IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 7667 of 2021

SUNDARESH BHATT, 

LIQUIDATOR OF ABG SHIPYARD                       …APPELLANT(S)

VERSUS

CENTRAL BOARD OF INDIRECT                         …RESPONDENT(S)

TAXES AND CUSTOMS         

JUDGMENT

N.V.    RAMANA    , CJI   

1The present Civil Appeal under Section 62(1) of the Insolvency

and Bankruptcy Code, 2016 (“IBC”) arises out of the impugned

judgment dated 22.11.2021 passed by the National Company

Law Appellate Tribunal, New Delhi (“NCLAT”) in Company Appeal

(AT) (Insolvency) No. 236 of 2021. Vide the impugned judgment,

the NCLAT has allowed the appeal filed by the respondent against

the order of the National Company Law Tribunal, Ahmedabad

(“NCLT”)  /Adjudicating   Authority   whereby   the   Adjudicating

Authority   directed   the   release   of   certain   goods   lying   in   the

Customs Bonded Warehouses without payment of custom duty

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REPORTABLE

and other levies.

2A conspectus of the facts necessary for the disposal of the present

appeal is as follows: ABG Shipyard (“Corporate Debtor”) was in

the business of shipbuilding prior to the initiation of corporate

insolvency   proceedings   against   it.   As   a   part   of   its   business

enterprise, it used to regularly import various materials for the

purpose of constructing ships which were to be exported on

completion. Some of these goods were stored by the Corporate

Debtor in Custom Bonded Warehouses in Gujarat and Container

Freight Stations in Maharashtra. Bills of entry for warehousing

were submitted at the relevant time. The Corporate Debtor also

took the benefit of an Export Promotion Capital Goods Scheme

(“EPCG Scheme ”) and  was granted a  license  under the  said

scheme (“EPCG License”) with respect to the said warehoused

goods. 

3On 01.08.2017, the National Company Law Tribunal, Ahmedabad

(“NCLT”) passed an order commencing the Corporate Insolvency

Resolution Process (“CIRP”) against the Corporate Debtor, and

the   appellant   was   appointed   as   the   Interim   Resolution

Professional.   In   the   same   order,   the   NCLT   also   declared   a

moratorium under Section 13(1)(a) of the IBC. 

4On 21.08.2017, the appellant informed the respondent of the

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initiation of CIRP and sought custody of the warehoused goods

and requested the respondent not to dispose of or auction the

same. On 29.03.2019, the respondent for the first time, issued a

notice to the Corporate Debtor regarding non­fulfilment of export

obligations in terms of the EPCG license demanding customs

duty   of   Rs.   17,13,989/­   with   interest.   From   02.04.2019   to

07.04.2019, the respondent issued five different demand notices

to   the   Corporate   Debtor   regarding   non­fulfillment   of   export

obligations under different EPCG licenses for various amounts.

The details of the demand notices issued by the Respondent for

non­fulfilment   of   EPCG   License   conditions   by   the   Corporate

Debtor are tabulated herein for ease of reference:

S.

NO. 

DATE DETAILS OF DEMAND

NOTICE

DEMANDED AMOUNT

(PLUS INTEREST AS

APPLICABLE)

1.29.03.2019EPCG   License   No.

5230007265   dated

16.07.2010

Rs. 17,13,989

2.02.04.2019EPCG   License   No.

5230008206   dated

16.11.2010

Rs. 96,20,325

3.04.04.2019EPCG   License   No.

5230007016   dated

17.05.2010

Rs. 53,29,072

4.05.04.2019EPCG   License   No.

5230007082   dated

03.06.2010

Rs. 2,05,73,402

5.05.04.2019EPCG   License   No.

5230006881   dated

31.03.2010

Rs. 6,64,646

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6.07.04.2019EPCG   License   No.

5L32206936   dated

20.04.2010

Rs. 12,04,09,501

5On   25.04.2019,   the   NCLT   passed   an   order   commencing

liquidation against the Corporate Debtor under Section 33(2) of

the IBC. Vide the said order, the NCLT declared that the earlier

moratorium imposed under Section 13(1)(a) of the IBC shall cease

to   have   effect   by   the   operation   of   Section   14(4)   of   the   IBC.

However, a fresh direction was passed under Section 33(5) of the

IBC barring the institution of any suit or legal proceeding by or

against the Corporate Debtor. Further, the NCLT also appointed

the appellant as the liquidator vide the same order. 

6Thereafter, the respondent filed claims before the appellant for

goods   warehoused   in   both   Gujarat   and   Maharashtra   on

20.05.2019,   27.05.2019   and   29.05.2019   under   the   IBC.   On

27.06.2019, the appellant informed the respondent through its

officers that liquidation proceedings had commenced against the

Corporate Debtor and that the goods were to be released to the

appellant. 

7Due to inaction by the respondent, the appellant filed I.A. No. 474

of 2019 before the NCLT under Section 60(5) of the IBC seeking a

direction   against   the   Respondent   to   release   the   warehoused

goods belonging to the Corporate Debtor on 01.07.2019. 

8At this juncture, for the first time on 11.07.2019, the respondent

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issued a notice to the Corporate Debtor under Section 72(1) of the

Customs Act for custom dues amounting to Rs. 763,12,72,645/­

on 2531 Bills of entries. The respondent filed a concurrent claim

for the said amount before the appellant under the IBC. Details of

the amount claimed by the respondent before the appellant are

as follows:

S.

NO. 

DATE DETAILS OF CLAIMS FILED BY

RESPONDENT BEFORE

APPELLANT UNDER FORM C

CLAIMED AMOUNT

(PLUS INTEREST AS

APPLICABLE)

1.20.05.2019Non­fulfilment   of   obligations

under 11 EPCG Licenses

Rs. 37,92,29,749

2.27.05.2019Non­fulfilment   of   obligations

under 37 EPCG Licenses

Rs.

151,33,06,859

3.29.05.2019Non   clearing   of   imported

goods from Jawaharlal Nehru

Port   Trust,   Nhava   Sheva,

Maharashtra

Rs. 22,70,50,898

4.18.09.2019Dues for all cargo in custom

bounded   warehouses   in

Gujarat

Rs.

763,12,72,645

9On 25.02.2020, the NCLT allowed I.A. No. 474 of 2019 filed by

the appellant and passed the following directions: 

“14) Therefore, the present IA deserves to be allowed.

Accordingly, it is allowed in terms of its prayer clause

as well as with following directions.

i)The   Respondents   are   directed   to   allow   the

applicant­liquidator   to   remove   the   Material,

which   is   lying   in   the   Customs   Bonded

Warehouses   without   any   condition,   demur

and/ or payment of Customs Duty.

ii)The Respondents are at liberty to lodge its

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claim   with   the   Applicant­Liquidator   with

regard to the Customs Duty charges payable

on the release of material, which form part of

the assets of the Corporate Debtor company

(in liquidation), before the Liquidator under

the provisions of Insolvency and Bankruptcy

Code, 2016 and in accordance with law. 

iii)The Customs Department shall allow removal

of goods/material within two weeks, from the

date of receipt of an authentic copy of this

order from the Liquidator.

iv)Meanwhile, the Respondents shall not proceed

for   auctioning,   selling   or   appropriating   the

Materials   owned   by   the   Corporate   Debtor

company, for the purpose of recovery of its

Customs   Duty,   which   may   tantamount   to

violation   of   the   l&B   Code   and   put   the

applicant/liquidator of the Corporate Debtor

company   (under   liquidation)   in

disadvantageous position.”

10The NCLT considered Section 238 of the IBC and held that the

non­obstante clause in the IBC, being part of a subsequent law,

shall have overriding effect on proceedings under the Customs

Act. Further, looking to the waterfall mechanism under Section

53 of the IBC, the NCLT held that distribution of proceedings

from   sale   of   liquidation   of   assets   shall   also   prevail   over   the

Customs Act provisions. The NCLT held that, as Government

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dues, the claims by the respondent would have to be dealt with in

accordance with Section 53 of the IBC. Apart from the above, the

NCLT also placed reliance on a circular issued by the Central

Board of Excise and Custom, being Circular No. 1053/02/2017­

CX   dated   10.03.2017   relating   to   Section   11E   of   the   Central

Excise Act, 1944. The abovementioned circular clarifies that dues

under the Central Excise Act would have first charge only after

the   dues   under   the   provisions   of   the   IBC   are   recovered.   As

Section 142A of the Customs Act is pari materia with Section 11E

of   the   Central   Excise   Act,1944,   the   NCLT   applied   the   same

rationale   to   interpret   the   said   section   in   holding   that   the

provisions of the IBC have priority. 

11Subsequent to the above judgment, the appellant sold the goods

warehoused in Surat for a consideration of Rs. 169.11 crores. The

sales process with respect to the goods warehoused in Dahej,

Gujarat is currently ongoing, and is challenged before this Court

in C.A. No. 7722 of 2021 and C.A. No. 7731 of 2021. 

12On 04.03.2021, the respondent filed an appeal before NCLAT

challenging the order dated 25.02.2020 passed by the NCLT. On

22.11.2021, the NCLAT passed the impugned order, whereby it

allowed the appeal filed by the respondent and set aside the

directions of the NCLT requiring the respondent to release the

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warehoused goods to the possession of the appellant without

seeking the custom dues. The NCLAT rather directed that the

warehoused   goods   can   be   “released   or   disposed   of   as   per

Applicable Provisions of Customs Act by the Proper Officer”. 

13The NCLAT, in allowing the appeal of the respondent, held that

the goods lying in the customs bonded warehouse were not the

Corporate Debtor’s assets as they were neither claimed by the

Corporate Debtor after their import, nor were the bills of entry

cleared for some of the said goods. By not filing the said bills of

entry,   the   NCLAT   held   that   the   importer,  i.e.,   the   Corporate

Debtor, had relinquished his title to the imported goods. The

NCLAT held that the Corporate Debtor is deemed to have lost his

title to the imported goods by action of Sections 48 and 72 of the

Customs Act. As such, the respondent is empowered to sell the

goods and recover the government dues.

14The NCLAT held that ‘imported goods’, which are subject to levy

of Customs, stand on a different footing as payment of customs

duty is a consequence of importing the goods rather than a

liability on the Corporate Debtor to pay it. The appellant cannot

stand at a better footing than the  Corporate Debtor that he

represents   and   cannot   take   possession   of   assets   which   the

Corporate Debtor itself could not have obtained. Customs duty

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therefore needs to be paid for the release of the warehoused

goods.

15The NCLAT held that the Customs Act is a complete Code which

provides that warehoused goods cannot be released until the

import duties are paid. Mere filing of claims under ‘Form C’ by

the respondent before the appellant cannot be taken to signify

the   relinquishment   of   the   right   of   the   respondent   over   the

warehoused goods. 

16On the issue of priority of IBC over the Customs Act, the NCLAT

held that the issue did not arise in the present case, as the goods

in question were imported prior in time to the initiation of the

CIRP. While the containers were imported between 2012 to 2015,

the CIRP was initiated only in 2017 and the Corporate Debtor

went into liquidation in 2019. By not paying the import duties,

the Corporate Debtor had lost the right to the warehoused goods

prior to the initiation of the CIRP. The NCLAT held that these

warehoused goods stand on a different footing and cannot be

considered assets of the Corporate Debtor which were subject to

the IBC provisions. 

17Aggrieved   by   the  above   judgment   passed   by   the  NCLAT,   the

appellant has filed the present Civil Appeal against the impugned

judgment.

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18Mr. Arvind Datar, learned Senior Counsel appearing on behalf of

the appellant, submitted as follows: 

i.The   Corporate   Debtor   is   the   owner   of   the   goods.   The

learned   Senior   Counsel   referred   to   Section   48   of   the

Customs Act and stated that it only applies to goods which

are neither cleared nor warehoused by the importer. This

Section, however, is not applicable to the present case as

the notice issued and Form C filed by the respondent are in

relation to warehoused goods. Thus, the notice issued by

the respondent under Section 72 of the Customs Act and

the consequent Form C does not in any manner attract

Section 48 of the Customs Act.

ii.The Corporate Debtor has not lost ownership of the goods

as alleged by the respondent. The respondent, by issuing

notice under Section 72 of the Customs Act and filing its

claim with the liquidator, has admitted that the Corporate

Debtor is the owner. Neither Sections 72 nor 48 of the

Customs Act signifies any transfer to the respondent. The

Corporate Debtor has also never relinquished title to the

goods and no communication regarding the same has been

made to the respondent.

iii.By submitting claims under Section 38 of the IBC, the

respondent has elected to subject its dues to be governed

by IBC, and more specifically, to the distribution matrix

provided Section 53 of the IBC. The claims made by the

respondent before the appellant are based solely on the

Corporate Debtor’s ownership of the goods. The respondent

cannot   blow   hot   and   cold   at   the   same   time   by   again

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claiming before this Court that the Corporate Debtor has

lost ownership of the said goods.

iv.The respondent could not have exercised its right under the

Customs Act, as the statutory charge of the respondent

under   Section   142A   of   the   Customs   Act   is   expressly

subordinate to the IBC. 

v.The respondent’s custody of the Corporate Debtor’s goods

is in violation of Sections 14 and 33 of the IBC. Section

14(1)(a) of the IBC expressly prohibits the institution or

continuation of proceedings against the Corporate Debtor

during   the   moratorium   period.   Further,   Section   14(1)(c)

states  that  foreclosure, recovery,  or enforcement  of  any

security interest against the Corporate Debtor is prohibited.

19Mr. K.M. Nataraj, learned Additional Solicitor General of India

appearing for the respondent, submitted as under:

i.The goods left in the Custom Bonded Warehouse are not the as­

sets of the Corporate Debtor. This is because these goods were

never claimed after being imported. As per the record, the goods

were imported between the years 2012 and 2015, and the Corpo­

rate Debtor started the liquidation process in 2019. In this span

of 4 years, the Corporate Debtor never cleared bills of entry for

part of the goods and abandoned all the material lying in the

Custom Bonded Warehouse. Despite receipt of various demand

notices by the respondent, the Corporate Debtor did not clear the

goods and hence the same are liable to be sold by the respondent

under the Customs Act.

ii.The liquidator can take into his possession only the assets of the

Corporate Debtor as under Section 35(1)(b) of the IBC. However,

in the present case, the warehoused goods cannot be termed as

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assets of the Corporate Debtor, until and unless the same are

legally cleared from the warehouses upon payment of relevant

dues and duties. The Corporate Debtor herein has not even paid

the bill of entry for part of the goods.

iii.Section 45 of the Customs Act lays down restrictions on custody

and removal of imported goods. It stipulates that all imported

goods unloaded in the customs area shall remain in the custody

of such person approved by the commissioner till the time the

same are cleared for home consumption or are warehoused or

transshipped. Further, it provides that if such goods are not

cleared as per the criteria mentioned above, they can be sold

after   permission   from   the   proper   officer.   Section   71   of   the

Customs Act further states that no goods shall be taken out of

the warehouse except as provided under by the Customs Act.

Hence, the goods cannot be removed without payment of import

duties and charges.

iv.The Corporate Debtor has abandoned the imported goods for

several   years,   refused   to   pay   the   import   duties   and   other

charges, and has not taken any effort to take possession of the

goods for several years. Consequently, the Corporate Debtor has

lost its right to the warehoused goods, and hence under Section

72 of the Customs Act, the government authorities are fully

authorized to recover the dues. In such a circumstance, where

the Corporate Debtor’s title to the goods has been deemed to

have   been   relinquished,   the   liquidator   does   not   have   the

authority to take possession of them.

v.Customs duty is an incidence or consequence of import. Even

before the CIRP was initiated, the Corporate Debtor could not

have secured the possession of the warehoused goods without

paying   the   due   charges.   Hence,   the   liquidator,   who   is

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representing the Corporate Debtor, cannot stand on a better

footing than the Corporate Debtor itself.

vi.It is further submitted that merely because the respondent had

filed its claim before the liquidator, it cannot be said that the

respondent   had   relinquished   its   rights   over   the   warehoused

goods. The claim was filed by the respondent only to realize its

dues,   and   hence   cannot   be   viewed   as   a   relinquishment   or

abandonment of its rights. 

