J U D G M E N T
VIKRAM NATH, J.
5.1. According to Respondent No.1, it is a settled position that any auction sale, before completion, can always be cancelled. Tribunal had overlooked the provisions contained in Clause-13 of the Regulations which makes it clear that auction sale shall stand completed only on payment of full amount and not at the stage when the highest bidder is invited to provide balance sale consideration within 90 days from the date of demand. Tribunal relied upon Clause 12 of the Regulations as per which, on the closure of auction, the highest bidder shall be invited to provide the balance sale consideration within 90 days of the date of demand; first proviso mentions that payments made after 30 days would attract interest of 12% with the second proviso clarifying that the sale would be cancelled if the payment is not received within 90 days. According to Respondent No.1, Tribunal by placing reliance on Clause 12 mis-directed itself in directing the Liquidator to send a communication to the appellant for depositing the balance sale consideration within the time specified in the E-auction notice.
5.2. There is no express bar or prohibition either under the Code or under the Regulations restraining the Liquidator from cancelling an auction sale even after declaration of the highest bidder but before completion of sale as understood under Clause 13 of the Regulations. In the absence of such express bar or prohibition and when the auction sale was yet to be concluded, Liquidator was well within his rights in cancelling the auction sale with the intent to have another round of auction sale. Tribunal had erred in interfering with such action of the Liquidator.
5.3. Appellant had accepted the terms and conditions of the auction sale notice while participating in the auction sale, including Clause 3 (k). Therefore, it was not open to the appellant to question the decision of the Liquidator to cancel the auction sale.
5.4. Respondent No.1 has also alleged that the appellant had made incorrect statements in the appeal and did not bring on record relevant documents. It is stated that Respondent No.2 in his written submission before the Tribunal had stated that he was informed by way of e-mail dated 05.08.2021 by Kapila Krishi Udyog Pvt. Ltd. that the promoters of the appellant were also the founder promoters of the corporate debtor. On receipt of such e-mail, Liquidator verified the record and found that one of the present directors of the appellant, Mr. Vijay Kumar Ghidia was a director of the corporate debtor from its inception i.e. 22.09.1994 to 13.01.2009. Liquidator had submitted that later on it had received letter dated 05.08.2021 from Sugna Feeds Pvt. Ltd. expressing its intention to participate in the auction sale of the subject property. It was contended that Sugna Feeds Pvt. Ltd. is a well-established player in the poultry feeds sector, whereas appellant was incorporated only on 09.07.2021 i.e. after issuance of the E-auction sale notice.
5.5. Appellant while submitting its bid vide application dated 16.07.2021 had accepted the terms and conditions of the auction process shared by the Liquidator which contained paragraph-7. Paragraph-7 is specific: it mentions that applicant would adhere to the terms and conditions of the E-Auction Process Information Document as shared by the Liquidator.
6.1. By an E-auction notice dated 02.06.2021, the assets of the corporate debtor being, inter alia, poultry feed farms at Lucknow (Lot No.2) and Mirzapur (Lot No.3) were put up for auction with reserve prices of Rs.11.30 crores and Rs. 12.69 crores respectively. By an e-mail dated 07.06.2021, respondent No. 2 had forwarded the E-auction notice to the prospective bidders, including to the appellant. However, as no bids were received in respect of any of the assets of the corporate debtor, reserve prices were reduced by 25% as provided in the Regulations, whereafter Lot No.2 and Lot No.3-subject property, with revised reserve prices of Rs.8.50 crores and Rs. 10.00 crores respectively were again put up for auction vide E-auction notice dated 28.06.2021. By an e-mail dated 29.06.2021, the E-auction notice along with E-Auction Process Information Document were sent to the prospective bidders, including the appellant.
6.2. Before the date of auction on 20.07.2021, earnest money deposit (EMD) was paid by the appellant and another intending bidder both for Lot No.2 and the subject property. Five minutes before the scheduled closure of bidding time there was a spurt of counter bids for Lot No.2 by the appellant and the other bidder, taking the price from Rs.8.50 crores to Rs.14.79 crores. The pattern of bidding in respect of Lot No.2 and the fact that the same two entities had submitted EMD for the subject property, but the bid being ultimately made only by the appellant led Respondent No.2 to believe that higher bids could be received for the subject property on further re-auction.
6.3. According to Respondent No.2, the subject property had a cost of Rs.17.30 crores and written down book value of Rs.8.59 crores as compared to Lot No.2, which had cost of Rs.9.28 crores and written down book value of only Rs.2.45 crores. However, Lot No.2 was sold for Rs.14.39 crores as against its reserve price of Rs.8.50 crores. Respondent No.2 therefore expected a price higher than Rs.10 crores for the subject property as Lot No.2 despite having a substantially lower worth as per the available record had fetched bids higher than Rs.10 crores.
6.4. For the aforesaid reasons and to maximise the value of the subject property which would enure to the benefit of all stakeholders, Respondent No.2 thought it prudent to explore the possibility of further price enhancement in respect of the subject property and therefore decided to cancel the auction for the subject property.
6.5. In support of the above averments, Respondent No.2 has referred to certain terms and conditions in the E-auction notice and the E-Auction Process Information Document. Clause 3(f) binds the applicant to accept the terms of the disclaimer, which forms an integral part of the E-Auction Process Information Document. Clause 3 (k) says that the Liquidator has the absolute right to accept or reject any or all bids or adjourn/postpone/cancel the E- auction or withdraw any asset/property or portion thereof from the E-auction at any stage without assigning any reason thereof. As per Clause 5 (m), the bidder with the highest offer/bid does not get any right to demand acceptance of his bid. Clause 5 (n) provides for intimation to be sent to the successful bidder via e-mail. Date of sending the mail would be considered as the date of receipt of the intimation. As per Clause 2 (h), on the close of the auction, the highest bidder shall be invited to provide balance sale consideration within 90 days of the date of such demand. Clause 2 (i) makes it clear that on payment of the full amount, the sale shall stand completed. The Liquidator shall then execute certificate of sale or sale deed to transfer such assets and thereafter the assets shall be delivered to the highest bidder in the manner specified in terms of the sale.
6.6. Respondent No.2 has contended that while submitting its bid for the subject property, the appellant was well aware of the terms and conditions governing the sale by auction. Appellant expressly accepted the aforesaid terms and conditions while submitting its application dated 16.07.2021 for participating in the auction bid process. According to him, on expiry of the time to submit bids on 20.07.2021, an auto generated e-mail from the web portal of ‘eauctioneer.com’ was sent to the appellant stating that the bid submitted by it was the highest.
6.7. Thereafter, by an e-mail dated 21.07.2021, Respondent No.2 informed the appellant about cancellation of E-auction held on 20.07.2021 under Clause 3(k) of the E-Auction Process Information Document. Appellant was advised to collect the EMD as a fresh E-auction sale was to be conducted.
6.8. Respondent No.2 has mentioned that he had received an e-mail dated 10.09.2021 from one Mr. Amit Ghidia alleging that the directors of the appellant were also the founder promoters of M/s. Amrit Feeds Limited, the corporate debtor. On receipt of such e-mail, Respondent No.2 carried out inspection and upon verification came to know that one of the present directors of the appellant, Mr. Vijay Kumar Ghidia was a director and the principal shareholder of the corporate debtor during the period 22.09.1994 to 13.08.2019. Respondent No.2 has also mentioned that appellant was incorporated only in July, 2021.
6.9. Referring to the proceeding before the Tribunal instituted by the appellant, he submits that the application filed by the appellant against cancellation of the E-auction was taken up for hearing on 29.07.2021 and concluded on the same day without giving any opportunity to Respondent No.2 to file reply. However, the parties were permitted to file written submissions which were duly filed by Respondent No.2.
6.10. By order dated 12.08.2021, Tribunal allowed the application of the appellant and directed Respondent No.2 to send a communication to the appellant for depositing the balance sale consideration within the time specified in the E-auction notice.
6.11. Punjab National Bank i.e., Respondent No.1, a financial creditor of the corporate debtor, having claims of Rs.136,61,93,948/- assailed the order dated 12.08.2021 before the Appellate Tribunal. In such proceedings, Respondent No.2 supported the stand of Respondent No.1. Appellate Tribunal by order dated 30.11.2021 allowed the appeal of Punjab National Bank and directed Respondent No.2 to initiate a fresh process of auction in accordance with the provisions of the Code and the Regulations.
