Pinakin Engineers and Contractors vs Shreyansh Jain & Ors.

This Tribunal was pleased to initiate liquidation proceedings of the Corporate Debtor vide order dated 29.8.2023 and appointed the Respondent No.1 as the Liquidator of the Corporate Debtor. In accordance with the Liquidation Regulations under the Code, the Liquidator being duty bound to put the Corporate Debtor up for sale as a going concern within a period of 90 days, the Respondent No.1 issued e- auction sale notice dated 19.10.2023 for the sale of the assets of the Corporate Debtor as a going concern. Copy of the e-auction sale notice dated 19.10.2023 as published by the Respondent No.1 is attached as "Annexure - A" to application.

The Applicant submits that it had approached this Tribunal vide Interlocutory Application No. 1293 of 2023 which is captured above.

It is stated by the Applicant that while its contentions against Respondent No.1 with regards to the irregularities and infirmities in following the Liquidation Regulations to the letter for the e-auction sale notice remained and still continue to remain, the applicant readily agreed to take part in the auction. Hence the Applicant has kept its right reserved to agitate against the conduct of auction. The applicant submitted in the subsequent IA, that however, due to the intervening festivities on account of Diwali, the EMD and EoI couldn't be filed in the stipulated time. The applicant humbly submits that the delay is neither intentional nor wilful and it is unfortunate that the e-auction is sought to be held during the course of the festive period especially in Gujarat where the assets are located and the importance of Diwali in the state.

It is submitted by the Applicant that in the subsequent IA, it was able to submit the EMD and Eol to the Respondent only on 15.11.2023 i.e. after the Diwali festivities which was duly rejected only on the ground that the order dated 7.11.2023 allowed time period for submission only upto 8.11.2023 and 09.11.2023. Copy of the email of the applicant and the response of the Respondent is annexed hereto and marked as " Annexure - C" to this application.

It is submitted by the applicant that in such circumstances and in furtherance of the order dated 07.11.2023, the applicant has no option but to approach this Tribunal seeking of extension of time to enable it to take part in the e-auction.

The Applicant has offered Rs.25 crores for the Corporate Debtor and the applicant has categorically made statement that the Applicant is further ready and willing to raise the offer in case of competitive bidding with the ultimate object of the Code being maximization of value of assets of the Corporate Debtor. There being only one Financial Creditor, Krishkan Investment Private Limited - the assignee of Union Bank of India, it would be in its interest as well if more money is recovered by way of the e-auction.

It is submitted by the Applicant that this Tribunal be pleased to direct the Respondent to grant extension of 7 days or any other period it may deem fit so as to enable the applicant to take part in the e-auction. The applicant submitted if the prayers as prayed for hereunder are not granted, the applicant will suffer irreparable loss and injury which cannot be compensated in terms of money. In view thereof, the applicant is constrained to prefer the present application before this Tribunal and accordingly the reliefs came to be sought seeking extension of 7 days or any other period it may deem fit to enable the applicant to take part in the e- auction.

It is submitted that this Adjudicating Authority reserved the order on the said subsequent IA filed by the Applicant.

It is submitted by the Application that the present application is filed seeking declaration of alleged auction conducted surreptitiously by the Respondent No.1 and in connivance with Respondent No.2 (a sole stakeholder member) in favour of their known person who was earlier failed in getting the property through resolution plan as bad in law and non-est and in defiance of the mandate of the IBC. There are intentional mandatory lapses in conducting such auction viz.

The advertisement for sale was given in newspapers Gujarat Guardian Gujarati Daily and Free Press English Daily which do not have wide circulation which is a mandate of the liquidation regulation and the applicant came to know from the trade circle and hence the purpose and object of publishing in such newspaper not having adequate and wide circulation is only to deprive prospective bidders. The publication of e-auction notice in local newspapers which are admittedly not widely newspapers in GIDC, Vapi, where the registered office of the Corporate Debtor (“CD”) is situated and hence it is against the laid down procedures and amount to oblige known parties of the Respondents.

Interestingly to be noted that sheer irregularities found in the e-auction notice dated 19.10.2023 i.e. the receipt of bid papers and receipt of EMD shown in same day i.e. before 3.00 pm of 3.11.2023 which smell rat out of it and demonstrates collusion as only person close to Respondent No.1 can participate. The important aspect cannot be lose sight that, the Respondent No.2 has purchased by paying consideration at time of assignment to the sole financial secured creditor and got into helm of the entire CD's properties and hence the Respondent No.2 wanted to ensure that, the assets in question remains with it or its associate as they already earlier filed Resolution Plan for total consideration of Rs.18.50 crore which got failed. Hence to ensure the known or very same party of such NBFC-R- 2 the present eye washing auction process is undertaken by smartly deviating from the regulations by the R-1. The R-1 acting in concert of the R-2 which is evident.

It is submitted that purposefully an incorrect statement made by counsels of liquidator on 7.11.2023 that still the auction has not happened and schedule for 15.11.2023 though the time for depositing the EMD has elapsed. In fact, the last date for payment of EMD was 13.11.2023 and hence due to such statement the Adjudicating Authority gave time to the applicant.

It is found that the Respondent No.1 in connivance with the Respondent No.2 high high-handedly permitted the alleged highest bidder to start cleaning the factory and the photographs as taken on 26.11.2023 are produced herewith as Annexure-"D" to the present application.

It is submitted that mere acceptance of entire consideration in haste does not amount to completion of sale and reference to the internal page 20 of the liquidation process document is relied upon. Further the Applicant filed online application on 16.11.2023 and in order dated 7.11.2023 the Tribunal allowed either party to re-agitate and in such circumstances the Respondent No.1 should not have in haste concluded the sale when admittedly in the payment terms in the process document it is shown as 90 days and payment beyond 30 days will carry interest at the rate of 12% per annum hence the actions of the Respondent No.1 is prejudicial on the said count also. A copy of the liquidation process document is marked as Annexure-"E" to the application.