20In light of the arguments advanced and the documents submitted

before this Court, we are called upon to answer two important

questions which arise for our consideration: 

a)Whether the provisions of the IBC would prevail over

the Customs Act, and if so, to what extent?

b)Whether   the   respondent   could   claim   title   over   the

goods and issue notice to sell the goods in terms of the

Customs Act when the liquidation process has been

initiated?

ANALYSIS   

21 It must be noted that this question assumes significance as the

warehoused goods belonging to the Corporate Debtor which is

under   liquidation,   are   sought   to   be   sold   by   the   Customs

Authorities in lieu of custom dues. The respondent has relied on

certain provisions of the Customs Act to assume such power.

This has been vehemently opposed by the appellant herein, who

has argued that once the insolvency process has been initiated

against   the   Corporate   Debtor,   the   IBC   becomes   squarely

13

applicable and overrides any other enactment giving priority to

the charges on the property. 

22The   NCLAT   has   not   directly   answered   this   question   of   law.

Rather, it has entered into the facts of the case to distinguish the

applicability of the IBC as compared to the Customs Act. The

NCLAT held that the Corporate Debtor had abandoned the goods

much before the insolvency process was initiated, and thereby

the title of the goods had passed to the Customs Authority. The

NCLAT held as under: 

“7.16 Thus, it is clear that NCLT and NCLAT

cannot   usurp   the   legitimate   jurisdiction   of

other   Courts,   Tribunals   and   fora   when   the

dispute does not arise solely from or relating to

the Insolvency of the Corporate Debtor. In the

instant   case,   the   Corporate   Debtor   had

abandoned the imported goods in the Customs

warehouses for several years and failed to pay

the import duty and other charges and had not

taken any steps to take possession of those

goods for several years. Therefore the importer

had   lost   his   right   to   the   imported   goods.

Consequently,   the   Customs   Authorities   are

fully empowered under Section 72 of the Act to

sell   those   goods   to   recover   the   government

dues. The Liquidator has no right to take into

possession   over   those   goods   for   which   the

Corporate Debtor's title is deemed relinquished

by implication of law. Even before initiating the

Corporate   Insolvency   Resolution  Process,   the

Corporate   Debtor   Company  could   not   have

secured the possession of the imported goods

except   by   paying   the   customs   duty.   The

Resolution   Professional/Liquidator,   who

virtually represents the Company, cannot stand

on a better footing than the Corporate Debtor

14

itself. 

…

7.20 In the instant case, the Appellant has filed

its Claim before the Liquidator in response to

the Notice issued by the Liquidator. Given the

law laid down by the Hon'ble Supreme Court in

the above­mentioned case, it is clear that by

submission of Claim in response to the Notice

issued   by   the   Liquidator,   it   can   not   be

presumed that the Appellant had relinquished

its right over the property and submitted to the

jurisdiction of the Liquidator. The Claim is filed

in an effort to realise its dues. Still, it will not

amount to relinquishment of its right over the

Warehoused goods under its custody for which

Appellant has every right to sell those goods for

the realisation of the Government goods. 

…

7.23 We are not convinced with the argument

advanced by the Respondent because the goods

imported   by   the   Corporate   Debtor   were

imported   much   before   the   initiation   of   the

Corporate   Insolvency   Resolution   Process,   and

the Corporate Debtor never claimed them after

import.   Undisputedly   the   containers   were

imported between 2012 to 2015. The CIRP was

initiated against the Corporate Debtor in 2017,

and the liquidation order was passed on April

25 2019. 

7.24   Therefore,   the   Corporate   Debtor's   assets

because the Corporate Debtor never made any

effort for clearing the goods by paying Customs

Duty and  other  applicable charges before  the

initiation   of   Liquidation   proceeding   after

importing   them.   Undisputedly   the   containers

were imported between 2012 to 2015. The CIRP

was initiated against the Corporate Debtor in

2017, and the liquidation order was passed in

April 25, 2019. Therefore the assets lying in the

Customs   bonded   warehouses   cannot   be

considered assets of the Corporate Debtor. The

Liquidator   intends   to   possess   the   uncleared

15

goods   from   the   customs   warehouses   without

upfront   payment   of   Customs   duty,   which   is

against the statutory provisions of the Customs

Act, 1962. Therefore, the imported goods subject

to levy of Customs stand on a different footing

than the goods /assets, not in the Corporate

Debtor's possession. Therefore, the assets lying

in the Customs bonded warehouses cannot be

considered assets of the Corporate Debtor.

23In the above context, this Court is required to analyze whether

the NCLAT’s treatment of the facts is correct or if a fresh look is

required. Before we enter into a detailed discussion and analysis

of the case at hand, it would be beneficial to analyze certain

provisions of the Customs Act which may be relevant to this case.

24When goods are imported/exported from India, such goods may

be subjected to custom duty as indicated under Section 12 of the

Customs Act. There are many objectives behind such exaction –

some of it is to maintain trade balance, control imports and

exports, protection of domestic industry, prevention of smuggling,

conservation and augmentation of foreign exchange, and so on. 

25When goods are imported, it can be either for home consumption

or for transshipment. An importer can either choose to pay the

duty and utilize the goods immediately for domestic usage or

execute a bond so as to warehouse the said goods. Accordingly,

an   importer   has   to   submit   a   bill   of   entry   either   for   home

consumption or for warehousing in terms of Section 46 of the

16

Customs Act, in the prescribed format. 

26When a person chooses to warehouse the goods, he ought to

execute a bond in terms of Section 59 of the Customs Act. Such

warehoused goods can subsequently be either cleared for home

consumption or can be exported.

27Section 61 of the Customs Act mandates the time period allowed

for   warehousing.   For   example,   in   the   case   of   capital   goods

intended for a 100% export­oriented undertaking, warehousing is

permitted till such goods are cleared from the warehouse. In case

of goods not intended for such export­oriented purpose, a time

period of one year is prescribed in terms of Section 61(1)(c) of the

Customs Act. The provision also provides for an extension which

could be granted by the appropriate authority, for a period of not

more than one year. Under Section 61(2) of the Customs Act,

provision is made to charge interest on those goods which are

warehoused beyond the period granted.

28Section 71 of the Customs Act provides that no warehoused

goods shall be taken out of the warehouse, except on clearance

for   home   consumption   or   export   or   for   removal   to   another

warehouse, or as provided by the Act.

29Section 72 of the Customs Act deals with the issue of when the

goods can be said to have been improperly removed from the

17

warehouse. As this provision is of some relevance to the present

case, it is extracted below: 

“72.  Goods   improperly   removed   from

warehouse,   etc.—(1)   In   any   of   the   following

cases, that is to say,— 

(a)   where  any  warehoused   goods  are   removed

from a warehouse in contravention of section 71; 

(b) where any warehoused goods have not been

removed from a warehouse at the expiration of

the   period   during   which   such   goods   are

permitted   under   section   61   to   remain   in   a

warehouse;  

*   *   *   *   *  

(d) where any goods in respect of which a bond

has been executed under section 59 and which

have not been cleared for home consumption or

export   or   are   not   duly   accounted   for   to   the

satisfaction   of   the   proper   officer,   the   proper

officer   may   demand,   and   the   owner   of   such

goods   shall   forthwith  pay,   the  full   amount   of

duty   chargeable   on   account   of   such   goods

together with interest, fine and penalties payable

in respect of such goods 

(2)   If   any   owner   fails   to   pay   any   amount

demanded   under   sub­section   (1),   the   proper

officer   may,   without   prejudice   to   any   other

remedy,   cause   to   be   detained   and   sold,   after

notice to the owner (any transfer of the goods

notwithstanding) such sufficient portion of his

goods,   if   any,   in   the   warehouse,   as   the   said

officer may deem fit.”

From   the   aforesaid,   it   can   be   noted   that   when   goods   are

warehoused and the importer has not taken sufficient steps to

take   the   goods   out   for   domestic   consumption   or   for

transshipment, within the required time period, then the proper

18

office has to take steps in terms of Section 72(2) of the Customs

Act. The aforesaid provision mandate that  it is only after the

determination of dues by the proper officer that goods may be

sold, in the event that the demanded amount relating to custom

duty, interest, fines, and other penalties have not been paid. In

that case alone, after such determination, a sufficient portion of

goods may be sold. 

30In order to complete the discussion on the Customs Act, it may

be necessary to take note of Section 142A extracted below:

142A. Liability under Act to be first charge.—

Notwithstanding   anything   to   the   contrary

contained in any Central Act or State Act, any

amount of duty, penalty, interest or any other

sum payable by an assessee or any other person

under this Act, shall, save as otherwise provided

in section 529A of the Companies Act, 1956 (1 of

1956), the Recovery of Debts Due to Banks and

the Financial Institutions Act, 1993 (51 of 1993),

and   the   Securitisation   and   Reconstruction   of

Financial Assets and the Enforcement of Security

Interest   Act,   2002   (54   of   2002)   and   the

Insolvency and Bankruptcy Code, 2016 (31 of

2016) be the first charge on the property of the

assessee or the person, as the case may be..

31In the present case, the Corporate Debtor as part of its business

used to regularly import and warehoused goods in the custom

bonded warehouses from at least 2011. As has already been

mentioned   above,   the   CIRP   process   commenced   against   the

Corporate Debtor on 01.08.2017 by the order of the NCLT. It

19

appears from the  record that  no  notices  were issued by the

respondent   against  the  Corporate  Debtor  with respect  to the

warehoused goods prior to initiation of the CIRP. In fact, all the

duty demand notices issued by the respondent were from March

2019 onwards. It is in this context that it is necessary for us to

ascertain whether the IBC overrides the Customs Act or vice­

versa. 

32Insolvency and Bankruptcy Code came into force in India from

28.05.2016 to combine provisions relating to insolvency found

across different statutes into a single comprehensive instrument.

Under the earlier legal regime, different statutes were resulting in

multiple   parallel   proceedings,   which   inevitably   resulted   in

uncertainty   for   the   creditors   over   their   recovery.   One   of   the

objectives   behind   the   enactment   of   the   IBC   was   to   end   the

conflict between different statutes.

33The   purpose   behind   insolvency   law   has   been   captured   in

Halsbury’s Laws of England (para 8, vol. III, 4

th

  edition) in the

following manner:

“A man has a perfect right, so long as he is

solvent, to continue a losing business; but the

moment he becomes insolvent he does so at the

risk of his creditors. As soon as he finds that he

cannot pay loop in the pound, although he may

nevertheless think that if he goes on he may be

able to retrieve his  position,  he  ought  to call

together his creditors, who will have to bear the

loss in case his calculations are wrong, and leave

them to determine whether the business shall be

20

continued or not. Moreover, it is not enough to

consult only the largest creditors. There is no

insolvency within the meaning of this offence if a

careful, prudent, and unhurried realization of the

assets would produce enough to pay loop in the

pound on the amount of liabilities.”

34It may be relevant to capture a brief outlook as to various stages

involved in the corporate insolvency process in India:

(i)When   a   financial   default   occurs,   either   the   borrower

(Corporate Debtor under Section 10 read with Section 11

of the IBC) or the lender (creditors – financial creditor

under Section 7 or operational creditor under Section 9

of the IBC) can approach the NCLT for initiating the

resolution process. Operational creditors need to give a

notice   of   10   days   to   the   Corporate   Debtor   before

approaching the NCLT. If the Corporate Debtor fails to

repay dues to the operational creditor, or fails to show

any existing dispute or arbitration, then the operational

creditor can approach the NCLT.

(ii)Upon   admission   of   an   application   by   the   NCLT,   the

claims of the creditor will be frozen for 180 days, during

which time, the NCLT will hear proposals for revival of

the Corporate Debtor and decide on future course of

action. During this period, a moratorium is imposed to

ensure   no   coercive   proceedings   are   launched   or

continued against the Corporate Debtor in any other

21

forum or under any other law, until approval of the

resolution plan or initiation of the liquidation process.

(iii)The   NCLT   first   appoints   an   interim   insolvency

professional. The interim insolvency professional is to

hold office until a resolution professional is appointed.

He   further   takes   control   of   the   Corporate   Debtor’s

operations   and   collects   its   financial   information   from

information utilities. The NCLT must also ensure public

announcement of the initiation of corporate insolvency

process and call for submission of claims. 

(iv)The   Corporate   insolvency   process   must   normally   be

completed   within   180   days   of   admission   of   the

application by the NCLT. The Committee of Creditors has

to then take decisions regarding insolvency resolution as

provided by law.

35In this context, we may note that when the insolvency process

commences, the adjudicating authority is mandated to declare a

moratorium on continuation or initiation of any coercive legal

action against the Corporate Debtor. Section 14 of the IBC reads

as under:

14. Moratorium.––(1)   Subject   to  provisions   of

sub­sections   (2)   and   (3),   on   the   insolvency

commencement date, the Adjudicating Authority

shall by order declare moratorium for prohibiting

all of the following, namely:—

22

(a)   the   institution   of   suits   or   continuation   of

pending   suits   or   proceedings against   the

corporate   debtor   including   execution   of   any

judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority;

(b)   transferring,   encumbering,   alienating   or

disposing of by the corporate debtor any of its

assets or any legal right or beneficial interest

therein;

(c) any action to foreclose, recover or enforce any

security interest created by the corporate debtor

in respect of its property including any action

under the Securitisation and Reconstruction of

Financial   Assets   and   Enforcement   of

Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or

lessor where such property is occupied by or in

the possession of the corporate debtor.

Explanation.—For   the   purposes   of   this   sub­

section,   it   is   hereby   clarified   that

notwithstanding anything contained in any other

law for the time being in force, a license, permit,

registration, quota, concession, clearances or a

similar   grant   or   right   given   by   the   Central

Government, State Government, local authority,

sectoral   regulator   or   any   other   authority

constituted   under   any   other   law   for   the   time

being   in   force,   shall   not   be   suspended   or

terminated on the grounds of insolvency, subject

to   the   condition   that   there   is   no   default   in

payment of current dues arising for the use or

continuation of the license, permit, registration,

quota, concession, clearances or a similar grant

or right during the moratorium period;

(2) The supply of essential goods or services to

the corporate debtor as may be specified shall

not be terminated or suspended or interrupted

during moratorium period.

23

(2A) Where the interim resolution professional or

resolution   professional,   as   the   case   may   be,

considers the supply of goods or services critical

to protect and preserve the value of the corporate

debtor   and   manage   the   operations   of   such

corporate debtor as a going concern, then the

supply of such goods or services shall not be

terminated, suspended or interrupted during the

period   of   moratorium,   except   where   such

corporate debtor has not paid dues arising from

such supply during the moratorium period or in

such circumstances as may be specified.

(3) The provisions of sub­section (1) shall not

apply to —

(a)   such   transactions,   agreements   or   other

arrangements as may be notified by the Central

Government in consultation with any financial

sector regulator or any other authority;

(b)   a   surety   in   a   contract   of   guarantee   to   a

corporate debtor.

(4)   The   order   of   moratorium   shall   have   effect

from the date of such order till the completion of

the corporate insolvency resolution process:

Provided   that   where   at   any   time   during   the

corporate insolvency resolution process period, if

the   Adjudicating   Authority   approves   the

resolution plan under sub­section (1) of section

31 or passes an order for liquidation of corporate

debtor under section 33, the moratorium shall

cease   to   have   effect   from   the   date   of   such

approval or liquidation order, as the case may be.

36Section 14 of the IBC prescribes a moratorium on the initiation of

CIRP proceedings and its effects. One of the purposes of the

moratorium is to keep the assets of the Corporate Debtor together

during the insolvency resolution process and to facilitate orderly

24

completion of the processes envisaged under the statute. Such

measures   ensure   the   curtailing   of   parallel   proceedings   and

reduce the possibility of conflicting outcomes in the process. In

this context, it is relevant to quote the February 2020 Report of

the Insolvency Law Committee, which notes as under:

“8.2   The   moratorium   under   Section   14   is

intended to keep “the corporate debtor's assets

together during the insolvency resolution process

and   facilitating   orderly   completion   of   the

processes   envisaged   during   the   insolvency

resolution   process   and   ensuring   that   the

company may continue as a going concern while

the creditors take a view on resolution of default.”