6.12. It is stated that after the order dated 30.11.2021 was passed by the Appellate Tribunal, Respondent No.2 had sent an e-mail dated 02.12.2021 calling upon the appellant to comply with the order of the Appellate Tribunal and to handover peaceful possession of the subject property. As there was no response from the appellant, Respondent No.2 made several calls to Navneet Kumar Ghidia, Director of Eva Agro Feeds Pvt. Ltd. on his mobile phone but the calls went unanswered. Appellant did not allow even the representative of Respondent No.2 to enter into the subject property. That apart, representative of Respondent No.2 had informed him that the appellant was wrongfully removing materials and equipments from the subject property.
6.13. It is further stated that subsequent to cancellation of the E- auction sale of the subject property, Respondent No.2 had received a letter dated 05.08.2021 from Sugna Feeds Pvt. Ltd., a well-established player in the poultry feeds sector, expressing its intention to participate in the auction of the subject property. It is stated that in addition to the above, respondent No.2 had received an e-mail dated 20.08.2021 from IFFCO KISAN Delhi, a subsidiary company of Indian Farmers Fertilisers Cooperative (IFFCO) expressing its interest in the assets of the corporate debtor.
6.14. In the above circumstances, Respondent No.2 has contended that cancellation of E-auction was justified and was done in the best interest of the stakeholders of the corporate debtor.
7.1. While reiterating its contentions, appellant has stated that the adjudicating authority i.e., the Tribunal had rightly set aside the decision of the Liquidator (Respondent No.2). Respondent No.2 after issuing the certificate certifying that appellant had won the auction of the subject property, cancelled the E-auction without giving any justification or reason for such cancellation. Referring to Clause 3 (a) of the E-Auction Process Information Document, appellant has contended that the said clause is contrary to the Regulations. In the facts and circumstances of the case, Respondent No.2 could not have cancelled the auction. Such act of cancellation of E-auction was wholly illegal and arbitrary. In this connection, reliance has been placed upon para 1(12) of Schedule I to the Regulations. Appellant was the highest and sole bidder in the second round of auction and its bid amount matched the reserve price as mentioned in the sale notice. Reserve price in the first round of auction was fixed at Rs.12,69,00,000/-. However, as the auction sale did not materialise, Respondent No.2 in the second round reduced the reserve price in order to get bidders to at least match the reserve price. This was done successfully by the appellant whereafter appellant was informed that it had won the bid. Action of Respondent No.2 in cancelling the E-auction after e-mailing the appellant that it had won the bid is a clear case of abuse of the process.
7.2. Respondent No.2 vide public notice dated 24.12.2021 scheduled fresh E-auction on 17.01.2022 again fixing the reserve price in relation to the subject property at Rs.10 crores which was the same amount as the reserve price in the second round of bidding and which was the bid amount of the appellant
7.3. Respondent No.1 has misinterpreted Clause 3 (k) to mean that since full amount was not paid, it was entitled to invoke the said clause and cancel the bid. Such a contention is wholly untenable having regard to the overall scheme of the Regulations. No reasons were assigned by the Liquidator while cancelling the auction process. The order cancelling the auction being devoid of any reasons does not indicate application of mind by the Liquidator.
7.4. Appellant has asserted that the Liquidator i.e. Respondent No.2 had accepted the decision of the Tribunal by not filing any appeal against the order dated 12.8.2021. Therefore, it is not open to the Liquidator to contest the claim of the appellant.
9.1. This aspect was also brought to the notice of Respondent No.2 i.e. the Liquidator.
9.2. It is stated that the intervenor had filed an appeal before the Appellate Tribunal being Company Appeal (AD) (Insolvency) No.789 of 2021. In the said appeal, an interim order was passed on 27.09.2021 directing the parties to maintain status quo. Before the appeal of the intervenor could be heard, the Appellate Tribunal had passed the order dated 30.11.2021 allowing the appeal of Respondent No.1 by setting aside the order of the Tribunal dated 12.08.2021. Therefore, when the appeal of the intervenor came up for hearing before the Appellate Tribunal, the same was disposed of vide order dated 09.12.2021 as having been rendered infructuous. When the intervenor came to know that the appellant has filed the present appeal, it had filed the intervention application.
