In a recent appeal case, the National Company Law Appellate Tribunal (NCLAT), Delhi Bench, emphasized the significance of a notice period in e-auctions to obtain the best value, despite the absence of specific timelines in the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
The ruling was made in the case of Naren Seth v Sunrise Industries &Ors, where the NCLAT set aside an e-auction conducted by the Liquidator within an expedited timeframe of five days from issuing the Sale Notice.
The case involved Ciemme Jewels Ltd., which was admitted into the Corporate Insolvency Resolution Process (CIRP) by the National Company Law Tribunal (NCLT). As no resolution plans were received during the CIRP, the NCLT ordered the liquidation of the company, and Mr. Naren Seth was appointed as the Liquidator.
On April 2, 2022, the Liquidator issued a notice for the sale of assets, setting the date of the e-auction for April 8, 2022. However, due to certain errors in the dates provided, the Sale Notice was later revised. Bidders were required to submit their Expression of Interest by April 4, 2022, while KYC (Know Your Customer) details and EMD (Earnest Money Deposit) had to be submitted by April 7, 2022.
The e-auction was concluded by the Liquidator within just five days, including weekends. Some bidders, excluding the Successful Bidder, raised objections, claiming that they were not given sufficient time to participate effectively. As a result, the e-auction conducted on April 8, 2022, was challenged before the NCLT.
The NCLT agreed with the objecting bidders, ruling that the Liquidator had acted hastily and did not provide adequate time to complete the e-auction process. Consequently, the e-auction date was set aside, and the Liquidator was directed to personally bear the cost of any subsequent auction.
Subsequently, the Liquidator appealed the NCLT's decision before the NCLAT.
Upon reviewing the case, the NCLAT Bench, comprising Justice Ashok Bhushan (Chairperson) and Shri Naresh Salecha (Technical Member), highlighted the lack of sufficient time provided to bidders. They noted that only one day was given to submit KYC, followed by three days to deposit an EMD of Rs. 1.15 Crores, and finally, just one additional day to submit bids. In essence, the entire liquidation process was expected to conclude within a mere week.
The NCLAT pointed out that while the Liquidation Regulations did not specify any timelines for e-auctions, it is common practice to grant a notice period of 30 days to ensure the best value is obtained in the auction process.
The Bench supported its opinion by referencing Rule 8(6) of the SARFAESI Security Interest (Enforcement) Rules, 2002, which states that an authorized officer must provide a notice period of thirty days before selling immovable secured assets. The NCLAT inferred that a similar timeline should apply in liquidation proceedings to conduct e-auctions fairly.
In conclusion, the NCLAT set aside the e-auction conducted on April 8, 2022, and emphasized the importance of a 30-day notice period in e-auctions during liquidation proceedings. The ruling serves as a reminder to Liquidators to allow sufficient time for bidders to participate effectively, promoting transparency and ensuring the best possible value for the assets being auctioned. This decision reinforces the principles of fairness and equality in the liquidation process, benefiting all stakeholders involved.