Keeping the corporate debtor running as a going

concern   during   the   CIRP   helps   in   achieving

resolution as a going concern as well, which is

likely to maximize value for all stakeholders. In

other jurisdictions too, a moratorium may be put

in   place   on   the   advent   of   formal   insolvency

proceedings,   including   liquidation   and

reorganization proceedings. The UNCITRAL Guide

notes   that   a   moratorium   is   critical   during

reorganization proceedings since it “facilitates the

continued operation of the business and allows

the   debtor   a   breathing   space   to   organize   its

affairs, time for preparation and approval of a

reorganization plan and for other steps such as

shedding   unprofitable   activities   and   onerous

contracts, where appropriate.” 

From the above, it can be seen that one of the motivations of

imposing a moratorium is for Section 14(1)(a), (b), and (c) of the

IBC to form a shield that protects pecuniary attacks against the

Corporate Debtor. This is done in order to provide the Corporate

25

Debtor with breathing space, to allow it to continue as a going

concern and rehabilitate itself. Any contrary interpretation would

crack this shield and would have adverse consequences on the

objective sought to be achieved. 

37Even if a company goes into liquidation, a moratorium continues

in terms of Section 33(5) of the IBC which reads as under:

33 (5) ­ Subject to section 52, when a liquidation

order has been passed, no suit or other legal

proceeding shall be instituted by or against the

corporate debtor:

Provided that a suit or other legal proceeding may

be instituted by the liquidator, on behalf of the

corporate debtor, with the prior approval of the

Adjudicating Authority.

38We may note that the IBC, being the more recent statute, clearly

overrides the Customs Act. This is clearly made out by a reading

of Section 142A of the Customs Act. The aforesaid provision notes

that the Custom Authorities would have first charge on the assets

of an assessee under the Customs Act, except with respect to

cases under Section 529A of Companies Act 1956, Recovery of

Debts   Due   to   Banks   and   Financial   Institutions   Act   1993,

Securitisation   and   Reconstruction   of   Financial   Assets   and

Enforcement of Security Interest Act, 2002 and the IBC, 2016.

Accordingly, such an exception created under the Customs Act is

duly   acknowledged   under   Section   238   of   the   IBC   as   well.

26

Additionally, we may note that Section 238 of the IBC clearly

overrides any provision of law which is inconsistent with the IBC.

Section 238 of IBC provides as under: 

238. Provisions   of   this   Code   to   override

other laws­

The provisions of this Code shall have effect,

notwithstanding   anything   inconsistent

therewith contained in any other law for the

time being in force or any instrument having

effect by virtue of any such law.

39The NCLAT, while playing down the effect of Section 142A of the

Customs Act and Section 238 of the IBC, has held that the

Customs Act is a complete code in itself and no person can seek

removal of goods from the warehouse without paying customs

duty. The NCLAT relies on the judgment in Collector of Customs

v. Dytron (India) Ltd., 1999 ELT 342 Cal., by the High Court of

Calcutta, which laid down that customs duty carry first charge

even during the insolvency process under Section 529 and 530 of

Companies Act, 1956. However, reliance on the said precedent is

not appropriate as the NCLAT has failed to notice that such

interpretation has been legislatively overruled by the inclusion of

Section 142A under the Customs Act, through Section 51 of the

Finance Act of 2011.

40From the above, it is to be noted that the Customs Act and the

IBC act in their own spheres. In case of any conflict, the IBC

overrides the Customs Act. In present context, this Court has to

27

ascertain as to whether there is a conflict in the operation of two

different statutes in the given circumstances. As the first effort,

this Court is mandated to harmoniously read the two legislations,

unless this Court finds a clear conflict in its operation.

41At the cost of repetition, we may note that the demand notices

issued by the respondent are plainly in the teeth of Section 14 of

the IBC as they were issued after the initiation of the CIRP

proceedings.   Moratorium   under   Section   14   of   the   IBC   was

imposed   when   insolvency   proceedings   were   initiated   on

01.08.2017. The first notice sent by the respondent authority was

on 29.03.2019. Further, when insolvency resolution failed and

the liquidation process began, the NCLT passed an order on

25.04.2019 imposing moratorium under Section 33(5) of the IBC.

It is only after this order that the respondent issued a notice

under   Section   72   of   the   Customs   Act   against   the   Corporate

Debtor. The various demand notices have therefore clearly been

issued by the respondent after the initiation of the insolvency

proceedings, with some notices issued even after the liquidation

moratorium was imposed. 

42We are of the clear opinion that the demand notices to seek

enforcement of custom dues during the moratorium period would

clearly violate the provisions of Sections 14 or 33(5) of the IBC, as

the case may be. This is because the demand notices are an

28

initiation   of   legal   proceedings   against   the   Corporate   Debtor.

However, the above analysis would not be complete unless this

Court   examines   the   extent   of   powers   which   the   respondent

authority can exercise during the moratorium period under the

IBC. 

43In   the   above   context,   the   judgment   of   this   Court   in  S.V.

Kondaskar v. V.M. Deshpande,  AIR 1972 SC 878, is extremely

relevant. In that case, this Court, while expounding the interplay

of Section 446 of the Companies Act 1956 (bankruptcy provision)

with the Income Tax Act,1961, held as follows: 

“7.  …Looking   at   the   legislative   history   and   the

scheme of the Indian Companies Act, particularly the

language of Section 446, read as a whole, it appears

to us that the expression “other legal proceeding” in

sub­section (1) and the expression “legal proceeding”

in sub­section (2) convey the same sense and the

proceedings in both the sub­sections must be such

as can appropriately be dealt with by the winding up

court.   The   Income   Tax   Act   is,   in   our   opinion,   a

complete code and it is particularly so with respect to

the   assessment   and   re­assessment   of   income   tax

with which alone we are concerned in the present

case. The fact that after the amount of tax payable by

an assessee has been determined or quantified its

realisation from a company in liquidation is governed

by the Act because the income tax payable also being

a debt has to rank pari passu with other debts due

from   the   company   does   not   mean   that   the

assessment proceedings for computing the amount of

tax must be held to be such other legal proceedings

as can only be started or continued with the leave of

the liquidation court under Section 446 of the Act.

The liquidation court, in our opinion, cannot perform

the functions of Income Tax Officers while assessing

29

the amount of tax payable by the assessees even if

the assessee be the company which is being wound

up by the Court. The orders made by the Income Tax

Officer in the course of assessment or re­assessment

proceedings   are   subject   to   appeal   to   the   higher

hierarchy under the Income Tax Act. There are also

provisions for reference to the High Court and for

appeals from the decisions of the High Court to the

Supreme  Court   and  then  there   are   provisions   for

revision by the Commissioner of Income Tax. It would

lead to anomalous consequences if the winding up

court   were   to   be   held   empowered   to  transfer   the

assessment   proceedings   to   itself   and   assess   the

company to income tax. The argument on behalf of

the appellant by Shri Desai is that the winding up

court is empowered in its discretion to decline to

transfer the assessment proceedings in a given case

but the power on the plain language of Section 446 of

the Act must be held to vest in that court to be

exercised only if considered expedient. We are not

impressed by this argument. The language of Section

446   must   be   so   construed   as   to   eliminate   such

startling consequences as investing the winding up

court   with   the   powers   of   an   Income   Tax   Officer

conferred on him by the Income Tax Act, because in

our view the legislature could not have intended such

a result.

8. The argument that the proceedings for assessment

or re­assessment of a company which is being wound

up can only be started or continued with the leave of

the liquidation court is also, on the scheme both of

the Act and of the Income Tax Act, unacceptable. We

have not been shown any principle on which the

liquidation court should be vested with the power to

stop   assessment   proceedings   for   determining   the

amount   of   tax   payable   by   the   company   which   is

being wound up. The liquidation court would have

full power to scrutinise the claim of the revenue after

income tax has been determined and its payment

demanded from the liquidator. It would be open to

the liquidation court then to decide how far under

the law the amount of income tax determined by the

Department should be accepted as a lawful liability

30

on the funds of the company in liquidation. At that

stage the winding up court can fully safeguard the

interests of the company and its creditors under the

Act. Incidentally, it may be pointed out that at the

Bar no English decision was brought to our notice

under which the assessment proceedings were held

to be controlled by the winding up court. On the view

that we have taken, the decisions in the case of Seth

Spinning Mills Ltd., (In Liquidation) (1962) 46 ITR 193

(Punj) (Supra) and the Mysore Spun Silk Mills Ltd., (In

Liquidation) (1968) 68 ITR 295 (Mys) (supra) do not

seem to lay down the correct rule of law that the

Income Tax Officers must obtain leave of the winding

up court for commencing or continuing assessment

or re­assessment proceedings.”

44Therefore, this Court held that the authorities can only take steps

to determine the tax, interest, fines or any penalty which is due.

However, the authority cannot enforce a claim for recovery or levy

of interest on the tax due during the period of moratorium. We

are of the opinion that the above  ratio  squarely applies to the

interplay between the IBC and the Customs Act in this context. 

45From the above discussion, we hold that the respondent could

only initiate assessment or re­assessment of the duties and other

levies. They cannot transgress such boundary and proceed to

initiate recovery in violation of Sections 14 or 33(5) of the IBC.

The interim resolution professional, resolution professional or the

liquidator, as the case may be, has an obligation to ensure that

assessment is legal and he has been provided with sufficient

power to question any assessment, if he finds the same to be

31

excessive. 

46There is another aspect of this case that needs to be highlighted

to portray the inconsistency of the Customs Act vis­

à­vis 

the IBC

during the moratorium period. In the present case, the demand

notice dated 11.07.2019 was issued by the respondent under

Section 72 of the Customs Act, in clear breach of the moratorium

imposed under Section 33(5) of the IBC. Issuing a notice under

Section 72 of the Customs Act for non­payment of customs duty

falls squarely within the ambit  of  initiating legal proceedings

against a Corporate Debtor. Even under the liquidation process,

the liquidator is given the responsibility to secure assets and

goods of the Corporate Debtor under Section 35(1)(b) of IBC.

47As laid down earlier, the Customs Act and IBC can be read in a

harmonious manner wherein authorities under the Customs Act

have   a   limited   jurisdiction   to   determine   the   quantum   of

operational debt – in this case, the customs duty – in order to

stake   claim   in   terms   of   Section   53   of   the   IBC   before   the

liquidator. However, the respondent does not have the power to

execute its claim beyond the ambit of Section 53 of the IBC. Such

harmonious construction would be in line with the ruling in

Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta , (2021) 7 SCC

209, wherein a balance was struck by this Court between the

jurisdiction   of   the   NCLT   under   the   IBC   and   the   potential

32

encroachment on the legitimate jurisdiction of other authorities. 

48However, it appears to us that in the impugned order, the NCLAT

has   misinterpreted   the   aforesaid   judgment   of   this   Court   in

Gujrat Urja Vikas Nigam Case (supra) and held as follows:

“7.16 Thus, it is clear that NCLT and NCLAT

cannot usurp the legitimate jurisdiction of other

Courts,   Tribunals   and   fora   when   the   dispute

does   not   arise   solely   from   or   relating   to   the

insolvency of the corporate debtor. In the instant

case, the Corporate Debtor had abandoned the

imported goods in the Customs warehouses for

several years and failed to pay the import duty

and other charges and had not taken any steps

to   take   possession   of   those   goods   for   several

years. Therefore, the importer had lost his right

to the imported goods. Consequently, Customs

Authorities are fully empowered under Section

72 of the Act to sell those goods to recover the

Government dues. Liquidator has no right to take

into possession over those goods for which the

Corporate Debtors title is deemed relinquished

by implication of law. Even before initiating the

Corporate   Insolvency   Resolution   Process,   the

Corporate   Debtor   company   could   not   have

secured the  possession of  the  imported goods

except by paying the Customs duty. Resolution

Professional/liquidator, who virtually represents

the company, cannot stand on a better footing

than the Corporate Debtor itself.”

49Such interpretation clearly ignores the fact that there was no

“abandonment of  goods” which  would authorize  the Customs

Authorities to initiate the adjudicatory process to transfer title to

themselves.   Before   any   goods   can   be   declared   to   have   been

“abandoned”, the same must be adjudged by some authority after

due notice. The position cannot be assumed or deemed. In the

33

case at hand, no such adjudication or notice has been placed on

record to suggest that such abandonment of the warehoused

goods had taken place prior to the imposition of the moratorium.

50The NCLAT, by deciding the question of passing of title from the

Corporate Debtor to the respondent authority, has clearly ignored

the mandate of Section 72(2) of the Customs Act relating to sale.

This interpretation of the NCLAT clearly ignores the effects of the

moratorium under Sections 14 and 33(5) of the IBC. The fact is

that the duty demand notice and notice under Section 72(2) of

the Customs Act, were issued during the moratorium period,

which has been completely ignored by NCLAT and has resulted in

rendering the moratorium otiose.

51The interpretation provided by the NCLAT, regarding the deemed

transfer of title of the goods from the assessee to the Customs

Authority under Section 72 of the Customs Act, would fly in the

face of Section 14 of the IBC, read with Sections 25 and 33(5).

Moreover, such deemed transfer cannot be countenanced in law

as   the   same   would   be   in   breach   of   Article   300A   of   the

Constitution, as properties are deemed to be transferred to the

Customs Authority without there being adequate hearing or any

adjudication   of   any   form.   Such   an   interpretation   cannot   be

accepted by this court. 

34

52Interestingly, in the present case, on 20.05.2019, 27.05.2019,

29.05.2019 & 18.09.2019 the Customs Authorities filed Form C

under Regulation 17 of IBBI Liquidation Process Regulation 2016

before   the   appellant/liquidator   in   order   to   stake   claims   for

distribution of proceeds of sale in consonance with Section 53 of

the IBC.  The respondent authority, does a U­turn on filing such

claims   and   instead,   unilaterally   decides   to   initiate   recovery

proceedings under Section 72(2) of the Customs Act. Further, the

Customs Authority bypasses even the notice and adjudicatory

requirements contemplated under Section 72(2) of the Customs

Act and takes the position that there is a deemed transfer of title

with respect to the assets as customs duty and other levies were

not duly paid. Such a change in stance is clearly an afterthought,

without there being any basis in law to by­pass the specialized

procedure laid down under the IBC.

53For the sake of clarity following questions, may be answered as

under:

a)Whether the provisions of the IBC would prevail over the

Customs Act, and if so, to what extent?

The IBC would prevail over The Customs Act, to the extent that

once moratorium is imposed in terms of Sections 14 or 33(5) of

the IBC as the case may be, the respondent authority only has

35

a   limited   jurisdiction   to   assess/determine   the   quantum   of

customs duty and other levies. The respondent authority does

not have the power to initiate recovery of dues by means of

sale/confiscation, as provided under the Customs Act.

b)Whether the respondent could claim title over the goods

and issue notice to sell the goods in terms of the Customs

Act when the liquidation process has been initiated?

answered in negative.

54On   the   basis   of   the   above   discussions,   following   are   our

conclusions:

i) Once moratorium is imposed in terms of Sections 14 or

33(5) of the IBC as the case may be, the respondent

authority   only   has   a   limited   jurisdiction   to

assess/determine the quantum of customs duty and

other levies. The respondent authority does not have

the power to initiate recovery of dues by means of

sale/confiscation, as provided under the Customs Act.

ii) After such assessment, the respondent authority has

to   submit   its   claims   (concerning   customs

dues/operational debt) in terms of the procedure laid

down,   in   strict   compliance   of   the   time   periods

prescribed   under   the   IBC,   before   the   adjudicating

36

authority.

iii)In any case, the IRP/RP/liquidator can immediately

secure goods from the respondent authority to be dealt

with appropriately, in terms of the IBC.

55Resultantly, we allow the appeal and set aside the impugned

order and judgment of the NCLAT. There shall be no orders as to

costs.

...........................CJI.

(N.V. RAMANA)

                …...........................J.

(J.K. MAHESHWARI )

…...........................J.

(HIMA KOHLI)

NEW DELHI;

AUGUST 26, 2022.