12.1. In the above context, he submits that Tribunal was not justified in interfering with the decision of the Liquidator and therefore, Appellate Tribunal rightly set aside the said order of the Tribunal and in restoring the order of the Liquidator. He has referred to Clause 3 (k) of the auction notice which confers discretion upon the Liquidator to cancel the E-auction at any stage without assigning any reason. Adverting to the facts of the present case, he submits that the appellant was the sole bidder and his bid amount was exactly the same as the reserve price. It was in that context that the Liquidator decided to cancel the auction with a view to have another round of auction to fetch a better price. There was nothing wrong or illegal in the exercise of such discretion by the Liquidator.
13.1. Appellant while submitting its bid had accepted the terms and conditions of the auction process. Therefore, it is not open to the appellant to question the exercise of discretion by the Liquidator, which is one of the terms and conditions of the auction.
13.2. In so far issuance of e-mail to the appellant declaring it as the winner of the auction process is concerned, he submits that on expiry of the time for placing of bids, an auto generated e-mail from the e-auction website “www.eauctioneer.com” was sent to the appellant stating that the bid submitted by it was the highest. It was an auto-generated e-mail and cannot be construed to be the E-auction certificate. In so far acceptance of the balance sale consideration and issuance of sale certificate is concerned, he submits that the same was done as per the direction of the Tribunal.
13.3. In the course of the hearing, he submitted that there were two assets of the corporate debtor; one at Lucknow (Lot No. 2) and the other at Mirzapur (Lot No.3). Since the assets at Lot No.2 fetched Rs.4.79 crores more than the reserve price, Liquidator believed that the subject property could fetch a higher amount than the reserve price of Rs.10 crores. Keeping this in mind, he had cancelled the E-auction process.
13.4. On the submission that Liquidator did not assail the decision of the Tribunal and therefore had accepted the same, his contention is that in all the proceedings Liquidator had contested the case projected by the appellant. Now that the appeal of Respondent No.1 has been allowed by the Appellate Tribunal, Liquidator is bound by the same. He submits that decision of the Liquidator to cancel the auction was vindicated when post cancellation of auction, Liquidator received letter dated 05.08.2021 from Sugna Feeds Private Limited expressing its intention to participate in the auction of the subject property. Sugna Feeds Private Limited is a well-established player in the poultry sector whereas appellant was incorporated after issuance of the E-auction sale notice.
1(2019) 4 SCC 17
17.1. As it appears, appellant was the sole bidder and its bid value was Rs.10 crores which was equivalent to the reserve price.
19.1. Clause 3 of the E-Auction Process Information Document deals with disclaimer. While Clause 3 (a) says that the said document has been issued by the Liquidator for general information purposes only; sub-clause (b) clarifies that the said document is not a statutory document; it has not been approved or registered with any regulatory or statutory authority of Government of India or any State Government. Further, nothing relating to the E-Auction Process Information Document should be construed as legal, financial, accounting, regulatory or tax advice by the Liquidator. Clause 3 (f) declares that by procuring a copy of the E-Auction Process Information Document, the recipient accepted the terms of the disclaimer, which forms an integral part of the E-Auction Process Information Document. As per Clause 3(i), E-Auction Process Information Document is neither an agreement nor an offer by the Liquidator to the prospective bidders or any other person. Objective of the E-Auction Process Information Document is to provide interested parties with information that may be useful to them in making their bids. Clause 3(k) declares that the Liquidator has absolute right to accept or reject any or all bids or adjourn/postpone/cancel the E-auction or withdraw any asset/property or portion thereof from the E-auction at any stage without assigning any reason thereof. As per Clause 5(m), the highest bid on the E- auction shall supersede all the previous bids of the respective bidders. However, the bidder of the highest offer/bid does not get any right to demand acceptance of his bid.
20.1. From the aforesaid, we find that no reasons were assigned by the Liquidator for cancellation of the E-auction held on 20.07.2021. Appellant was simply informed that the E-auction was cancelled in terms of Clause 3(k) of the E-Auction Process Information Document. Clause 3 (k) as discussed above only declares that the Liquidator has absolute right to accept or reject any or all bids or adjourn/postpone/cancel the E-auction etc., at any stage without assigning any reason therefor. We will advert to this clause a little later.
21.1. It has come on record that following the aforesaid order of the Tribunal, Liquidator i.e. Respondent No.2 had called upon the appellant to pay the balance sale consideration and on payment of the same by the appellant, issued the sale certificate to the appellant in respect of the subject property.
