It is not for the court to question the judiciousness of the decision taken by the Liquidator with the idea of enhancing the value of the assets of the Corporate Debtor being put up for sale. The right to refuse the highest bid or completely abandon or cancel the bidding process was available to the Liquidator unless it is shown that process was a malafide exercise
In R. K. INDUSTRIES (UNIT-II) LLP Versus H.R. COMMERCIALS PRIVATE LIMITED, the Supreme Court conducted an overview of the IBC and its relevant provisions along with the Liquidation Regulations to explain the manner in which a Liquidator is expected to proceed for conducting the sale of the assets of the Corporate Debtor in liquidation.
It was pointed out from past experience that judicial delays is one of the major reasons for the failure of the insolvency process. Thus, much emphasis was laid in the BLRC Report on expediting the liquidation process by curtailing the delay to ensure that the assets of the Corporate Debtor do not get frittered away or depreciated due to the time lag. Once the stage of CIRP is over and the process of liquidation is set into motion, it is critical that least time is lost in liquidating the assets of the Corporate Debtor.
This is because a quick, smooth and seamless process of liquidation goes a long way in stemming deterioration of the value of the assets of the Corporate Debtor in liquidation and increases the chances of maximizing the returns to the stakeholders.
The Court expressed the firm view that it is not for the court to question the judiciousness of the decision taken by the Liquidator with the idea of enhancing the value of the assets of the Corporate Debtor being put up for sale. The right to refuse the highest bid or completely abandon or cancel the bidding process was available to the Liquidator unless it is shown that process was a malafide exercise.
The Court held that it is a well-settled principle that in matters relating to commercial transactions, tenders, etc., the scope of judicial review is fairly limited and the court ought to refrain from substituting its decisions for that of the tendering agency [Ref.: State of Madhya Pradesh and Others v. Nandlal Jaiswal and Others 32, Tata Cellular (supra) and Air India (supra)].
In Nandlal Jaiswal and Others (supra), this Court held that while granting a licence for setting up a new industry, the State Government is not under any obligation to advertise and invite offers for the said purpose and that the State Government is well entitled to negotiate with those who have come up with an offer to set up such an industry.
In M & T Consultants, Secunderabad v. S.Y. Nawab and Another, the court concluded as under :
“17. …… It is by now well settled that non-floating of tenders or absence of public auction or invitation alone is no sufficient reason to castigate the move or an action of a public authority as either arbitrary or unreasonable or amounting to mala fide or improper exercise or improper abuse of power by the authority concerned. Courts have always leaned in favour of sufficient latitude being left with the authorities to adopt their own techniques of management of projects with concomitant economic expediencies depending upon the exigencies of a situation guided by appropriate financial policy in the best interests of the authority motivated by public interest as well in undertaking such ventures……..”
The Court also pointed out that the Liquidator was driven by the desire of the stakeholders to complete the liquidation process in the shortest possible time given that the exercise of selling the assets of the Corporate Debtor has been ongoing for about three years, with several litigations spewed throughout to cause further delay. The sooner the curtains are drawn on the process, the better it would be for all concerned.
It was also held that the powers vested in and the duties cast upon the Liquidator have been made subject to the directions of the Adjudication Authority (NCLT) under Section 35 of the IBC. Once the Liquidator applies to the Adjudicating Authority (NCLT) for appropriate orders/directions, including the decision to sell the movable and immovable assets of the Corporate Debtor in liquidation by adopting a particular mode of sale and the Adjudicating Authority (NCLT) grants approval to such a decision, there is no provision in the IBC that empowers the Appellate Authority (NCLAT) to suo motu conduct a judicial review of the said decision. The jurisdiction bestowed upon the Adjudicating Authority [NCLT] and the Appellate Authority [NCLAT] are circumscribed by the provisions of the IBC and borrowing a leaf from Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, they cannot act as a Court of equity or exercise plenary powers to unilaterally reverse the decision of the Liquidator based on commercial wisdom and supported by the stakeholders.
The Court has also observed in the captioned case that “from the legislative history, there is contra-indication that the commercial or business decisions of the financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority.’’ A similar reasoning has prevailed with Respondent in K. Sashidhar v. Indian Overseas Bank and Others44, Committee of Creditors of Amtek Auto Limited v. Dinkar T. Venkatasubramanian and Others45, Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another.
The aforesaid view will apply with equal force to any commercial or business decision taken by the Liquidator for conducting the sale of the movable/immovable assets of the Corporate Debtor in liquidation. The Appellate Authority cannot don the mantle of a supervisory authority for overseeing the validity of the approach of the Liquidator in opting for a particular mode of sale of the assets of the Corporate Debtor, it was held.