37

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7722 OF 2021

M/S. R.K. INDUSTRIES (UNIT-II) LLP .… APPELLANT

Versus

M/S. H.R. COMMERCIALS PRIVATE LIMITED AND OTHER …..RESPONDENTS

AND

CIVIL APPEAL NO. 7731 OF 2021

WELSPUN STEEL RESOURCES PRIVATE LIMITED .… APPELLANT

Versus

M/S R.K. INDUSTRIES (UNIT II) LLP AND OTHERS …..RESPONDENTS

J U D G M E N T

HIMA KOHLI, J.

1. By this common judgment, we propose to decide both the appeals one filed

by M/s. R.K. Industries (Unit-II) LLP (appellant in Civil Appeal No.7722 of 2021 and

respondent No.1 in Civil Appeal No.7731 of 2021) and Welspun Steel Resources

Private Limited

1

(appellant in Civil Appeal No.7731 of 2021 and respondent No.7 in

Appeal No.7722/2021) against the judgment dated 10

th

December, 2021 passed by

1 For short ‘Welspun’

Page 1 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

the Appellate Authority, National Company Law Appellate Tribunal, Principal Bench,

New Delhi

2

in Company Appeal (AT) (Ins.)No.690 of 2021 filed by R.K. Industries

under Section 61 of the Insolvency and Bankruptcy Code, 2016

3

, assailing the order

dated 16

th

August, 2021 passed by the Adjudicating Authority, (National Company

Law Tribunal, Ahmedabad)

4

in Interlocutory Application No.273 of 2021 (filed by the

respondent No.1 - H.R. Commercial Private Limited, in IA No.698 of 2020 (filed by

Liquidator) in Company Petition (IB) No.53 of 2017. For the sake of convenience, we

propose to refer to the facts narrated in Civil Appeal No.7722 of 2021.

FACTS OF THE CASE

2.The facts of the case necessary to decide the present appeals are as follows.

2.1Vide Agreement dated 26

th

February, 2008, Gujarat Maritime Board

5

leased

out a parcel of land to ABG Shipyard Limited

6

for a period of thirty years. On 1

st

August, 2017, ICICI Bank Limited moved an application for initiation of Corporate

Insolvency Resolution Process

7

against the Corporate Debtor under Section 7 of the

IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules

8

, 2016 before the Adjudicating Authority, NCLT, Ahmedabad [CP(IB)

2 For short ‘NCLAT’

3 For short ‘IBC’

4 For short ‘NCLT’

5 For short ‘GMB’

6 For short ‘Corporate Debtor’

7 For short ‘CIRP’

8 For short ‘IBC Rules’

Page 2 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

No.53/NCLT/AHM/2017] wherein, Mr. Sundaresh Bhat was appointed as an Interim

Resolution Professional

9

. As no Resolution Plan was approved during the CIRP, an

application was moved by the IRP for initiating liquidation proceedings. Vide order

dated 25

th

April, 2019, the Adjudicating Authority ordered liquidation of the Corporate

Debtor and appointed Mr. Sundaresh Bhat as the Liquidator. The respondent No.2 -

Liquidator made efforts to sell the assets of the Corporate Debtor through an e-

auction process, as contemplated in Sections 33 and 35 of the IBC read with

Schedule-I of the Insolvency and Bankruptcy Board of India (Liquidation Process)

Regulations, 2016

10

. Five e-auctions were conducted by the respondent No.2 -

Liquidator to sell the consolidated assets of the Corporate Debtor on 17

th

September,

2019; 27

th

September, 2019; 22

nd

October, 2019; 11

th

November, 2019 and 5

th

August, 2020. When the first four e-auctions were unsuccessful, in the fifth e-

auction, the respondent No.2 - Liquidator offered sale of the assets on a stand-alone

basis or singly or in smaller lots, besides compositely. Except for the sale of two

residential assets, no purchasers stepped forward to purchase the other assets.

2.2.Faced with the above situation, the respondent No.2 - Liquidator moved an

application (IA No.698 of 2020) before the NCLT for permission to sell the assets of

the Corporate Debtor through Private Sale, in terms of Regulation 33(2)(d) of the

Liquidation Regulations, which was duly allowed. On receiving offers from potential

9 For short ‘IRP’

10 For short ‘Liquidation Regulations’

Page 3 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

buyers, the respondent No.2 - Liquidator approached the Stakeholders, who in the

Meeting conducted on 28

th

January, 2021, took a decision to go in for the sale of the

Dahej Material and Scrap

11

at amounts higher than the reserve price of the Dahej

Material fixed at ₹516 crores in the fifth round of the e-auction. The Stakeholders’

Consultative Committee

12

resolved that the prospective bidders, who proposed to

participate in the Private Sale, ought to be encouraged to participate in the Swiss

Challenge Process. As a result, the Swiss Challenge Process was adopted for sale

of the assets of the Corporate Debtor through Private Sale.

2.3.The first Swiss Challenge Process that commenced on 12

th

March, 2021, was

unsuccessful as the highest offeror failed to deposit the earnest money amount of

10% of the reserve price. The SCC decided to conduct a second Swiss Challenge

Process at a base price of ₹460 crores (being lower than the earlier calculated

reserve price of ₹516 crores) as some assets from the Dahej Material were kept

reserved for a potential buyer. The second Swiss Challenge Process was initiated

on 22

nd

March, 2021 and at the Anchor Bid stage, the respondent No.2 - Liquidator

received bids from R.K. Industries, appellant in Civil Appeal No.7731/2021,

respondent No.4 - V.K. Industrial Corporation Limited and respondent No.5 – M/s

Ankit International.

11 For short ‘Dahej Material’

12 For short ‘SCC’

Page 4 of 59

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2.4.On 23

rd

March, 2021, the appellant submitted its bid of ₹431 crores along

with Expression of Interest and deposited a sum of ₹1.00 crore in terms of the bid

requirement. Though the last date for submitting the Earnest Money Deposit

13

in

terms of the Process Document was as 24

th

March, 2021, the appellant deposited

the EMD of ₹43.10 crores with the respondent No.2 – Liquidator for selection as an

Anchor Bidder on 26

th

March, 2021 along with an affidavit stating inter alia that it

agreed to be bound by the terms of the Swiss Challenge Process.

2.5.The second stage of the Swiss Challenge Process commenced on 27

th

March, 2021 when the respondent No.2 - Liquidator published an advertisement

inviting bidders to participate in the Swiss Challenge Process and submit their bids

against the Anchor Bid. In response thereto, the appellant, respondents No.1, 3, 4,

5 and 6 submitted their bids. On 2

nd

April, 2021, the respondent No.1 – HR

Commercials Private Limited proposed to bid in a consortium comprising of itself and

the respondents No.3 to 6. The said consortium also submitted an EMD in the

second stage of the Swiss Challenge Process.

COMMENCEMENT OF LITIGATION

ORDER OF THE ADJUDICATING AUTHORITY (NCLT)

3.On 6

th

April, 2021, respondent No.1 – HR Commercials Private Limited filed

an application before the Adjudicating Authority (NCLT), being IA No.273 of 2021,

13 For short ‘EMD’

Page 5 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

challenging the bid process in the second Swiss Challenge Process wherein, the

appellant was selected as the Anchor Bidder. The NCLT passed an interim order on

the aforesaid application on 7

th

April, 2021 directing the respondent No.2 - Liquidator

to complete the second Swiss Challenge Process only upto the stage of

announcement of the highest bidder and for deferring the rest of the process to a

date after 12

th

April, 2021. The said interim order dated 7

th

April, 2021 was

subsequently extended by the NCLT on 27

th

April, 2021 and 3

rd

May, 2021.

4.Aggrieved by the aforesaid orders, the appellant – R.K. Industries filed an

appeal before the Appellate Authority/NCLAT, which was disposed of, vide order

dated 18

th

June, 2021 with a direction issued to the NCLT to expeditiously decide IA

No.273 of 2021, moved by the respondent No.1 – HR Commercials Private Limited.

[In the meantime, respondent No.7 – Welspun sent an e-mail dated 19

th

May, 2021 to

the respondent No.2 – Liquidator expressing its interest in the Dahej Material as well

as the land that was leased out by GMB to the Corporate Debtor]. A series of e-

mails were exchanged between the respondent No.2–Liquidator and the respondent

No.7–Welspun on its offer to acquire the consolidated assets of the Corporate Debtor

at a price of ₹627.50 crores. When the request of the respondent No.7–Welspun for

permission to inspect the Dahej Material at the site was turned down by the

respondent No.2 - Liquidator on the ground that the matter was sub judice and the

material was not available for bidding, it filed an application before the NCLT (IA

Page 6 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

No.445 of 2021) for issuing directions to the respondent No.2 – Liquidator to

consider and accept its offer for buying the consolidated assets of the Corporate

Debtor. Around the same time, the respondent No.8 – Kanter Steel India Private

Limited also moved an application (IA No.379 of 2021) before the NCLT for quashing

of the second Swiss Challenge Process.

5.On 5

th

July, 2021, the NCLT directed the respondent No.2 – Liquidator to

permit the respondent No.7 – Welspun to inspect the assets of the Corporate Debtor.

After the said inspection, vide letter dated 2

nd

August, 2021, the respondent No.7 –

Welspun hiked its offer for the consolidated assets from ₹627.50 crores to ₹650

crores on an ‘as is where is basis’; ‘as is what is basis’ and ‘wherever there is basis’.

6.On 6

th

August, 2021, a Meeting of the SCC was convened wherein, the

respondent No.2– Liquidator appraised the stakeholders of the further developments

that had taken place and the offer letter dated 2

nd

August, 2021 issued by the

respondent No.7–Welspun bidding for the consolidated assets of the Corporate

Debtor. The SCC advised the respondent No.2–0Liquidator to place the relevant

facts and the bid received from the respondent No.7–Welspun before the NCLT. It is

the stand of the respondent No.2–Liquidator that in the hearing conducted on 9

th

August, 2021, the NCLT had orally directed him to place the offer made by the

respondent No.7-Welspun before the stakeholders.

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7.Pursuant to the aforesaid direction, a Meeting of the SCC was conducted on

13

th

August, 2021 and it was decided that it would be beneficial if the Dahej Material

and the Shipyard are sold as composite assets to maximize realization to the

stakeholders in the shortest possible time and for quick disposal of the assets. In

other words, the stakeholders were of the view that a composite sale of the Dahej

Material and the Shipyard would be more beneficial vis-à-vis the sale of the Dahej

Material alone, subject matter of the second Swiss Challenge Process.

8.On 16

th

August, 2021, the respondent No.7–Welspun sent an e-mail to the

respondent No.2–Liquidator once again increasing its offer for the consolidated

assets of the Corporate Debtor from ₹650 crores to ₹675 crores. It also offered to

pay a sum of ₹67.50 crores as EMD with an assurance that full payment would be

made on or before 30

th

September, 2021. On the very same day, when the matter

was listed before the NCLT, the respondent No.2–Liquidator apprised the NCLT of

the recommendations made by the SCC for entertaining the consolidated offer

received from the respondent No.7–Welspun. Noting the aforesaid submission that

removal of the Dahej Material will take upto 15 to 20 months and only thereafter,

could the process for conducting sale of the land be undertaken, which would further

delay the entire liquidation process and having regard to the view of the stakeholders

that consolidated sale of all the assets of the Corporate Debtor at one go will save

time and maximize the value to the stakeholders, the NCLT passed an order on 16

th

Page 8 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

August, 2021, permitting the respondent No.2–Liquidator to go in for Private Sale of

all the assets of the Corporate Debtor and complete the entire sale process in

consultation with the SCC within a period of three weeks. The respondent No.2–

Liquidator was also directed to permit all the parties before the NCLT to participate in

the bidding process.

ORDER OF THE APPELLATE AUTHORITY (NCLAT)

9.It was the aforesaid order that was challenged by the appellant–R.K.

Industries before the NCLAT, which has been dismissed, by the impugned judgment

dated 10

th

December, 2021. However, the NCLAT has gone on to modify the order

dated 16

th

August, 2021 passed by the NCLT directing the respondent No.2–

Liquidator to complete the entire private sale within three weeks in the following

manner :

“39. It is clear from the ratio of the above mentioned judgments

that the specific context in which an auction is carried out can

only elucidate the aspect of arbitrariness and favouritism or

otherwise. Thus, in the present appeal where the Impugned

Order challenging the stoppage of second Swiss Challenge

Process and taking up a fresh private sale process has been

challenged, it is seen that the decision of the stakeholders and

the liquidator, upon which the Adjudicating Authority has based

its order does not grant any particular party any favour. It is

driven by the stakeholders' wish to get the liquidation process

concluded early without losing sight of maximization of value of

assets. Also, even though this is a private sale as opposed

to sale by a government authority, we are of the opinion

that the standards and norms of transparency, fairness and

responsibility should be adopted without any qualification

or reservation and all prospective bidders should get

Page 9 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

sufficient notice and time to enable them to participate in

the bidding in an effective manner. The process should be

taken up after proper notice to prospective buyers and not

limited to chosen few.

40. The impugned order directs the Liquidator to complete the

entire private sale (relating to the assets contained in the

WSRPL offer) within three weeks from the date of Adjudicating

Authority's order. It additionally directs the Liquidator to allow

the parties who are involved in the hearing of CP(IB) No. 53 of.

2017 and related IAs to participate in the sale process. We are

of the opinion that rushing into the sale of composite

assets with only such parties participating who had earlier

not evinced keen interest in the five failed rounds of e-

auction may not achieve the value maximization objective.

The process should be restarted with adequate preparation

and after giving open notice to prospective buyers. We also

hope liquidator will take steps to initiate and complete the sale

process in accordance with the provisions of IBC and

Liquidation Regulations without any favouritism and bias and

with transparency and fairness.

41. In view of the above discussion, we direct, in partial

modification of the impugned order, that while the second

Swiss Challenge Process stands cancelled, the private sale

process should be undertaken in accordance with the

directions contained in the preceding paragraph of this

judgment as per relevant legal provisions.”

(emphasis added)

THE APPEAL

10. It is the aforesaid order that has brought the appellant - R.K. Industries to this

Court with a grievance that there was no good reason for the NCLAT to have

permitted the procedure of Private Sale of the composite assets of the Corporate

Debtor instead of taking the Second Swiss Challenge Process to its logical

conclusion. As regards Welspun, respondent No.7 in Civil Appeal No. 7722 of 2021

and the appellant in Civil Appeal No. 7731 of 2021, the limited grievance raised is

Page 10 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

with regard to the directions issued in the penultimate paragraphs of impugned

judgment of restarting the process of Private Sale after issuing an open notice to all

prospective buyers instead of confining the same to the parties who had earlier

participated in the process.

SUBMISSIONS OF THE APPELLANT – R.K. INDUSTRIES

11.Arguing on behalf of the appellant–R.K. Industries, Mr. Gaurav Mitra, learned

Senior counsel submitted that the NCLAT has erred in upholding the order of NCLT

of going in for Private Sale of the composite assets of the Corporate Debtor

inasmuch as there were no takers for the same at the announced reserve price in

five rounds of e-auction conducted earlier by the respondent No.2–Liquidator.

Contending that when there are no allegations or observations made in the

impugned order that the Swiss Process challenge was irregular or improper, there

was no justification for interfering with the said process that had already been set into

motion for a second time in March, 2021 wherein the appellant was declared as the

Anchor Bidder thereby giving it a Right of First Refusal

14

in respect of the Dahej

Material. Finding fault with the observations made in the impugned order that the

views of the stakeholders regarding the sale of assets are significant as they are the

ultimate beneficiaries of the liquidation process and a substantial period of time had

already been spent in the liquidation process without any fruitful results, it was

14 For short ‘ROFR’

Page 11 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

submitted on behalf of the appellant that the aforesaid observations run contrary to

Regulation 31-A of the Liquidation Regulations and Section 35(2) of the IBC that

state in clear terms that the views of the SCC are not binding on the Liquidator. It

was urged that the NCLT and the NCLAT ought not to have permitted the respondent

No.2-Liquidator to terminate the Swiss Challenge Process when it was at the final

stage as the said termination will lead to a further delay and huge financial losses for

all the concerned parties. In support of the submission that sale through the Swiss

Challenge Process has been recognized by courts as a fruitful method of

maximisation of value, reliance has been placed on Ravi Development v. Krishna

Parishthan & Others

15

.