23.1. Powers and duties of Liquidator are provided in Section 35 of the Code. Sub-section (1) enumerates the various powers and duties that has to be performed and discharged by the Liquidator. Clause (f) says that the Liquidator has the power and duty to sell the immovable and movable properties and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified. As per the proviso, the Liquidator shall not sell the immovable and movable properties or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.
23.2. As per Section 36, for the purpose of liquidation, the Liquidator shall form an estate of the assets to be called the liquidation estate in relation to the corporate debtor and shall hold the liquidation estate as a fiduciary for the benefit of all the creditors.
23.3. In addition to the above, there are various other powers and duties of the Liquidator.
25.1. Regulation 5 says that the Liquidator shall prepare and submit various reports to the adjudicating authority (Tribunal) regarding the liquidation process. If in this process the books of account of the corporate debtor are incomplete on the liquidation commencement date, the Liquidator under Regulation 6 shall have them completed and brought up to date. That apart, the Liquidator is required to maintain various registers and books in relation to the liquidation of the corporate debtor. In addition to that, as per Regulation 7, he may appoint a professional to assist him in discharging his duties, obligations and functions. However, those professionals should not be his relative or related party of the corporate debtor or has served as an auditor to the corporate debtor in the preceding five years. Under Regulation 8, the Liquidator is required to engage in consultation with the stakeholders and the stakeholders consulted under Section 35 (2) of the Code shall extend all assistance and cooperation to the Liquidator to complete the liquidation of the corporate debtor.
25.2. Regulation 32 empowers the Liquidator to sell the assets of the corporate debtor. Mode of sale is referred to in Regulation 33. As per Regulation 33(1), the Liquidator shall ordinarily sell the assets of the corporate debtor through an auction in the manner specified in Schedule I.
28.1. Paras 1(11), (11A), (12) and (13) of Schedule-I are relevant since much emphasis has been placed by learned counsel for the parties on these provisions. As per para 1(11), if it is required, Liquidator may conduct multiple rounds of auction to maximize the realization from the sale of the assets and to promote the best interest of the creditors. Para 1(11A) says that where the Liquidator rejects the highest bid in an auction process, he shall intimate the reasons for such rejection to the highest bidder and mention it in the next progress report. While learned senior counsel for the appellant has laid great emphasis on this provision on the basis of which he has assailed the unreasoned cancellation of the bid of the appellant, learned senior counsel for the intervenor has pointed out that para 1(11A) was inserted in Schedule I vide notification dated 30.09.2021 with effect from 30.09.2021. According to him, this provision is prospective and cannot be applied to auctions conducted prior to 30.09.2021, including the auction in question. Therefore, there was no requirement for the Liquidator to give reasons for cancellation of the bid of the appellant.
39. The object underlying the rules of natural justice “is to prevent miscarriage of justice” and secure “fair play in action”. As pointed out earlier the requirement about recording of reasons for its decision by an administrative authority exercising quasi-judicial functions achieves this object by excluding chances of arbitrariness and ensuring a degree of fairness in the process of decision-making. Keeping in view the expanding horizon of the principles of natural justice, we are of the opinion, that the requirement to record reason can be regarded as one of the principles of natural justice which govern exercise of power by administrative authorities. The rules of natural justice are not embodied rules. The extent of their application depends upon the particular statutory framework whereunder jurisdiction has been conferred on the administrative authority. With regard to the exercise of a particular power by an administrative authority including exercise of judicial or quasi-judicial functions the legislature, while conferring the said power, may feel that it would not be in the larger public interest that the reasons for the order passed by the administrative authority be recorded in the order and be communicated to the aggrieved party and it may dispense with such a requirement. It may do so by making an express provision to that effect as those contained in the Administrative Procedure Act, 1946 of U.S.A. and the Administrative Decisions (Judicial Review) Act, 1977 of Australia whereby the orders passed by certain specified authorities are excluded from the ambit of the enactment. Such an exclusion can also arise by necessary implication from the nature of the subject matter, the scheme and the provisions of the enactment. The public interest underlying such a provision would outweigh the salutary purpose served by the requirement to record the reasons. The said requirement cannot, therefore, be insisted upon in such a case.
