Huve Private Limited filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 against M/s. Rohit Feeds Limited (Corporate Debtor) before the Adjudicating Authority (AA). The AA passed an order adm

The facts of the case are similar to Eva Agro Feeds Pvt. Ltd. v. Punjab National Bank and Anr. decided on September 06, 2023, by the Supreme Court of India. The issues before the Hon'ble Supreme Court were whether NCLAT was right in cancelling the e-auction held on 20.07.2021 and directing the liquidator to initiate a fresh auction for the Corporate Debtor's assets. Findings & Observations of the Hon'ble Supreme Court: The Hon'ble Supreme Court, while setting aside the order of NCLAT, restored the order passed by AA. The Supreme Court upheld the view of AA that the liquidator was not justified in cancelling the e-auction held on 20.07.2021 without assigning any reason and there were no objective materials before the liquidator to cancel the auction process and to opt for another round of auction. While examining clause 3(k) of the E-Auction Process Information Document, the Supreme Court observed that it only declares that the liquidator has an absolute right to accept or reject any or all bids or adjourn/postpone/cancel the E-auction etc., at any stage without assigning any reason therefor. It held that, "E-Auction Process Information Document is neither an agreement nor an offer by the Liquidator to the prospective bidders or any other person." Para 1(11A) of Schedule-I of the IBBI Liquidation Process Regulations states that where the Liquidator rejects the highest bid in an auction process, he shall intimate the reasons for such rejection to the highest bidder and mention it in the next progress report. While it is true that para 1(11A) came to be inserted in Schedule 1 to the Regulations with effect from 30.09.2021, it does not imply that an auction sale or the highest bid prior to the aforesaid date could be cancelled by the Liquidator exercising unfettered discretion and without furnishing any reason. It is trite law that furnishing of reasons is an important aspect rather a check on the arbitrary exercise of power. Furnishing of reasons presupposes application of mind to the relevant factors and consideration by the concerned authority before passing an order. Absence of reasons may be a good reason to draw inference that the decision-making process was arbitrary. Therefore, what para 1(11A) has done is to give statutory recognition to the requirement for furnishing reasons, if the Liquidator wishes to reject the bid of the highest bidder. Furnishing of reasons, which is an integral facet of the principles of natural justice, is embedded in a provision or action, whereby the highest bid is rejected by the Liquidator. Thus, what para 1(11A) has done is to give statutory recognition to this well-established principle. It has made explicit what was implicit. Therefore, if we read the provisions of Schedule-I, more particularly paras 1(11) to (13) thereof, in a conjoint manner, a view may reasonably be taken that ordinarily the highest bid may be accepted by the Liquidator unless there are statutory infirmities in the bidding or the bidding is collusive in nature or there is an element of fraud in the bidding process. The necessary corollary that follows therefrom is that there can be no absolute or unfettered discretion on the part of the Liquidator to cancel an auction which is otherwise valid. As it is in an administrative framework governed by the rule of law, there can be no absolute or unfettered discretion of the Liquidator. Further, upon a thorough analysis of all the provisions concerning the Liquidator, it is evident that the Liquidator is vested with a host of duties, functions and powers to oversee the liquidation process in which he is not to act in any adversarial manner while ensuring that the auction process is carried out in accordance with with law and to the benefit of all the stakeholders. Merely because the Liquidator has the discretion of carrying out multiple auctions, it does not necessarily imply that he would abandon or cancel a valid auction fetching a reasonable price and opt for another round of auction process with the expectation of a better price. The Tribunal had rightly held that there were no objective materials before the Liquidator to cancel the auction process and to opt for another round of auction. Based on the above decision, once an auction satisfies all conditions, the Liquidator without reasons cannot reject and conduct further auction in expectation of higher bids. Hence, in the given case, the successful bidder will succeed in its appeal with the Supreme Court.