12.It was next submitted by learned counsel for the appellant that the respondent

No.20-Liquidator having failed to succeed in the e-auction process that was

undertaken by him on five occasions, he had himself supported the Swiss Challenge

Process for liquidating the assets of the Corporate Debtor and therefore, he could

not have been permitted to drop the said process halfway through and approach the

NCLT for seeking permission to conduct a Private Sale of the composite assets of

the Corporate Debtor. It was contended that the NCLAT has failed to appreciate that

the respondent No.7-Welspun too had all the opportunity to participate in the

previous e-auctions conducted by the respondent No.2-Liquidator as also in the

15 (2009) 7 SCC 462

Page 12 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

Second Swiss Challenge Process in respect of the Dahej Material and having

elected not to do so, its first offer made as late as on 19

th

May, 2021, culminating in

the final offer made on 16

th

August, 2021, ought not have been entertained.

SUBMISSIONS OF THE RESPONDENT NO.2 – LIQUIDATOR

13.The conduct of the respondent No.2 - Liquidator has also been questioned by

the appellant on the ground that initially he had repeatedly refused to entertain the

offers made by the respondent No.7-Welspun, but later on, did a complete ‘U’ turn in

the attempt to transfer the composite assets of the Corporate Debtor to the said

respondent and towards this aim, has tailor-made the Bid Documents to favour the

respondent No.7. It was argued that simply because Clause 11.6 of the terms of the

Second Swiss Challenge Process entitles the respondent No.2-Liquidator to

abandon/cancel/terminate/waive the said process at any stage, it cannot be a ground

to take such a step in an arbitrary manner, as has been done in the instant case,

more so when the entire sale process had almost reached a closure when

respondent No.7 - Welspun suddenly intervened seeking a composite sale of the

assets of the Corporate Debtor. Lastly, learned Senior Counsel for the appellant

submitted that the NCLAT has erred in directing that a fresh bid ought to be

conducted. Instead, the appellant being the Anchor Bidder, ought to be given the

Page 13 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

benefit of matching the highest bid submitted without scrapping the Second Swiss

Challenge process.

14.Mr. Arvind Datar and Mr. Savla, learned Senior counsel appearing for the

respondent No.2 - Liquidator sought to repel the arguments advanced on behalf of

the appellant and asserted that the respondent No.2 - Liquidator had conducted the

liquidation process of the Corporate Debtor in consultation with the stakeholders at

every step and in the best interest of the Corporate Debtor, while strictly adhering to

the provisions of the IBC and the Liquidation Regulations. Laying emphasis on the

mandate of the Liquidator under the IBC to ensure maximisation of the value of the

assets of the Corporate Debtor, it was stated that the intention of the respondent

No.2 - Liquidator all through was to sell the consolidated assets of the Corporate

Debtor and towards this direction, five e-auctions were conducted by him. In the first

two e-auctions, attempts were made to sell the assets of the Corporate Debtor

compositely but that was to no avail. Left with no other option, respondent No.2 -

Liquidator decided to offer the assets of the Corporate Debtor for sale singly or in

smaller lots, besides compositely. Despite adopting the aforesaid route in the third,

fourth and fifth e-auction processes, the auction sales failed to take off and none of

the assets of the Corporate Debtor could be liquidated except for two residential

apartments situated in Mumbai and Ahmedabad. It was only after five failed auctions

that the respondent No.2 - Liquidator moved an application before the NCLT for

Page 14 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

permission to sell the assets of the Corporate Debtor by way of Private Sale, in terms

of Regulation 33(2)(d) of the Liquidation Regulations, which was duly allowed.

15.Arguing that the appellant has no right to insist that the respondent No.2 -

Liquidator ought to have concluded the Second Swiss Challenge Process when a

higher offer was available and was duly recommended by the stakeholders, learned

counsel cited the Minutes of the Meeting of the stakeholders held on 13

th

August,

2021 recording the view of the stakeholders that a composite sale of the Dahej

assets as opposed to the sale set out under the Swiss Challenge process, would be

far more beneficial and lead to maximising recovery in a guaranteed time line and

that the said strategy ought to be adopted to ensure certainty of realization of the

sale proceeds in the shortest possible time. It was stated that the respondent No.2 -

Liquidator was only acting in terms of the views expressed by the stakeholders which

stood to reason and logic and the said view has found favour with both, the NCLT as

also the NCLAT.

16.As for the plea taken by the appellant that the Second Swiss Challenge

Process ought to have been taken to its logical conclusion and could not have been

abandoned midstream, learned counsel for the respondent No.2 - Liquidator

submitted that simply because the appellant had participated in and was selected as

an Anchor Bidder in the Second Swiss Challenge Process, does not mean that it has

Page 15 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

any vested right to have the same concluded in its favour. Moreover, the said

process comprises of two-stage bidding and the second stage which involved

opening the process to the public to match the bid given by the appellant as the

Anchor Bidder, was not concluded. Relying on the decisions in Laxmikant and

Others v. Satyawan and Others

16

and State of Jharkhand and Others v.

CWE-Soma Consortium

17

, it was canvassed that since the Second Swiss

Challenge Process was not concluded, no vested right had accrued in favour of the

appellant for seeking enforcement in the Court of Law.

17.It was next argued that having accepted the terms of Anchor Bid Document,

the appellant cannot be permitted to challenge the decision of the respondent No. 2-

Liquidator who had to cancel the Second Swiss Challenge Process. In this context,

reference was made to the affidavit dated 23

rd

March, 2020 submitted by the

appellant wherein it had undertaken to remain unconditionally and irrevocably bound

by the Swiss Challenge Process document as also by the decision of the respondent

No.2 - Liquidator to cancel/ abandon/modify at any time solely at his discretion, the

sale process or any part thereof. To bring home the said point, reliance has been

placed on Clause 11.6 of the Swiss Challenge Process and Clause 12.3 of the

Anchor Bid Document. To buttress the argument that the entity issuing the tender is

well empowered to cancel the process if the tender documents so permit, learned

16 (1996) 4 SCC 208

17 (2016) 14 SCC 172

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Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

counsel has cited CWE-Soma Consortium (supra); Tata Cellular v. Union of

India

18

and Air India v. Cochin International Airport Limited and Others

1 9. The

decisions in Montecarlo Limited v. National Thermal Power Corporation

Limited

20

and Agmatel India Private Limited v. Resources Telecom and Others

21

have been relied on in support of the submission that courts should show restraint in

matters relating to the interpretation of the tender document and the Agency floating

the tender is best placed to decide its requirements.

18.Refuting the submission made on behalf of the appellant that the respondent

No.2 - Liquidator has adopted an unfair process for conducting Private Sale of the

assets of the Corporate Debtor, learned counsel asserted that there are no malafides

on the part of the Liquidator in inviting fresh bids after taking the decision to cancel

the Second Swiss Challenge Process when the stakeholders were duly consulted

and they had unanimously expressed an opinion to go in for Private Sale of the

composite assets of the Corporate Debtor. It was pointed out that even after

receiving an offer from the respondent No. 7-Welspun in May, 2021, respondent No.2

- Liquidator did not unilaterally decide to scrap the Second Swiss Challenge Process.

Rather, he approached the stakeholders on 6th August, 2021 and only after receiving

a green signal from them, he took the matter to the NCLT. Alluding to the terms of

18 (1994) 6 SCC 651

19 (2000) 2 SCC 617

20 (2016) 15 SCC 272

21 (2022) 5 SCC 362

Page 17 of 59

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Schedule I, Clause 2(3) of the Liquidation Regulations, it was argued that Private

Sale through direct liaison with potential buyers or through the agents is permissible.

The attention of the Court was also drawn to Regulation 4 of the Liquidation

Regulations which requires the liquidation process to be completed within two years

and it was submitted that the order for liquidation of the Corporate Debtor was

passed on 24

th

May, 2019 and three years have already lapsed since then and if the

Dahej land and scrap are directed to be sold separately, it will require a minimum

period of 15 to 18 months to remove the material from the Dahej shipyard thereby

delaying sale of the Dahej land and buildings and adversely impacting the value of

the Corporate Debtor and its assets.

19.The only grievance raised on behalf of the respondent No.2 - Liquidator is in

respect of the directions issued in the impugned order calling upon him to restart the

process of Private Sale dated 24

th

August, 2021 after giving an open notice to all the

prospective buyers. Supporting a similar stand taken by the respondent No.7 -

Welspun (appellant in Civil Appeal No. 7731 of 2021) that any such step will delay

the liquidation process and result in putting the clock back to the stage of open

auction, learned counsel submitted that the process that is under challenge is the

Private Sale process which is duly contemplated in Regulation 33(2) of the

Liquidation Regulations and cannot be questioned. Additionally, reference was made

to a subsequent development where the Core Committee of Financial Creditors

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conducted a meeting on 15

th

December, 2021, after the impugned order was passed

and had expressed a unanimous view that the Private Sale process should be

continued and not restarted having regard to the fact that it has taken almost three

years to find a buyer and the same is at the stage of being brought to a closure. A

copy of the minutes of the Core Committee held on 15

th

December, 2021, has been

enclosed with IA No.34322/2022 (application for permission to file additional

documents) filed by the respondent No.2 – Liquidator.

SUBMISSIONS OF THE RESPONDENT NO. 7 - WELSPUN

20.Arguments advanced by Mr. Aman Raj Gandhi, learned counsel for Welspun,

respondent No.7 in Civil Appeal No. 7722 of 2021 and appellant in Civil Appeal No.

7731 of 2021 are broadly on the same lines as those advanced on behalf of the

respondent No.2 – Liquidator. It was submitted that the appellant was involved in the

bidding process since March, 2021 and had all the opportunity to conduct site visits

and undertake due diligence to come up with a bid for the consolidated assets

offered for sale by the respondent No.2 – Liquidator, but it failed to do so that even

as on date, the appellant has not evinced any interest in bidding for the consolidated

assets of the Corporate Debtor; that the entire effort of the appellant is to resort to

dilatory tactics and stall the liquidation process; that earlier too, Welspun was

constrained to approach this Court by way of Civil Appeal No. 5855 of 2021 in view

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of the aforesaid conduct of the appellant and it was only after an order was passed

by this Court on 21

st

September, 2021, requesting the NCLAT to dispose of the

appeal preferred by the appellant within two months that the impugned order has

been passed which deserves to be upheld except to the extent that the NCLAT has

directed the Private Sale process to be restarted after giving an open notice to the

prospective buyers. Stressing the fact that such a direction is not in consonance with

the object of the IBC and does not subserve the interest of the stakeholders who

have already given their unanimous consent to the Private Sale of the composite

assets of the Corporate Debtor by invitation, learned counsel for Welspun has

argued that the aforesaid direction deserves to be set aside, being bereft of any

rationale. Besides, the said direction has been passed by the NCLAT when none of

the parties appearing before it had sought any such relief. Citing the decision in

Swiss Ribbons Private Limited and Another v. Union of India and Others

22 and

EBIX Singapore Private Limited v. Committee of Creditors of Educomp

Solutions Limited and Another

23 wherein it has been observed that a delay in the

liquidation process results in depletion in the value of the Corporate Debtor and a low

realization, learned counsel for Welspun argued that it is imperative to preserve the

economic value of the assets of the Corporate Debtor and expedite the realization

process by carrying it forward instead of putting the clock back and directing the

22 (2019) 4 SCC 17

23 (2022) 2 SC 401

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respondent No.2 - Liquidator to start afresh. In fact, the aforesaid direction was

sought to be described as a fusion of two distinct concepts of ‘Private Sale’ and

‘public auction’ and it was submitted that issuance of an ‘open notice’ runs contrary

to the very object of going in for a private sale. Learned counsel for Welspun

concluded by citing a recent decision in Jaypee Kensington Boulevard

Apartments Welfare Association and Others v. NBCC (India) Limited and

Others

24

where emphasis has been laid on the object of the IBC being to ensure

resolution/liquidation in a time bound manner for maximization of value assets in

order to balance the interest of all the stakeholders. It was urged that as the

respondent No.2 - Liquidator has taken a decision to sell the assets of the Corporate

Debtor on a composite basis by Private Sale in consultation with the Stakeholders

Consolidation Committee, the NCLAT ought not to have replaced the commercial

wisdom of the SCC with its own view, without offering any justification for doing so.

SUBMISSIONS OF RESPONDENT NO.8 – M/s KANTER STEEL INDIA PRIVATE

LIMITED

21.Mr. Gaurav Mathur, learned counsel for the respondent No.8 – M/s. Kanter

Steel India Private Limited has also supported the submissions made on behalf of

the respondent No.7 - Welspun and contended that the private sale process initiated

24 (2022) 1 SCC 401

Page 21 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

by the respondent No.2 - Liquidator has the potential of fetching greater value for the

larger good of the stakeholders of the Corporate Debtor and deserves to be

continued. Referring to the offer of ₹431 crores made by the appellant under the

Second Swiss Challenge Process, it was stated that the same was evidently below

the base price of ₹460 crores declared by the respondent No.2 - Liquidator and the

appellant was also in clear breach of the timelines fixed in the Sale Process

Documents. The timeline fixed for submitting the earnest money deposit in the Sale

Process Document for the Anchor Bidder was 24

th

March, 2021, by 2:00 P.M.

whereas, the appellant had admittedly deposited the earnest money two days

thereafter, on 26

th

March, 2021, which itself was sufficient ground for the respondent

No.2 - Liquidator to have rejected its offer at the threshold. It was submitted that all

the aforesaid submissions form a part of the objections taken by the respondent No.8

and other parties before the NCLT which were still pending when the matter came to

be finally decided by the NCLAT. It has thus been argued that the appellant having

participated in the bid process with eyes wide open and without any demur, it cannot

be heard to state now that a vested right has been created in its favour merely on

account of its participation in the bid process.

SUBMISSION OF THE APPLICANT/INTERVENOR, KIRI INFRASTRUCTURE

PRIVATE LIMITED (IA NO.166862/2021)

Page 22 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

22.Mr. Mukul Rohtagi, learned Senior counsel for the applicant - Kiri

Infrastructure submitted that the applicant had filed an application before the

Adjudicating Authority (NCLT) on 23

rd

November, 2021 seeking impleadment and had

made an offer of ₹680 crores to purchase the Dahej Material, the Shipyard land and

buildings. Simultaneously, a similar application was moved by the applicant before

the NCLAT. However, the said application was not on record when the Company

Appeal was listed before the NCLAT on 24

th

November, 2021, on which date, orders

were reserved in the Appeal followed by the impugned judgment that was passed on

10

th

December, 2021. The applicant seeks impleadment in the present Appeal and

supports the impugned judgment to the extent that the NCLAT had directed the

respondent No.2 – Liquidator to restart the sale process after issuing an open notice

to the prospective buyers, thereby affording an opportunity to the applicant to submit

a bid for the consolidated assets of the Corporate Debtor on a plea that so far, its

offer is the highest.

ANALYSIS

23.We have perused the impugned judgment as well as the documents placed

on record and carefully considered the rival submissions advanced by learned

counsel for the parties. Only two points arise for consideration in these appeals.

Firstly, whether the respondent No.2 – Liquidator was justified in discontinuing the

Page 23 of 59

Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

Second Swiss Challenge Process for the sale of a part of the assets of the Corporate

Debtor wherein the appellant – R.K. Industries was declared as an Anchor Bidder

and opting for a Private Sale Process through direct negotiations in respect of the

composite assets of the Corporate Debtor? If so, was the NCLAT justified in

directing the respondent No.2 – Liquidator to restart the entire process of Private

Sale after issuing an open notice to prospective buyers instead of confining the

process to those parties who had participated in the process earlier?

24.To begin with, it is considered necessary to have an overview of the IBC and

its relevant provisions along with the Liquidation Regulations for a better

understanding of the manner in which a Liquidator is expected to proceed for

conducting the sale of the assets of the Corporate Debtor in liquidation.

25.Conscious of the inadequate and ineffective framework of the insolvency and

bankruptcy resolution, the Government decided to overhaul the insolvency regime.