40. For the reasons aforesaid, it must be concluded that except in cases where the requirement has been dispensed with expressly or by necessary implication, an administrative authority exercising judicial or quasi-judicial functions is required to record the reasons for its decision.
2(1990) 4 SCC 594
7. Reason is the heartbeat of every conclusion, and without the same it becomes lifeless. (See Raj Kishore Jha v. State of Bihar [(2003) 11 SCC 519 : 2004 SCC (Cri) 212 : (2003) 7 Supreme 152] .)
8. Even in respect of administrative orders Lord Denning, M.R. in Breen v. Amalgamated Engg. Union [(1971) 1 All ER 1148 : (1971) 2 QB 175 : (1971) 2 WLR 742 (CA)] observed: “The giving of reasons is one of the fundamentals of good administration.” In Alexander Machinery (Dudley) Ltd. v. Crabtree [1974 ICR 120 (NIRC)] it was observed: “Failure to give reasons amounts to denial of justice.” “Reasons are live links between the mind of the decision- taker to the controversy in question and the decision or conclusion arrived at.” Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the “inscrutable face of the sphinx”, it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system; reasons at least sufficient to indicate an application of mind to the matter before court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made; in other words, a speaking-out. The “inscrutable face of the sphinx” is ordinarily incongruous with a judicial or quasi-judicial performance.”
3(2004) 5 SCC 568
23. Arbitrariness in the making of an order by an authority can manifest itself in different forms. Non-application of mind by the authority making the order is only one of them. Every order passed by a public authority must disclose due and proper application of mind by the person making the order. This may be evident from the order itself or the record contemporaneously maintained. Application of mind is best demonstrated by disclosure of mind by the authority making the order. And disclosure is best done by recording the reasons that led the authority to pass the order in question. Absence of reasons either in the order passed by the authority or in the record contemporaneously maintained is clearly suggestive of the order being arbitrary hence legally unsustainable.
4(2010) 7 SCC 678
12. The necessity of giving reason by a body or authority in support of its decision came up for consideration before this Court in several cases. Initially this Court recognised a sort of demarcation between administrative orders and quasi- judicial orders but with the passage of time the distinction between the two got blurred and thinned out and virtually reached a vanishing point in the judgment of this Court in A.K. Kraipak v. Union of India [(1969) 2 SCC 262 : AIR 1970 SC 150] .
13. In Keshav Mills Co. Ltd. v. Union of India [(1973) 1 SCC 380 : AIR 1973 SC 389] this Court approvingly referred to the opinion of Lord Denning in R. v. Gaming Board for Great Britain, ex p Benaim [(1970) 2 QB 417 : (1970) 2 WLR 1009: (1970) 2 All ER 528 (CA)] and quoted him as saying “that heresy was scotched in Ridge v. Baldwin [1964 AC 40 : (1963) 2 WLR 935 : (1963) 2 All ER 66 (HL)] ”.
14. The expression “speaking order” was first coined by Lord Chancellor Earl Cairns in a rather strange context. The Lord Chancellor, while explaining the ambit of the writ of certiorari, referred to orders with errors on the face of the record and pointed out that an order with errors on its face, is a speaking order. (See pp. 1878-97, Vol. 4, Appeal Cases 30 at 40 of the Report).
15. This Court always opined that the face of an order passed by a quasi-judicial authority or even an administrative authority affecting the rights of parties, must speak. It must not be like the “inscrutable face of a sphinx”.
5(2010) 9 SCC 496
34.1. A conjoint reading of the aforesaid provisions would make it clear that while the highest bidder has no indefeasible right to demand acceptance of his bid, the Liquidator if he does not want to accept the bid of the highest bidder has to apply his mind to the relevant factors. Such application of mind must be visible or manifest in the rejection order itself. As this Court has emphasized the importance and necessity of furnishing reasons while taking a decision affecting the rights of parties, it is incomprehensible that an administrative authority can take a decision without disclosing the reasons for taking such a decision.
37.1 Para 1(13) says that on payment of the full amount the sale shall stand completed. The Liquidator shall execute the certificate of sale or sale deed to transfer such assets and the assets shall be delivered to the successful bidder in the manner specified in the terms of sale.
