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Joint Auction Under IBC And SARFAESI Is Permissible

Citation : Ayan Mallick vs Pratim Bayal, Liquidator & Ors., Company Appeal (AT) (Insolvency) No. 456 of 2022

Date of Judgment/Order : 13.05.2022

Court/Tribunal : National Company Law Appellate Tribunal Principal Bench, New Delhi

Corum : Justice Ashok Bhushan, Chairperson & Shreesha Merla, Member (Technical)

Background

Appeal was filed against the order of the NCLT Kolkata in Dewesh Auto Creative Services Private Limited vs A.K.Power Industries Private Limited, C.P. (IB)No.1376/KB/2018 dated 01/02/2022, wherein the Hon'ble Judge had allowed the joint auction of the assets of the Corporate Debtor and the Guarantor as the same would maximise the value.

Part of land /factory of Corporate Debtor was owned by the Guarantor to the Bank. The banks have taken symbolic possession under SARFAESI Actof these assets, which were integral part of the plant of the Corporate Debtor.

The stakeholders banks had proceeded for sale under SARFAESI Act, 2002 by assessing the reserved price of said land at Rs.3.65 crore. Simultaneously the liquidator has also assessed the reserved price of Corporate Debtor through valuation and stakeholder’s discussion at stakeholder consultations committee at Rs.12.50 crore. These two reserved prices have been combined to create reserved price under the sale and the auction price received over and above reserved price would be pro rata disbursed among the Corporate Debtor and the Guarantor’s property.

The applicants had objected to this scheme.

Judgment

The applicant states that the properties of the Guarantor mentioned in the impugned auction notice are not part of Liquidation Estate being assets owned by 3rd party and thus could not be combined with the sale of Corporate Debtor. That in proceedings under IBC, assets of 3rd party / guarantor cannot be dealt with even under resolution plan. That it evident from the notice of sale itself, it has been issued by Liquidator and its combined notice under IBC, 2016 and SARFAESI Act, 2002 and it is not permissible under IBC.

The Respondents had argued that the Liquidator has the authority to issue the combined notice for the sale of these two assets. Further combined sale would fetch a higher price as if the land and plant are put to sale together, otherwise nobody would buy factory without factory land. The combined sale initiated by the liquidator for the purpose of maximization of the assets value.

The Hon. NCLT Kolkata had rejected the application stating that the Applicants were in no manner prejudiced by this combined sale. It is settled law ‘such action taken thereof cannot be held to be bad in law merely on raising a trivial objection which has no legs to stand unless the person is able to show any substantial prejudice being caused on account of the procedural lapse as prescribed under the Act or the rules framed thereunder. If there is maximization of the assets, selling it as a combined should not prejudice the applicant in any manner as it is going to get a better value for the corporate guarantor.

The Hon. NCLAT upheld the decision of NCLT.


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