Towards this end, there were several rounds of deliberations and consultations,

followed by presentation of Committee Reports, prominent among them being the

Report of the Bankruptcy Law Reforms Committee

25

Volume I : Rationale and Design

of November, 2015

26

. As observed in Innovative Industries Limited v. ICICI Bank

25 For short ‘BLRC’

26 The Report of the Bankruptcy and Law Reforms Committee Vol. I : Rationale and

Design, accessible at

<https://www.ibbi.gov.in/uploads/resources/BLRCReportVol1_04112015.pdf >,

Page 24 of 59

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and Another

27

, the aim of the Parliament was to codify a legislation that would bring

the entire insolvency and bankruptcy regime under one umbrella and speed up the

process.

26.The Statement of the Objects and Reasons that prevailed upon the legislature

to enact the IBC is as follows :

“12. …. The Statement of Objects and Reasons of the Code

reads as under:

“Statement of Objects and Reasons — There is no single law in

India that deals with insolvency and bankruptcy. Provisions

relating to insolvency and bankruptcy for companies can be

found in the Sick Industrial Companies (Special Provisions) Act,

1985, the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993, the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002

and the Companies Act, 2013. These statutes provide for

creation of multiple fora such as Board of Industrial and

Financial Reconstruction (BIFR), Debts Recovery Tribunal

(DRT) and National Company Law Tribunal (NCLT) and their

respective Appellate Tribunals. Liquidation of companies is

handled by the High Courts. Individual bankruptcy and

insolvency is dealt with under the Presidency Towns Insolvency

Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt

with by the Courts. The existing framework for insolvency and

bankruptcy is inadequate, ineffective and results in undue

delays in resolution, therefore, the proposed legislation.

2. The objective of the Insolvency and Bankruptcy Code,

2015 is to consolidate and amend the laws relating to

reorganisation and insolvency resolution of corporate persons,

partnership firms and individuals in a time-bound manner for

maximisation of value of assets of such persons, to promote

entrepreneurship, availability of credit and balance the interests

of all the stakeholders including alteration in the priority of

payment of government dues and to establish an Insolvency

and Bankruptcy Fund, and matters connected therewith or

incidental thereto. An effective legal framework for timely

27 (2018) 1 SCC 407

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resolution of insolvency and bankruptcy would support

development of credit markets and encourage

entrepreneurship. It would also improve Ease of Doing

Business, and facilitate more investments leading to higher

economic growth and development.

3. The Code seeks to provide for designating NCLT and DRT

as the adjudicating authorities for corporate persons and firms

and individuals, respectively, for resolution of insolvency,

liquidation and bankruptcy. The Code separates commercial

aspects of insolvency and bankruptcy proceedings from judicial

aspects. The Code also seeks to provide for establishment of

the Insolvency and Bankruptcy Board of India (Board) for

regulation of insolvency professionals, insolvency professional

agencies and information utilities. Till the Board is established,

the Central Government shall exercise all powers of the Board

or designate any financial sector regulator to exercise the

powers and functions of the Board. Insolvency professionals will

assist in completion of insolvency resolution, liquidation and

bankruptcy proceedings envisaged in the Code. Information

Utilities would collect, collate, authenticate and disseminate

financial information to facilitate such proceedings. The Code

also proposes to establish a fund to be called the Insolvency

and Bankruptcy Fund of India for the purposes specified in the

Code.

4. The Code seeks to provide for amendments in the Indian

Partnership Act, 1932, the Central Excise Act, 1944, Customs

Act, 1962, the Income Tax Act, 1961, the Recovery of Debts

Due to Banks and Financial Institutions Act, 1993, the Finance

Act, 1994, the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002, the Sick

Industrial Companies (Special Provisions) Repeal Act, 2003, the

Payment and Settlement Systems Act, 2007, the Limited

Liability Partnership Act, 2008, and the Companies Act, 2013.

5. The Code seeks to achieve the above objectives.”

27.The Preamble of the IBC describes the Act as:

“An Act to consolidate and amend the laws relating to

reorganisation and insolvency resolution of corporate persons,

partnership firms and individuals in a time-bound manner for

maximisation of value of assets of such persons, to promote

entrepreneurship, availability of credit and balance the interests

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of all the stakeholders including alteration in the order of priority

of payment of government dues and to establish an Insolvency

and Bankruptcy Board of India, and for matters connected

therewith or incidental thereto.”

28.In EBIX Singapore Private Limited (supra), discussing the raison d'étre of

the IBC for giving a purposive interpretation of the statute, this Court has observed

that :

“96. …. IBC was introduced as a watershed moment for

Insolvency law in India that consolidated processes under

several disparate statutes such as the 2013 Act,

SICA, SARFAESI, the Recovery of Debts Act, the Presidency

Towns Insolvency Act, 1909 and the Provincial Insolvency Act,

1920, into a single code. A comprehensive and time-bound

framework was introduced with smooth transitions between

reorganisation and liquidation, with an aim to inter alia maximise

the value of assets of all persons and balance the interest of all

stakeholders”

29.The underlying object of the IBC of maximization of the value of the assets of

the Corporate Debtor has been highlighted in Swiss Ribbons Private Limited

(supra) in the following words :

“27. As is discernible, the Preamble gives an insight into what

is sought to be achieved by the Code. The Code is first and

foremost, a Code for reorganisation and insolvency resolution of

corporate debtors. Unless such reorganisation is effected in a

time-bound manner, the value of the assets of such persons will

deplete. Therefore, maximisation of value of the assets of such

persons so that they are efficiently run as going concerns is

another very important objective of the Code. This, in turn, will

promote entrepreneurship as the persons in management of the

corporate debtor are removed and replaced by entrepreneurs.

When, therefore, a resolution plan takes off and the corporate

debtor is brought back into the economic mainstream, it is able

to repay its debts, which, in turn, enhances the viability of credit

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in the hands of banks and financial institutions. Above all,

ultimately, the interests of all stakeholders are looked after as

the corporate debtor itself becomes a beneficiary of the

resolution scheme—workers are paid, the creditors in the long

run will be repaid in full, and shareholders/investors are able to

maximise their investment. Timely resolution of a corporate

debtor who is in the red, by an effective legal framework, would

go a long way to support the development of credit markets.

Since more investment can be made with funds that have come

back into the economy, business then eases up, which leads,

overall, to higher economic growth and development of the

Indian economy. What is interesting to note is that the Preamble

does not, in any manner, refer to liquidation, which is only

availed of as a last resort if there is either no resolution plan or

the resolution plans submitted are not up to the mark. Even in

liquidation, the liquidator can sell the business of the corporate

debtor as a going concern.”

30.In the BLRC, the liquidation process has been discussed in Chapter 5 and

much stress has been laid on the observations of time value in the following terms

28

:

“5.5 A time-bound, efficient Liquidation

Liquidation is the state the entity enters at the end of an IRP, where

neither creditors nor debtors can find a commonly agreeable

solution by which to keep the entity as a going concern. In India, it is

widely accepted that liquidation is a weak link in the bankruptcy

process and must be strengthened as part of ensuring a robust

legal framework. The process flow in liquidation shares some

objectives in common with that of resolving insolvency. Preservation

of time value is the most important, and efficient outcomes under

collective action is the next, both of which are important principles

driving the design. However, this is not straightforward in

implementation, particularly in an environment where different

creditors have different rights over the assets of the entity,

information is asymmetric, and governance and enforcement has

been traditionally weak.”

28 5.5, The Report of the Bankruptcy Law Reforms Committee, Vol. 1: Rational & Design

(November 2015), available at

<https://www.ibbi.gov.in/uploads/resources/BLRCReportVol1_04112015.pdf >, last

accessed 06-07-2022.

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31.In the Fifth Report of the Insolvency Law Committee, May, 2022 published by

the Ministry of Corporate Affairs, Government of India

29

, while examining whether the

role of the SCC ought to be reviewed and suitable provisions be enacted in the IBC to

give its statutory recognition, the Committee observed that the BLRC has designed

the CIRP to be driven by creditors of the Corporate Debtor, the liquidation process is

met to be driven by the Liquidator. Therefore, the act does not contemplate a

Creditors’ Committee in the liquidation process. The creditors have a limited role of

participation in the decision making during the said process. In fact, UNCITRAL

Legislative Guide on Insolvency Law also acknowledges that it is generally not

important for creditors to intervene in proceedings or participate in decision making

during the liquidation process as the said process is driven by the Liquidator. The

suggestion made by the UNCITRAL Legislative Guide is that in instances such as sell

of assets in the context of liquidation proceedings, the creditors may be given a more

significant role to play to boost the value of returns from such sale.

32.That time is the essence of the insolvency and the liquidation process and one

of the paramount factors that weighed with the legislature for introducing the new

insolvency regime through the IBC, has been referred to by the BLRC that has

observed that “the swiftness with which the liquidation face can be completed with the

29 The Fifth Report of the Insolvency Law Committee, May, 2022 published by the

Ministry of Corporate Affairs, Government of India at

<https://www.ibbi.gov.in/uploads/resources/f841a45902d901ef311fe6d76127d094.pd

f>, last accessed 06-07-2022

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most efficient way as always rested on the Liquidator”. One of the central problems

identified in the poor implementation of bankruptcy systems in India has been the

Liquidator. It has been highlighted how important it was to speed up the working of

the Bankruptcy Code and what are the benefits of such a fast paced process.

Significantly, the Executive Summary of the BLRC Report

30

has made the following

observations on the “Speed is of Essence” :

“Speed is of essence for the working of the Bankruptcy Code,

for two reasons. First, while the “calm period” can help keep an

organisation afloat, without the full clarity of ownership and

control, significant decisions cannot be made. Without effective

leadership, the firm will tend to atrophy and fail. The longer the

delay, the more likely it is that liquidation will be the only answer.

Second, the liquidation value tends to go down with time as

many assets suffer from a high economic rate of depreciation.

From the viewpoint of creditors, a good realisation can generally

be obtained if the firm is sold as a going concern. Hence, when

delays induce liquidation, there is value destruction. Further,

even in liquidation, the realisation is lower when there are

delays. Hence, delays cause value destruction. Thus, achieving

a high recovery rate is primarily about identifying and combating

the sources of delay.”

33.It has been noticed from past experience that judicial delays is one of the

major reasons for the failure of the insolvency process. Thus, much emphasis was

laid in the BLRC Report on expediting the liquidation process by curtailing the delay

to ensure that the assets of the Corporate Debtor do not get frittered away or

depreciated due to the time lag. Once the stage of CIRP is over and the process of

liquidation is set into motion, it is critical that least time is lost in liquidating the assets

30 https://ibbi.gov.in/BLRCReportVol1_04112015.pdf

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of the Corporate Debtor. The reasons are not far to see. A quick, smooth and

seamless process of liquidation goes a long way in stemming deterioration of the

value of the assets of the Corporate Debtor in liquidation and increases the chances

of maximizing the returns to the stakeholders.

34.Keeping in mind the underlying object of this special enactment, we may

directly proceed to examine Chapter III of the IBC that encapsulates the liquidation

process right from the stage of initiation of liquidation, till the stage of dissolution of

the Corporate Debtor. Section 33 of the IBC states as follows :

“33. Initiation of Liquidation - (1) Where the Adjudicating

Authority—

(a) before the expiry of the insolvency resolution process period

or the maximum period permitted for completion of the

corporate insolvency resolution process under section 12 or the

fast track corporate insolvency resolution process under section

56, as the case may be, does not receive a resolution plan

under sub-section (6) of section 30; or

(b) rejects the resolution plan under section 31 for the non-

compliance of the requirements specified therein, it shall—

(i) pass an order requiring the corporate debtor to be liquidated

in the manner as laid down in this Chapter;

(ii) issue a public announcement stating that the corporate

debtor is in liquidation; and

(iii) require such order to be sent to the authority with which the

corporate debtor is registered.”

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34.The circumstances in which liquidation can be triggered by the Adjudicating

Authority (NCLT) under Section 33, have been spelt out in Arcelormittal India

Private Limited v. Satish Kumar Gupta and Others

31

as below:

“76.10. As has been stated hereinbefore, the liquidation

process gets initiated under Section 33 if, (1) either no

resolution plan is submitted within the time specified under

Section 12, or a resolution plan has been rejected by the

adjudicating authority; (2) where the Resolution Professional,

before confirmation of the resolution plan, intimates the

adjudicating authority of the decision of the Committee of

Creditors to liquidate the corporate debtor; or (3) where the

resolution plan approved by the adjudicating authority is

contravened by the corporate debtor concerned. Any person

other than the corporate debtor whose interests are prejudicially

affected by such contravention may apply to the adjudicating

authority, who may then pass a liquidation order on such

application.”

36.Section 34 of the IBC contemplates that on passing an order for liquidation of

the Corporate Debtor under Section 33, the Resolution Professional appointed for

the CIRP shall act as a Liquidator for purposes of liquidation. Once appointed as a

Liquidator, all powers of the Board of Directors, key managerial personnel and the

partners of the Corporate Debtor stand vested in the Liquidator. The powers and

duties of the Liquidator have been elaborated in Section 35. To contextualize the

ensuing discussion, extracted below is Section 35 of the IBC:

“35. Powers and duties of liquidator - (1) Subject to the

directions of the Adjudicating Authority, the liquidator shall have

the following powers and duties, namely:—

31 (2019) 2 SCC 1

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Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

xxxx xxxx xxxx

(b)to take into his custody or control all the assets, property,

effects and actionable claims of the corporate debtor;

xxxx xxxx xxxx

(f) subject to section 52, to sell the immovable

and movable property 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;

xxxx xxxx xxxx

(n) to apply to the Adjudicating Authority for such orders or

directions as may be necessary for the liquidation of the

corporate debtor and to report the progress of the liquidation

process in a manner as may be specified by the Board.

xxxx xxxx xxxx

(2) The liquidator shall have the power to consult any of the

stakeholders entitled to a distribution of proceeds under

section 53: Provided that any such consultation shall not be

binding on the liquidator: Provided further that the records of

any such consultation shall be made available to all other

stakeholders not so consulted, in a manner specified by the

Board.”

40.Coming next to the Liquidation Regulations, Regulations 8, 31A, 32 and 33

need to be highlighted and state as follows:

“8. Consultation with stakeholders.

(1) The stakeholders consulted under section 35(2) shall extend

all assistance and cooperation to the liquidator to complete the

liquidation of the corporate debtor.

(2) The liquidator shall maintain the particulars of any

consultation with the stakeholders made under this Regulation,

as specified in Form A of Schedule II.

xxx xxxx xxxx

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31A. Stakeholders’ Consultation Committee.

(1) The liquidator shall constitute a consultation committee

within sixty days from the liquidation commencement date,

based on the list of stakeholders prepared under regulation 31,

to advise him on the matters relating to sale under regulation

32.

xxxx xxxx xxxx

(5) Subject to the provisions of the Code and these regulations,

representatives in the consultation committee shall have access to all

relevant records and information as may be required to provide advice

to the liquidator under sub-regulation (1).

xxxx xxxx xxxx

(7) The liquidator shall chair the meetings of consultation committee

and record deliberations of the meeting.

(8) The liquidator shall place the recommendation of committee of

creditors made under sub-regulation (1) of regulation 39C of the

Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016, before the

consultation committee for its information.

(9) The consultation committee shall advise the liquidator, by a vote of

not less than sixty-six percent of the representatives of the

consultation committee, present and voting.

(10) The advice of the consultation committee shall not be binding on

the liquidator: Provided that where the liquidator takes a decision

different from the advice given by the consultation committee, he shall

record the reasons for the same in writing.

32. [Sale of Assets, etc.

The liquidator may sell-

(a) an asset on a standalone basis;

(b) the assets in a slump sale;

(c) a set of assets collectively;

(d) the assets in parcels;

(e) the corporate debtor as a going concern; or

(f) the business(s) of the corporate debtor as a going concern:

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Provided that where an asset is subject to security

interest, it shall not be sold under any of the clauses (a) to (f)

unless the security interest therein has been relinquished to the

liquidation estate.]

33. Mode of sale.

(1) The liquidator shall ordinarily sell the assets of the corporate

debtor through an auction in the manner specified in Schedule I.