6(2008) 9 SCC 299
7(2022) 5 SCC 710
5. Definitions – In this part, unless the context other requires, -
(24) “related party”, in relation to a corporate debtor, means—
(a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor;
(b) a key managerial personnel of the corporate debtor or a relative of a key managerial personnel of the corporate debtor;
(c) a limited liability partnership or a partnership firm in which a director, partner, or manager of the corporate debtor or his relative is a partner;
(d) a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent of its share capital;
(e) a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent of its paid- up share capital;
(f) anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;
(g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;
(h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act;
(i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary;
(j) any person who controls more than twenty per cent of voting rights in the corporate debtor on account of ownership or a voting agreement;
(k) any person in whom the corporate debtor controls more than twenty per cent of voting rights on account of ownership or a voting agreement;
(l) any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor;
(m) any person who is associated with the corporate debtor on account of—
(i) participation in policy-making processes of the corporate debtor; or
(ii) having more than two directors in common between the corporate debtor and such person; or
(iii) interchange of managerial personnel between the corporate debtor and such person; or
(iv) provision of essential technical information to, or from, the corporate debtor;
44.1 Clause (a) of Section 5(24) says that a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor would be a related party. Likewise, as per Clause (e) of Section 5(24), ‘related party’ in relation to a corporate debtor would mean a private or public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives more than two percent of its share capital or paid-up share capital, as the case may be.
5. Definitions – In this Part, unless the context otherwise requires,-
(24A) “related party”, in relation to an individual, means—
(a) a person who is a relative of the individual or a relative of the spouse of the individual;
(b) a partner of a limited liability partnership, or a limited liability partnership or a partnership firm, in which the individual is a partner;
(c) a person who is a trustee of a trust in which the beneficiary of the trust includes the individual, or the terms of the trust confers a power on the trustee which may be exercised for the benefit of the individual;
(d) a private company in which the individual is a director and holds along with his relatives, more than two per cent. of its share capital;
(e) a public company in which the individual is a director and holds along with relatives, more than two per cent. of its paid-up share capital;
(f) a body corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of the individual;
(g) a limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, act on the advice, directions or instructions of the individual;
(h) a person on whose advice, directions or instructions, the individual is accustomed to act;
(i) a company, where the individual or the individual along with its related party, own more than fifty per cent. of the share capital of the company or controls the appointment of the board of directors of the company.
Explanation.—For the purposes of this clause,—
(a) “relative”, with reference to any person, means anyone who is related to another, in the following manner, namely—
(i) members of a Hindu Undivided Family,
(ii) husband,
(iii) wife,
(iv) father,
(v) mother,
(vi) son,
(vii) daughter,
(viii) son's daughter and son,
(ix) daughter's daughter and son,
(x) grandson's daughter and son,
(xi) granddaughter's daughter and son,
(xii) brother,
(xiii) sister,
(xiv) brother's son and daughter,
(xv) sister's son and daughter,
(xvi) father's father and mother,
(xvii) mother's father and mother,
(xviii) father's brother and sister,
(xix) mother's brother and sister, and
(b) wherever the relation is that of a son, daughter, sister or brother, their spouses shall also be included;]
45.1. From the above, it is evident that a person who is a relative of the individual or a relative of the spouse of the individual would be a ‘related party’ in relation to that individual. That apart, a private company or a public company in which the individual is a director and holds along with relatives more than two percent of its share capital or paid up share capital, as the case may be, would be a ‘related party’ in relation to an individual. Further, as per the explanation, both maternal and paternal uncles would be covered within the definition of ‘related party’.
29-A. Persons not eligible to be resolution applicant.— A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person,—
(a) is an undischarged insolvent;
(b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949);
(c) [at the time of submission of the resolution plan has an account,] or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) [or the guidelines of a financial sector regulator issued under any other law for the time being in force,] and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor:
Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non- performing asset accounts before submission of resolution plan:
[Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor.
Explanation I.—For the purposes of this proviso, the expression “related party” shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares [or completion of such transactions as may be prescribed,] prior to the insolvency commencement date.
Explanation II.—For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;]
[(d) has been convicted for any offence punishable with imprisonment—
(i) for two years or more under any Act specified under the Twelfth Schedule; or
(ii) for seven years or more under any other law for the time being in force:
Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment:
Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I;]
(e) is disqualified to act as a director under the Companies Act, 2013 (18 of 2013):
[Provided that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I;]
(f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;
(g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code:
[Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction;]
(h) has executed [a guarantee] in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code [and such guarantee has been invoked by the creditor and remains unpaid in full or part];
(i) [is] subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or
(j) has a connected person not eligible under clauses (a) to (i).
