concessions in favour of the successful bidder. The adjudicating authority, through its order dated 15.07.2024, approved the sale and granted the requested reliefs and concessions. The appellant, dissatisfied with this order, filed Company Appeal (AT) (Insolvency) No. 1655 of 2024.
The appellant’s counsel argued that the successful bidder failed to make the full payment within 90 days, as mandated by Clause 1(12) of Schedule I of the Liquidation Process Regulations, 2016. It was contended that the liquidator had correctly cancelled the sale, and neither the liquidator nor the SCC had the authority to extend the payment timeline. The appellant relied on the NCLAT’s decision in Potens Transmission and Power Private Limited v. APEX Buildsys Limited in Liquidation Through Gian Chand Narang, Liquidator, REEDLAW 2024 NCLAT Del 04531 and the Supreme Court’s ruling in V.S. Palanivel v. P. Sriram, CS, Liquidator, Etc., REEDLAW 2024 SC 08577, asserting that the adjudicating authority erred in granting an extension and approving the sale.
Conversely, the successful bidder’s counsel argued that the appellant, being a suspended director, had no locus standi to challenge the orders, as he neither participated in the e-auction nor submitted any bid. It was further contended that the appellant had previously submitted a resolution plan during the CIRP, which failed, leading to liquidation. The appellant’s actions were characterized as an attempt to obstruct the resolution process. It was also noted that the successful bidder had paid the entire amount along with interest, and the SCC had accepted the payment, ensuring distribution to stakeholders. The liquidator’s counsel submitted that all actions were undertaken per the Liquidation Process Regulations. While the sale had been initially cancelled due to non-payment, the subsequent NCLT order allowed the balance amount with interest, which was duly paid, leading to the application for approval of the sale being allowed on 15.07.2024.
After considering submissions from all parties and examining the record, the NCLAT observed that the e-auction was conducted in accordance with the Liquidation Process Regulations, 2016. Clause 12 of Schedule I explicitly required the highest bidder to pay the balance sale consideration within 90 days, failing which the sale was to be cancelled. The appellant argued that this provision was mandatory, and the liquidator had correctly cancelled the sale after the bidder failed to meet the payment deadline. The appellant relied on the decision in Potens Transmission and Power Private Limited v. APEX Buildsys Limited in Liquidation Through Gian Chand Narang, Liquidator, REEDLAW 2024 NCLAT Del 04531 where a similar situation arose, and the tribunal upheld the mandatory nature of the timeline.
The adjudicating authority’s order granting an extension to the successful bidder and subsequently approving the sale was found to be inconsistent with the mandatory timeline under the Liquidation Process Regulations. The NCLAT’s judgment underscored that adherence to statutory timelines is critical to ensuring the efficiency of the liquidation process, emphasizing that the extension granted was beyond the liquidator’s jurisdiction. Based on these findings, the appeal was decided accordingly.
Mr. Abhijeet Sinha, Sr. Advocate with Mr. Prakhar Tandon and Ms. Neha Agarwal, Advocates, represented the Appellant.
Mr. Vadlamani Seshagiri, Ms. Poorvi Avtar, Mr. Ananya Kukreti, Mr. Ankit Bhushan and Ms. P.
Khayti, Advocates, appeared for Respondent No. 3.
CS PS Thakre and Mr. Kanishk Garg, Advocates, appeared for Respondent No. 1.
Mr. Manoj Mishra, Advocate, appeared for Respondent No. 2.
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