(2) The liquidator may sell the assets of the corporate debtor by

means of private sale in the manner specified in Schedule I

when-

(a) the asset is perishable;

(b) the asset is likely to deteriorate in value significantly if not

sold immediately;

(c) the asset is sold at a price higher than the reserve price of a

failed auction; or

(d) the prior permission of the Adjudicating Authority has been

obtained for such sale:

Provided that the liquidator shall not sell the assets,

without prior permission of the Adjudicating Authority, by way of

private sale to-

(a) a related party of the corporate debtor;

(b) his related party; or

(c) any professional appointed by him.

(3) The liquidator shall not proceed with the sale of an asset if

he has reason to believe that there is any collusion between the

buyers, or the corporate debtor’s related parties and buyers, or

the creditors and the buyer, and shall submit a report to the

Adjudicating Authority in this regard, seeking appropriate orders

against the colluding parties.”

38.Schedule-I under Regulation 33 lays down the procedure to be followed by

the Liquidator for selling the assets of the Corporate Debtor. The relevant clauses of

Schedule-I are extracted as below:

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“SCHEDULE I

MODE OF SALE

(Under Regulation 33 of the Insolvency and Bankruptcy Board

of India (Liquidation Process) Regulations, 2016)

1. AUCTION

(1) Where an asset is to be sold through auction, a liquidator

shall do so the in the manner specified herein.

(2) The liquidator shall prepare a marketing strategy, with the

help of marketing professionals, if required, for sale of the asset.

The strategy may include-

(a) releasing advertisements;

(b) preparing information sheets for the asset;

(c) preparing a notice of sale; and

(d) liaising with agents.

(3) The liquidator shall prepare terms and conditions of sale,

including reserve price, earnest money deposit as well as pre-

bid qualifications, if any.

xxxxxxxxxxxx

2. PRIVATE SALE

(1) Where an asset is to be sold through private sale, a

liquidator shall conduct the sale in the manner specified herein.

(2) The liquidator shall prepare a strategy to approach

interested buyers for assets to be sold by private sale.

(3) Private sale may be conducted through directly liaising with

potential buyers or their agents, through retail shops, or through

any other means that is likely to maximize the realizations from

the sale of assets.

xxxx xxxx xxxx”

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39.On a conjoint reading of the aforesaid provisions of the IBC and the

Liquidation Regulations, it is evident that the Liquidator is authorized to sell

the immovable and movable property of the Corporate Debtor in liquidation

through a public auction or a private contract, either collectively, or in a piece-

meal manner. The underlying object of the Statute is to protect and preserve

the assets of the Corporate Debtor in liquidation and proceed to sell them at

the best possible price. Towards this object, the provisions of the IBC have

empowered the Liquidator to go in for a public auction or a private contract as

a mode of sale. Besides reporting the progress made, the Liquidator can

also apply to the Adjudicating Authority (NCLT) for appropriate orders and di-

rections considered necessary for liquidation of the Corporate Debtor. The

Liquidator is permitted to consult the stakeholders who are entitled to distri-

bution of the sale proceeds. However, the proviso to Section 35 (2) of the

IBC makes it clear that the opinion of the stakeholders would not be binding

on the Liquidator. Regulation 8 of the Liquidation Regulations refers to the

consultative process with the stakeholders, as specified in Section 35 (2) of

the IBC and states that they shall extend all necessary assistance and coop-

eration to the Liquidator for completing the liquidation process. Regulation

31A has introduced a Stakeholders’ Consultation Committee that may advise

the Liquidator regarding sale of the assets of the Corporate Debtor and must

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be furnished all relevant information to provide such advice. Though the ad-

vice offered is not binding on the Liquidator, he must give reason in writing for

acting against such advice.

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40.When it comes to the mode of sale of the assets of the Corporate

Debtor, whether immovable or movable and other actionable claims, Regula-

tion 33 of the Liquidation Regulations comes into play and states that ordinar-

ily, the Liquidator will sell the said assets through auction, as specified in

Schedule-I(1). Sub-section (2) of Section 33, IBC gives an option to the Liq-

uidator to sell the assets of the Corporate Debtor through a Private Sale, in

the manner set out in Schedule-I (2). Regulation 33 of the Liquidation Regu-

lations is couched in a language which shows that ample latitude has been

given to the Liquidator, who may “ordinarily” sell the assets through auction

thereby meaning that in peculiar facts and circumstances, the Liquidator may

directly go in for a Private Sale. To avoid the pitfalls of disposing of the assets

by conducting a Private Sale for the Pittance, Regulation 33 has prescribed

some stringent conditions that the Liquidator is under an obligation to comply.

The said pre-conditions are that (i) the asset is perishable; (ii) the asset is

likely to deteriorate in value significancy if not sold immediately; (iii) the asset

is sold at a higher price than the reserved price of the failed auction; and (iv)

the Adjudicating Authority (NCLT) must grant prior permission for such a sale.

The proviso appended to Regulation 33(2) of the Liquidation Regulations

places yet another embargo to the effect that when the Liquidator intends to

sell the assets of the Corporate Debtor by way of a Private Sale to a related

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party of the Corporate Debtor, his relative party or any professional appointed

by him, it is mandatory to obtain prior permission of the Adjudicating Authority

(NCLT). Even the mode of sale has been regulated under the Liquidation

Regulations for both, a public auction and a Private Sale. All the above dos

and don’ts have been inserted to protect the assets of the Corporate Debtor

and safeguard the interest of the stakeholders.

41.It is a matter of record that in the instant case, following the mandate of

Regulation 33 (1) of the Liquidation Regulations, the respondent No.2 – Liquidator

took steps to sell the assets of the Corporate Debtor through the e-auction process

not once or twice, but on five separate occasions. On each of the said occasion,

efforts were made by the respondent No.2 – Liquidator to conduct a consolidated

sale of the assets of the Corporate Debtor, but with no fruitful results. Faced with the

said situation, the respondent No.2 – Liquidator approached the Adjudicating

Authority (NCLT) in terms of Section 35 (1)(n), IBC read with Regulation 33(2) of the

Liquidation Regulations for seeking permission to sell the assets of the Corporate

Debtor through Private Sale. Only after due permission was granted, did the

respondent No.2 – Liquidator approach the stakeholders for consultation. In the

meeting held on 28

th

January, 2021, the stakeholders resolved that the prospective

bidders, who wished to participate in the Private Sale of the Dahej Material, be

encouraged to do so by adopting the Swiss Challenge Process. Pertinently, the first

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stage of the said process requires selection of an Anchor Bidder; the second stage

entails inviting prospective bidders to submit their bids against the reserve price

offered by the Anchor Bidder. At the third stage, the Anchor Bidder gets one chance

to exercise the ROFR against the H1 bidder by placing a bid higher than the H1 bid.

In the event the Anchor Bidder fails to exercise the ROFR, the said right stands

extinguished and H1 bidder would then be declared as successful.

42.In the instant case, the first Swiss Challenge Process did not succeed as the

highest offerer failed to deposit the EMD. In the second round of the Swiss

Challenge Process, as against the base price of ₹460 crores fixed for the Dahej

Material and scrap, the appellant made a bid of ₹431 crores that was accepted.

Thereafter, the respondent No.2 – Liquidator did publish an advertisement inviting

bidders to submit their bids against the Anchor Bid in response whereto, the

appellant, respondents No.3, 4, 5, and 6 submitted their bids, but before the process

could be taken further, on an application moved by the respondent No.1, the

Adjudicating Authority (NCLT) passed an order directing the respondent No.2 –

Liquidator to carry forward the stage upto announcement of the highest bidder, while

deferring the rest of the process.

43.When the matter was still pending before the NCLT, the respondent No.2 –

Liquidator was approached by the respondent No.7 – Welspun, who evinced interest

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in purchasing the immovable and movable assets of the Corporate Debtor, i.e., the

Ship building yard along with the metal and scrap, etc., lying in the complex. As this

offer was considered more attractive not only by the respondent No.2 – Liquidator,

but also by the SCC, the Adjudicating Authority (NCLT) was approached for

permission to undertake a composite sale of the Dahej Material and the Shipyard,

which was duly granted vide order dated 16

th

August, 2021.

44.For testing the arguments advanced on behalf of the appellant that the

respondent No.2 – Liquidator should not have been granted permission to cancel the

Second Swiss Challenge Process, which was at an advance stage, it is imperative to

peruse Clause 12.3 of the terms and conditions of the Anchor Bid Documents and

the relevant clauses of Schedule II, which are quoted below:

“12. Terms and Conditions

xxxx xxxx xxxx

12.3. Notwithstanding anything to the contrary contained herein,

the Liquidator expressly reserves the right to

abandon/cancel/terminate/ waive the current process or a part

thereof contemplated hereunder (at any stage without any

liability). Further, the Liquidator reserves the right to reprice and

resize or change the lots / combination of lots in the current

Sale Process or in any other sale process that may be

contemplated, in accordance with applicable laws and without

incurring any liability in this regard, in the best interest of the

stakeholders.

Schedule – II : General Terms & Conditions

xxxx xxxx xxxx

"k. This not an offer document and is issued with no

commitment or assurances. This intimation document does not

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constitute and will not be deemed to constitute any offer,

commitment or any representation of the Liquidator / ABGSL.

The Process has to be completed as set out under this

document to conclude the transaction/sale successfully.”

xxxx xxxx xxxx

''m. It is clarified that issuance of this Process Document does

not create any kind of binding obligation on the part of the

Liquidator or ABG to effectuate the sale of the assets of ABG."

xxxx xxxx xxxx

"s. The Liquidator reserves the right to cancel, abandon or reject

a Bidder / Successful Bidder at any time during the process,

and the Liquidator also reserves the right to disqualify a

Successful Bidder, in case of any irregularities found such as

ineligibility under the I & B Code."

“t. Liquidator of ABGSL reserves the right to suspend/

abandon/cancel/extend or modify the process terms and/or

documents and/or reject or disqualify any Bidder at any stage of

process without assigning any reason and without any notice

liability of whatsoever nature."

45.Clause 11.6 and Schedule IV of the Second Swiss Challenge Process

Document are also relevant and are worded on the same lines:

"11.6 Notwithstanding anything to the contrary contained

herein, the Liquidator expressly reserves the right to abandon/

cancel/ terminate/ waive the current process or a part thereof

contemplated hereunder (at any stage without liability). Further,

the Liquidator reserves the right to reprise and resize or change

the lots/ combination of notes in the current sale process or in

any other sale process that may be contemplated, in

accordance with applicable laws, and without incurring any

liability in this regard, in the best interest of stakeholders."

Schedule – IV : Terms & Conditions

“e. It is clarified that issuance of the Process Document does

not create any kind of binding obligation on the part of the

Liquidator or ABG to effectuate the sale of the assets of ABG."

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xxxx xxxx xxxx

"x. The Liquidator reserves the right to cancel, abandon or reject

a Bidder / Successful Bidder at any time during the process,

and the Liquidator also reserves the right to disqualify a

Successful Bidder, in case of any irregularities found such as

ineligibility under the I & B Code."

xxxx xxxx xxxx

''y· Liquidator of ABGSL, reserves the right to

suspend/abandon/cancel/ extend or modify the process terms

and/or documents and/or reject or disqualify any Bidder at any

stage of process without assigning any reason and without any

notice liability of whatsoever nature."·

46.The following terms of Schedule IV of the Second Swiss Challenge Process

bestows an additional right on the Liquidator:

“Schedule – IV : Terms & Conditions

‘‘u. Notwithstanding anything contained herein and contrary

thereto, the Liquidator may at any stage include a Bidder to

participate in the Sale Process. The Liquidator reserves the right

to decide the procedure for including such potential Bidders into

the Sale Process. All bidders agree and accept that the

Liquidator has the right to accept or reject any Bids even after

the deadline as prescribed herein or at any stage of the Sale

Process in order to maximize the realization from the sale of

assets in the best interest of the stakeholders."

xxxx xxxx xxxx

"mm. Notwithstanding anything to the contrary contained herein

: the Liquidator proposes to sell the assets of the Company as a

whole to maximize overall recovery and decision for sale shall

also be made after taking cognizance of operational

management matters to effectuate and practically enable the

Sale Process for the collective sale of assets of the Company

and will take all steps and actions required to effectuate this."

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47.A bare perusal of the aforesaid clauses of the Anchor Bid Document and the

Second Swiss Challenge Process Document, leave no manner of doubt that the

prospective bidders were informed that the Liquidator had reserved the right to

abandon/cancel/terminate/waive the said process and/or part thereof at any stage;

that issuance of the Anchor Bid Document did not create any binding obligations on

the Liquidator to proceed with the sale of the assets of the Corporate Debtor; that the

Anchor Bid Document did not constitute an offer/commitment or an assurance of the

Liquidator. Identical rights were reserved with the Liquidator even in the Second

Swiss Challenge Process Document. In fact, as noted above, Schedule IV goes a

step further and entitles the Liquidator to include a bidder to participate in the sale

process at any stage. He could even decide to sell the composite assets of the

Corporate Debtor during the said process.

48.Merely because the appellant herein had submitted a bid under the Anchor

Bid Document and was declared as the Anchor Bidder in the Second Swiss

Challenge Process, could not vest a right on it for it to insist that the said process

must be taken to its logical conclusion. The appellant has been harping about the

vested right that had allegedly accrued in its favour on being declared as the Anchor

Bidder. But it has conveniently glossed over an affidavit dated 23

rd

March, 2021 filed

by it, undertaking inter alia that it would remain unconditionally and irrevocably bound

by the Swiss Challenge Process Document and the decision of the respondent No.2

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- Liquidator. Given the aforesaid terms and condition of the Anchor Bid Document

and the Second Swiss Challenge Process Document, read collectively with the

unqualified undertaking given by the appellant acknowledging that the respondent

No.2 – Liquidator was well empowered to cancel/modify or even abandon the said

process, it does not lie in the mouth of the appellant to urge that once it was set into

motion, there was no justification to discontinue the Second Swiss Challenge

Process. No special rights came to be bestowed on the appellant as the Anchor

Bidder for it to insist that the said process ought to be taken forward and concluded,

irrespective of the subsequent decision taken by the respondent No.2 – Liquidator,

backed to the hilt by the stakeholders of discontinuing the Swiss Challenge Process

and opting for Private Sale of the consolidated assets of the Corporate Debtor to be

conducted through direct negotiations

49.To put it otherwise, an Anchor Bidder has no vested right beyond the ROFR,

being the origination of the proposal. It must be borne in mind that the Swiss

Challenge Process is just another method of private participation that has been

recognized by this Court for its transparency [Refer : Ravi Development (supra)].

Ultimately, the IBC has left it to the discretion of the Liquidator to explore the best

possible method for selling the assets of the Corporate Debtor in liquidation, which

includes Private Sale through direct negotiations with the object of maximizing the

value of the assets offered for sale.

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50.In the instant case, there was good reason for the respondent No.2 –

Liquidator to have halted the Second Swiss Challenge Process midstream and

approached the Adjudicating Authority (NCLT) armed with an offer of ₹675 crores

received from the respondent No.7 – Welspun who had shown interest in the

composite sale of the Dahej assets. In fact, this was all along the preferred choice of

the respondent No.2–Liquidator as can be seen from the fact that when public

auctions were conducted by him on five earlier occasions, bids were invited for the

composite assets of the Corporate Debtor. It is a different matter that the earlier e-

auctions turned out to be unsuccessful, thus compelling the respondent No.2 –

Liquidator to explore other options, including the option to sell the assets in smaller

lots.

