Amount of Unsuccessful Auction Bidder Forfeited and Added into account of CD, Benefitting Stakeholders of CD Company, amounts to ‘Undue Enrichment’: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) ruled that the amount of unsuccessful auction bidder forfeited and added into account of the corporate debtor (CD), benefitting Stakeholders of CD Company, amounts to ‘undue enrichment’.

The Senior Counsel for the Appellants contended that the impugned order dated 10.08.2022 was pronounced in open court by the Adjudicating Authority/Tribunal and that the ‘CIRP’, was initiated, against M/s. Surana Industries Ltd. (Corporate Debtor) through the order of the Learned Adjudicating Authority dated 02.01.2018.

An application bearing MA/453/12018 was filed u/s 33(1)(a) of the Code, pursuant to the decision of the ‘Committee of Creditors’, to initiate ‘Liquidation proceedings’, against the ‘Corporate Debtor’. As a matter of fact, the Adjudicating Authority / Tribunal, had passed an order on 12.10.2018, in initiating the ‘Liquidation proceedings’ against the Corporate Debtor and further, appointed the Resolution Professional Mr. Ramakrishnan Sadasivan (Liquidator/Respondent).

According to the Appellants, the Respondent was endeavouring to sell the Assets of the ‘Corporate Debtor’, as per Section 35(1)(f) of the Code and the provisions contained in the ‘Insolvency and Bankruptcy Board of India’ (Liquidation Regulations, 2016).

It is projected on the side of the Appellants, that despite the decision of the Respondent to sell the ‘Raichur Assets’ at scrap value of approx. Rs. 50 crores, the Appellant, on 09.09.2021 made a staggering offer to take over the Corporate Debtor as a going concern for Rs. 105.21 crores, which had this time only consisted of the Raichur Assets.

A Single Bench of Justice M. Venugopal, Member (Judicial) and Shreesha Merla, Member (Technical)observed that “I am of the view that beyond the maximized value of the asset (Rs. 145 Crores, which is the final sale consideration), if any amount of the unsuccessful auction bidder, over and above the ‘commitment advance’, is forfeited and added into the account of the Corporate Debtor, benefitting the Stakeholders of the Corporate Debtor Company, it would amount to ‘undue enrichment’. For all the foregoing reasons, it is observed that the forfeiture of the part consideration over and above the ‘commitment advance’, is held to be arbitrary and not in accord with fair play and equity.”

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates