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Eva Agro Feeds Private Limited vs. Punjab National Bank and Anr.

Civil Appeal · 2023 INSC 809Decided 6 Sept 2023
Civil Appeal No. 7906 of 2021
B.V. Nagarathna · Ujjal Bhuyan

Background

In liquidation proceedings against a corporate debtor (Amrit Feeds Limited), the Liquidator put certain factory assets up for e-auction. The appellant, Eva Agro Feeds Private Limited, was the highest (and sole) bidder at the reserve price of Rs. 10 crore and was issued an E-auction certificate declaring it the winner. The very next day, however, the Liquidator cancelled the auction, citing a clause reserving his "absolute right" to cancel without giving reasons, and stated he wanted a fresh auction hoping for a higher price (partly because a similarly-valued lot had recently fetched a much higher bid, and partly because of an anonymous tip that the appellant's director had once been a promoter of the corporate debtor). The National Company Law Tribunal (NCLT) ordered the Liquidator to let the appellant complete the purchase, but the National Company Law Appellate Tribunal (NCLAT), on Punjab National Bank's appeal, reversed this and allowed a fresh auction, leading to the present appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that under the IBC Liquidation Process Regulations, once the highest bid is accepted and the earnest money is paid, an auction reaches a stage where the Liquidator cannot simply cancel it based on a mere hope or expectation that a higher price might be obtained in a fresh round, especially since the very next re-auction notice fixed the same reserve price of Rs. 10 crore that the appellant had already bid. The Court held that a Liquidator's discretion to cancel is not absolute or unfettered even where a contract clause purports to grant it, and that post-auction cancellation based on unverified third-party allegations is impermissible unless fraud or collusion is actually shown to have vitiated the auction. On the "related party" objection, the Court found that the appellant's director had ceased to have any role in the corporate debtor over a decade before the auction, so he could not be treated as an ineligible "related party" under Section 29A of the Code at the relevant time. The Supreme Court therefore set aside the NCLAT's order and restored the NCLT's order directing completion of the sale in the appellant's favour.

Lesson Learnt

In an insolvency liquidation sale, once a valid e-auction concludes with an accepted highest bid, the liquidator cannot cancel it merely in hopes of a better price later: such discretion is not unlimited, and cancellation after the fact requires real evidence of fraud or collusion, not speculation or unverified rumors about the bidder.

Official source (sci.gov.in)View Judgment (PDF)

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