51.In his wisdom, the respondent No.2 – Liquidator found the offer made by the

respondent No.7 – Welspun to be of better value for more than one reason. Firstly,

unlike the sale proposed under the Second Swiss Challenge Process that was

confined to the Dahej Material, respondent No.7 – Welspun expressed its willingness

to purchase the Dahej land and the scrap as a composite asset thereby curtailing two

rounds of sales, first for the Dahej Material followed by the Shipyard and the other

assets. Secondly, the respondent No.2 – Liquidator had valid reasons to believe that

a consolidated sale of the assets of the Corporate Debtor will lead to a higher return

and a quicker recovery for the stakeholders. Thirdly, composite sale of the assets

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would lead to maximization of recovery within a guaranteed timeline. In the

assessment of the respondent No.2 – Liquidator, a two tier process of selling the

Dahej Material in the first round through the Swiss Challenge method, followed by the

sale of the Dahej land in the second round, would have caused prejudice to the

stakeholders for the reason that continuing the Second Swiss Challenge Process

would have meant that the appellant or the H1 bidder, as the case may be, would

have to be granted at least 15 to 18 months to lift the material from the Dahej

Shipyard, thus stalling the entire process of the sale of the Dahej land to a period well

beyond 18 months. This delay in concluding the process could directly impact the

value of the assets of the Corporate Debtor and hurt the interest of the stakeholders.

52.We are of the firm view that it is not for the court to question the judiciousness

of the decision taken by the respondent No.2 – Liquidator with the idea of enhancing

the value of the assets of the Corporate Debtor being put up for sale. The right to

refuse the highest bid or completely abandon or cancel the bidding process was

available to the respondent No.2 – Liquidator. The appellant has not been able to

demonstrate that the decision of the respondent No.2 – Liquidator to discontinue the

Second Swiss Challenge Process and go in for a Private Sale through direction

negotiations with prospective bidders was a malafide exercise. It is a well-settled

principle that in matters relating to commercial transactions, tenders, etc., the scope

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Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

of judicial review is fairly limited and the court ought to refrain from substituting its

decisions for that of the tendering agency [Ref.: State of Madhya Pradesh and

Others v. Nandlal Jaiswal and Others

32

, Tata Cellular (supra) and Air India

(supra)]. In Nandlal Jaiswal and Others (supra), this Court held that while granting

a licence for setting up a new industry, the State Government is not under any

obligation to advertise and invite offers for the said purpose and that the State

Government is well entitled to negotiate with those who have come up with an offer to

set up such an industry. In 5 M & T Consultants, Secunderabad v. S.Y. Nawab

and Another

33

, the court concluded as under :

“17. …… It is by now well settled that non-floating of tenders or

absence of public auction or invitation alone is no sufficient

reason to castigate the move or an action of a public authority

as either arbitrary or unreasonable or amounting to mala fide or

improper exercise or improper abuse of power by the authority

concerned. Courts have always leaned in favour of sufficient

latitude being left with the authorities to adopt their own

techniques of management of projects with concomitant

economic expediencies depending upon the exigencies of a

situation guided by appropriate financial policy in the best

interests of the authority motivated by public interest as well in

undertaking such ventures……..”

[

53.On the aspect of rejecting even the highest bid received by an Authority, this

Court has held in Laxmikant and Others (supra) as under :

“4. Apart from that the High Court overlooked the conditions of

auction which had been notified and on basis of which the

aforesaid public auction was held. Condition No. 3 clearly said

32 (1986) 4 SCC 566

33 (2003) 8 SCC 100

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that after the auction of the plot was over, the highest bidder

had to remit 1/10 of the amount of the highest bid and the

balance of the premium amount was to be remitted to the trust

office within thirty days “from the date of the letter informing

confirmation of the auction bid in the name of the person

concerned”. Admittedly, no such confirmation letter was issued

to the respondent. Conditions Nos. 5, 6 and 7 are relevant:

“5. The acceptance of the highest bid shall depend on the

Board of Trustees.

6. The Trust shall reserve to itself the right to reject the

highest or any bid.

7. The person making the highest bid shall have no right

to take back his bid. The decision of the Chairman of the

Board of Trustees regarding acceptance or rejection of the

bid shall be binding on the said person. Before taking the

decision as above and informing the same to the individual

concerned, if the said individual takes back his bid, the entire

amount remitted as deposit towards the amount of bid shall

be forfeited by the Trust.”

From a bare reference to the aforesaid conditions, it is

apparent and explicit that even if the public auction had

been completed and the respondent was the highest

bidder, no right had accrued to him till the confirmation

letter had been issued to him. The conditions of the auction

clearly conceived and contemplated that the acceptance of the

highest bid by the Board of Trustees was a must and the Trust

reserved the right to itself to reject the highest or any bid. This

Court has examined the right of the highest bidder at public

auctions in the cases of Trilochan Mishra v. State of

Orissa

34

, State of Orissa v. Harinarayan Jaiswal

35

, Union of

India v. Bhim Sen Walaiti Ram

36

and State of Uttar

Pradesh. v. Vijay Bahadur Singh

37

. It has been repeatedly

pointed out that State or the authority which can be held to

be State within the meaning of Article 12 of the Constitution

is not bound to accept the highest tender or bid. The

acceptance of the highest bid is subject to the conditions

of holding the public auction and the right of the highest

bidder has to be examined in context with the different

conditions under which such auction has been held. In the

present case no right had accrued to the respondent either on

34 (1971) 3 SCC 153

35 (1972) 2 SCC 36

36 (1969) 3 SCC 146

37 (1982) 2 SCC 365

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the basis of the statutory provision under Rule 4(3) or under the

conditions of the sale which had been notified before the public

auction was held.” (emphasis added)

54.Further, in CWE - Soma Consortium (supra), this Court had held as under :

“23. The right to refuse the lowest or any other tender is

always available to the Government. In the case in hand, the

respondent has neither pleaded nor established mala fide

exercise of power by the appellant. While so, the decision of the

Tender Committee ought not to have been interfered with by the

High Court. In our considered view, the High Court erred in

sitting in appeal over the decision of the appellant to cancel

the tender and float a fresh tender. Equally, the High Court

was not right in going into the financial implication of a

fresh tender.”

(emphasis added)

55.On the scope of judicial review in examining the decision of the tenderer to

cancel the process if the tender document so permits, we may usefully refer to

Montecarlo Limited (supra), wherein it is has been held as under :

“26. ……. Exercise of power of judicial review would be called

for if the approach is arbitrary or mala fide or procedure adopted

is meant to favour one. The decision-making process should

clearly show that the said maladies are kept at bay. But where

a decision is taken that is manifestly in consonance with

the language of the tender document or subserves the

purpose for which the tender is floated, the court should

follow the principle of restraint. Technical evaluation or

comparison by the court would be impermissible. The

principle that is applied to scan and understand an ordinary

instrument relatable to contract in other spheres has to be

treated differently than interpreting and appreciating tender

documents relating to technical works and projects requiring

special skills. The owner should be allowed to carry out the

purpose and there has to be allowance of free play in the joints.”

(emphasis added)

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Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

[Also refer : Sterling Computers Limited v. M/s M & N Publications

Limited and Others

38

, Tata Cellular (Supra), Mauleshwar Mani and Others v.

Jagdish Prasad and Others

39

, B.S.N. Joshi & Sons Limited v. Nair Coal

Services Limited and Others

40

, Jagdish Mandal v. State of Orissa and Others

41

,

and Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited

and Another

42

]

56.The Statute enjoins the Liquidator to sell the immovable and movable assets

of the Corporate Debtor in a manner that would result in maximization of value, lead

to a higher and quicker recovery for the stakeholders, cut short the delay and afford

a guaranteed timeline for completion of the process. On examining the records, we

find that these were the considerations that have weighed not only with the

respondent No.2 – Liquidator, but also with the stakeholders, who were unanimous in

their decision that the Second Swiss Challenge Process Document ought to be

abandoned in favour of the Private Sale process where not only the appellant, but all

the other prospective bidders who had participated in the process were permitted by

the Adjudicating Authority (NCLT) to make a bid in respect of the consolidated assets

of the Corporate Debtor. In its anxiety to claim a vested right as an Anchor Bidder,

the appellant tends to forget that the Swiss Challenge Process adopted by the

38 (1993) 1 SCC 445

39 (2002) 2 SCC 468

40 (2006) 11 SCC 548

41 (2007) 14 SCC 517

42 (2016) 16 SCC 818

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Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

respondent No.2 – Liquidator also falls in the category of a Private Sale, referred to

in Schedule-I(2) under Regulation 33 of the Liquidation Regulations. For conducting

a Private Sale, all that the Liquidator is required to do is to prepare a strategy to

approach the interested parties. He is authorized to directly liaise with the potential

buyers to ensure that realization from the sale of the assets can be maximized. We

do not find any infirmity in the said approach adopted by the respondent No.2 –

Liquidator.

57.When compared to the above protracted process described in para 53 above,

a single buyer for the Dahej land along with the metal scrap, etc., lying at the complex

was bound to speed up the entire process inasmuch as the successful bidder could

be handed over the possession straightaway and the respondent No.2 - Liquidator

would be in a position to receive the payment for the composite assets in a timebound

manner with a higher rate of recovery. All these factors that fall in the realm of

commercial considerations were examined holistically by the respondent No.2 –

Liquidator who then placed the cards before the stakeholders in the meeting

conducted on 6

th

August, 2021. Even though the provisions of the IBC empower the

Liquidator to take an independent decision for the sale of the assets of the Corporate

Debtor in liquidation, it can be seen that he has taken the stakeholders into

confidence at every step. Only after finding them to be in agreement with the option

sought to be explored by him of halting the Second Swiss Challenge Process and

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Civil Appeal No.7722 of 2021 and Civil Appeal No.7731 of 2021

proceeding with the Private Sale of the consolidated assets of the Corporate Debtor

by directly liaising with the potential buyers, did the respondent No.2 – Liquidator take

such a decision solely with the object of augmenting realization from the sale of the

assets. Thereafter, the matter was taken to the Adjudicating Authority (NCLT) for

necessary permissions under Section 35(1) of the IBC that was duly granted. The

decision taken by the respondent No.2 – Liquidator cannot be treated as arbitrary,

capricious or unreasonable for interference by this Court. The said decision is

tempered with sound reason and logic. It is a purely commercial decision centered on

the best interest of the stakeholders. The stakeholders having unanimously endorsed

the view of the respondent No.2 – Liquidator, it is not for this Court to undertake a

further scrutiny of the desirability or the reasonableness of the said decision or

substitute the same with its own views.

58.Therefore, we concur with the view expressed by the NCLAT that the decision

of the respondent No.2 – Liquidator was driven by the desire of the stakeholders to

complete the liquidation process in the shortest possible time. Let us not forget that

the aforesaid exercise of selling the assets of the Corporate Debtor has been ongoing

for about three years, with several litigations spewed throughout to cause further

delay. The sooner the curtains are drawn on the process, the better it would be for all

concerned.

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59.It is for the very same reason that we are inclined to set aside the subsequent

directions issued by the NCLAT of restarting the entire process of Private Sale by

issuing fresh notices to all the prospective buyers without limiting them to those who

had participated in the process. No doubt, a public auction entails the procedure of

issuing public notices. But that is not the case with a Private Sale where the

procedure prescribed permits the Liquidator to directly liaise with the potential buyer

and conduct the negotiations. It may be emphasized that these are commercial

transactions and purely business driven decisions, which are not amenable to judicial

review. The insolvency regime introduced under the IBC has placed fetters on the

power of interference by the Adjudicating Authority (NCLT) and the Appellant Authority

(NCLAT). The decision of the NCLT to have the sale of the composite assets

negotiated with the parties who had participated in the earlier rounds of sale, cannot

be described as a rushed decision for the NCLAT to have modified the said order and

direct that the clock be set back to the initial stage of issuing notices to the

prospective buyers. No such relief was sought by any of the parties to the lis, nor has

the NCLAT given any plausible reason for issuing such a direction.

60.The powers vested in and the duties cast upon the Liquidator have been made

subject to the directions of the Adjudication Authority (NCLT) under Section 35 of the

IBC. Once the Liquidator applies to the Adjudicating Authority (NCLT) for appropriate

orders/directions, including the decision to sell the movable and immovable assets of

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the Corporate Debtor in liquidation by adopting a particular mode of sale and the

Adjudicating Authority (NCLT) grants approval to such a decision, there is no

provision in the IBC that empowers the Appellate Authority (NCLAT) to suo motu

conduct a judicial review of the said decision. The jurisdiction bestowed upon the

Adjudicating Authority [NCLT] and the Appellate Authority [NCLAT] are circumscribed

by the provisions of the IBC and borrowing a leaf from Committee of Creditors of

Essar Steel India Limited v. Satish Kumar Gupta and Others

43

, they cannot act as

a Court of equity or exercise plenary powers to unilaterally reverse the decision of the

Liquidator based on commercial wisdom and supported by the stakeholders. The

Court has also observed in the captioned case that “from the legislative history, there

is contra-indication that the commercial or business decisions of the financial

creditors are not open to any judicial review by the adjudicating authority or the

appellate authority.’’ A similar reasoning has prevailed with Respondent in

K. Sashidhar v. Indian Overseas Bank and Others

44

, Committee of Creditors of

Amtek Auto Limited v. Dinkar T. Venkatasubramanian and Others

45

, Kalpraj

Dharamshi and Another v. Kotak Investment Advisors Limited and Another.

46

,

Ghanashyam Mishra And Sons Private Limited through the Authorized

Signatory v. Edelweiss Asset Reconstruction Company Limited through the

43 (2020) 8 SCC 531

44 (2019) 12 SCC 150

45 (2021) 4 SCC 457

46 (2021) 10 SCC 401

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Director and Others.

47

and Jaypee Kensington Boulevard Apartments Welfare

Association and Others (Supra). The aforesaid view will apply with equal force to

any commercial or business decision taken by the Liquidator for conducting the sale

of the movable/immovable assets of the Corporate Debtor in liquidation. The

Appellate Authority cannot don the mantle of a supervisory authority for overseeing

the validity of the approach of the respondent No.2 – Liquidator in opting for a

particular mode of sale of the assets of the Corporate Debtor.

61.In fact, it has been brought to our notice by the respondent No.2 – Liquidator

that close on the heels of the impugned judgment passed by the NCLAT delivered on

10

th

December, 2021, the Core Committee of Financial Creditors of the Corporate

Debtor had conducted a meeting on 15

th

December, 2021 and had unanimously

ratified the view of the respondent No.2 – Liquidator that the bid process commenced

on 24

th

August, 2021, ought to be continued and not restarted having regard to the

fact that it had taken almost three years to find such buyers and the sale was at the

cusp of being closed. It was also recorded in the minutes of the meeting that several

attempts had already been made to solicit interest from parties but none had come

forward to make an offer for the composite purchase of the assets. We may note that

the Core Committee constitutes 70.3% of the financial creditors and when they have

weighed in to support the stand taken by the respondent No.2 – Liquidator to continue

47 (2021) 9 SCC 657

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the bid process commenced on 24

th

August, 2021, we do not see any reason to foist

the view of the NCLAT on the respondent No.2 – Liquidator that he ought to restart

the process for sale of the composite assets of the Corporate Debtor from the scratch

after issuing an open notice to the prospective buyers.

CONCLUSION :

66.Therefore, the impugned judgment dated 10

th

December, 2021, passed by

NCLAT to the extent that it has modified the order dated 16

th

August, 2021 passed by

the NCLT and directed restraining of the Private Sale Process, is quashed and set

aside. In our opinion, the Private Sale process of the composite assets of the

Corporate Debtor should be taken further by the respondent No.2 – Liquidator without

losing any further time and be concluded at the earliest. All the eligible bidders who

have made Earnest Money Deposits would be entitled to participate in the

negotiations to be conducted by the respondent No.2–Liquidator for privately selling

the consolidated assets of the Corporate Debtor. Accordingly, we direct that the

process of private negotiations that had commenced on 24

th

August, 2021, shall be

taken to its logical end and brought to a closure by the respondent No.2 – Liquidator

within four weeks from the date of passing of this order.

63.As a result, Civil Appeal No.7722 of 2021 filed by R.K. Industries fails and the

same is dismissed along with I.A No. 166862/2021. Civil Appeal No.7731 of 2021

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filed by Welspun is allowed on the afore-stated terms. Parties are left to bear their

own costs. Pending applications, if any other than IA No. 166862/2021 shall stand

disposed of.

………………………CJI.

[N.V. RAMANA]

.................................J.

[J.K. MAHESHWARI]

...................................J.

[HIMA KOHLI]

NEW DELHI,

AUGUST 26, 2022

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