Explanation [I].—For the purposes of this clause, the expression “connected person” means—
(i) any person who is the promoter or in the management or control of the resolution applicant; or
(ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or
(iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii).
* * * * * *
46.1. Thus, as per Section 29A(g), a person shall not be eligible to submit a resolution plan if such person or any other person acting jointly or in concert with such person has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the adjudicating authority. Clause (j) says that a person shall not be eligible to submit a resolution plan if such person or any other person acting jointly or in concert with such person has a connected person not eligible under Clauses (a) to (i). As per Explanation (i), the expression ‘connected person’ means-(i) any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in the management or control of the business of the corporate debtor during the implementation of the resolution plan; etc.
109. We are of the view that persons who act jointly or in concert with others are connected with the business activity of the resolution applicant. Similarly, all the categories of persons mentioned in Section 5(24-A) show that such persons must be “connected” with the resolution applicant within the meaning of Section 29-A(j). This being the case, the said categories of persons who are collectively mentioned under the caption “relative” obviously need to have a connection with the business activity of the resolution applicant. In the absence of showing that such person is “connected” with the business of the activity of the resolution applicant, such person cannot possibly be disqualified under Section 29-A(j). All the categories in Section 29-A(j) deal with persons, natural as well as artificial, who are connected with the business activity of the resolution applicant. The expression “related party”, therefore, and “relative” contained in the definition sections must be read noscitur a sociis with the categories of persons mentioned in Explanation I, and so read, would include only persons who are connected with the business activity of the resolution applicant.
110. An argument was also made that the expression “connected person” in Explanation I, clause (ii) to Section 29-A(j) cannot possibly refer to a person who may be in management or control of the business of the corporate debtor in future. This would be arbitrary as the explanation would then apply to an indeterminate person. This contention also needs to be repelled as Explanation I seeks to make it clear that if a person is otherwise covered as a “connected person”, this provision would also cover a person who is in management or control of the business of the corporate debtor during the implementation of a resolution plan. Therefore, any such person is not indeterminate at all, but is a person who is in the saddle of the business of the corporate debtor either at an anterior point of time or even during implementation of the resolution plan. This disposes of all the contentions raising questions as to the constitutional validity of Section 29- A(j).
47.1. After a careful analysis, this Court opined that the expressions ‘related party’ and ‘relative’ contained in the definition sections must be read noscitur a sociis with the categories of person mentioned in Explanation I. So read, it would include only persons who are connected with the business activity of the resolution applicant. This Court further clarified that the expression ‘connected person’ would also cover a person who is in management or control of the business of the corporate debtor during the implementation of a resolution plan.
8(2019) 4 SCC 17
88. An issue of interpretation in relation to the first proviso of Section 21(2) is whether the disqualification under the proviso would attach to a financial creditor only in praesenti, or if the disqualification also extends to those financial creditors who were related to the corporate debtor at the time of acquiring the debt.
48.1. Referring to its earlier decision in Arcelor Mittal (India) (P) Ltd. V. Satish Kumar Gupta10, where the issue was whether ineligibility of the resolution applicant under Section 29 A(c) of the Code is attached to an applicant at the date of commencement of the corporate insolvency resolution process or at the time when the resolution plan is submitted by the resolution applicant. It was clarified that the opening words of Section 29(A) stating “a person shall not be eligible to submit a resolution plan…..” clearly indicates that the stage of ineligibility attaches when the resolution plan is submitted by the resolution applicant; thus the disqualification applies in praesenti. This Court referred to Section 21(2) of the Code, more particularly to the second proviso thereto which deals with the Committee of Creditors and the ineligibility of a related party in the consideration and voting on a resolution plan by the said committee and held as follows:
101. However, if such an interpretation is given to the first proviso of Section 21(2), all financial creditors would stand excluded if they were a “related party” of the corporate debtor at the time when the financial debt was created. This may arguably lead to absurd conclusions for entities which have legitimately taken over the debt of related parties, or where the related party entity had stopped being a “related party” long ago.
9(2021) 3 SCC 475
10(2019) 2 SCC 1
11(2021) 7 SCC 474