The Supreme Court has held that under the Insolvency and Bankruptcy Code, a liquidator cannot have complete or unrestricted discretion to cancel an auction.
It said so in an appeal filed by Eva Agro Feeds Pvt. against an order of the National Company Law Appellate Tribunal.
The dispute pertained to the cancellation of a sale auction by the liquidator after Eva Agro had won the auction for the assets of the corporate debtor. The liquidator said there was a chance that the property's price could be enhanced further, which led him to cancel the auction and announce a new one.
This led Eva Agro to file a case before the National Company Law Tribunal. The NCLT ruled in its favour by setting aside the new auction and directing Eva Agro to deposit the balance of the sale consideration with the liquidator within the specified time.
This order was challenged before the NCLAT. Subsequently, the appellate tribunal overturned the orders of the NCLT and allowed the liquidator to initiate a fresh auction process.
This prompted Eva Agro to approach the apex court.
The top court held that the highest bidder has no indefeasible right to demand acceptance of his bid. However, if the liquidator does not want to accept the bid of the highest bidder, then he has to apply his mind to the relevant factors before coming to a decision, and such an application of mind must be manifest in the rejection order itself.
It is trite law that furnishing of reasons is an important aspect and acts as a check on the arbitrary exercise of power.Supreme Court of India
Ordinarily, the highest bid may be accepted by the liquidator unless there are statutory infirmities or an element of fraud in the bidding process, the court said.
Interestingly, in this case, after cancelling the auction, the liquidator again fixed the reserve price of the property at the same price as was fixed in the original auction.
In this backdrop, the court could not find any rationale for rejecting Eva Agro's bid and going for another round of auction at the same reserve price.
As a corollary, the court explained that the mere expectation of the liquidator that a higher price may be obtained can be no good ground to cancel an otherwise valid auction.
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