The Respondent No.1 cannot permit the alleged intending bidder whose bid is surreptitiously accepted to enter the factory premises and effectively hand over the possession as the premises in question is not only getting sold but it is getting sold on going concern basis and in such eventuality till the existing equity shares are extinguished and new shares are getting allotted the management of going concern with premises cannot be handed over and hence unless new management is inducted / introduced i.e. new board of directors till than no such alleged rights could be said to have been created and by permitting such new alleged purchaser to enter into the premises and eventually vesting the property demonstrates that there is a sheer connivance amongst Respondents and such new purchaser who is an ally of Respondent No.2. The permission granted to enter the premises would make it loud to the public at large that, the premises of DMB Paper Mills Pvt Ltd is already sold of which is nothing but a sheer act of arbitrariness and such conduct is unlawful and fraud committed on the entire liquidation proceedings under IBC.

It is submitted that mere declaration of person as highest bidder doesn't amount to completion of auction sale. The Highest bidder does not get a vested or acquired right in law. The Regulation 33(3) is not an exhaustive provision applicable only in the specific circumstances stated therein, further clause 1(11) of schedule - 1 authorise a Liquidator to conduct multiple round of auctions to maximise the realization from the sale of assets and promote the creditors best interest. Hence the auction bidder had not vested right to claim in the auction in its favour in a liquidation sale.

It is submitted that the present mode of auctioning is akin to the private sale and to bypass the said procedure the Respondents in connivance undertook the auction allegedly as public auction but effectively by pre-determined way of confirming the sale in favour of their known person is nothing more than a private sale.

It is stated that the Applicant came to know that, the Respondent No.2 along with associate viz. Raghav Gupta, Raman Gupta, Narayan Sultania and Rishabh Narang gave resolution plan when the CD was in CIRP. In the said Resolution Plan it was declared that, Raghav Gupta and Raman Gupta and Narayan Sultania are a partners in Maruti Paper Mills LLP Navsari and Raghav Gupta worked with Sachin Paper Mills Pvt Ltd. Likewise it was declared in the resolution plan that Rishabh Narang currently working as director in K.C.A. Textiles Pvt Ltd since 2009 Siv Sharnam Handloom Pvt Ltd since 2013 and Mukesh Furnishings Pvt. Ltd. since 2017 while the Raman Gupta also worked with Vatsalya Paper Industries LLP. It is found that, the alleged purchaser is either Maruti Paper Mills LLP or known person of Respondent No.2 who are out- rightly favoured to the detriment to the right of the intending prospective buyer as going concern. The said resolution plan was submitted for total cost of resolution plan was Rs.18.50 crores. The said resolution plan could not go through and by any how the Respondent No.2 and its associate were keen to take over the CD got successfully got assigned the debt with underlying security from the original sole secured financial creditor Union Bank of India who got assigned to the Respondent No.2 and thereafter upon the CD going into liquidation and with connivance with the Respondent No.1 liquidator the systematic bypassing of the mandatory procedure undertaken and to the known person the sale is awarded. The purpose and object is to deprive the prospective buyers from bidding to ensure that, valuable properties on-going basis is acquired by the Respondent No.2 through its known entity. With profound respect its hijacking of the entire auction proceedings which is defying the purpose and object of the IBC.

It is stated that the Applicant has filed belatedly the expression of interest on 15.11.2023 which was returned by the Respondent No.1 as the order dated 07.11.2023 in IA No. 1293/(AHM)/2023 directed to send expression of interest by 08.11.2023 and EMD to be paid by 09.11.2023 and as the same was not complied the Respondent No.1 rejected by email and hence the subsequent IA No. 1339 of 2023 came to be filed before this Tribunal seeking extension of 7 days. This Tribunal upon hearing reserved the order. The earlier application IA No. 1293/2023 when came to be disposed of on 07.11.2023 the applicant was made aware of the said fact about the directions on 09.11.2023 by that time the directions as far as giving EOI by 08.11.2023 got lapsed. The application i.e. subsequent application IA No. 1339 of 2023 came to be filed seeking simply extension of time as the applicant missed out of the date. The EOI was submitted on 15.11.2023 but as it was late and hence application came to be filed for limited purpose seeking extension. It is respectfully submitted that, the present application is filed seeking challenging the auction proceedings itself which is in sheer violation of the mandatory procedure and hence any sale pursuant to the mandatory procedure lapse and more importantly such sale is in collusion than in such eventuality of organised systematic corporate fraud such sale is required to be set aside and declared to be non-est and invalid and illegal.

The notice in the newspaper was published on 19.10.2023 wherein the last date for submission of EoI as well as EMD was kept at 3.00 p.m on 03.11.2023. Certain changes were made on 19.10.2023 and in the ‘Process Document’ the last date of EMD was mentioned as 13.11.2023. These documents were uploaded on the website of IBBI on 23.10.2023 with the correct date of submission of EMD as 13.11.2023.

The Liquidator has attached the notice uploaded on the IBBI portal as Annexure-C.

It is the contention of R-1 that having failed to comply with the directions given by this Tribunal on 07.11.2023 the Applicant is out to sabotage the entire process of liquidation and is even hand-in-glove with the erstwhile promoters.

The liquidator has drawn attention to Para 5.1 at page 20 of the Process Document which is reproduced below:-

It is the contention of the Liquidator that he had every right to modify the timelines.

The auction was duly conducted and the Successful Bidder has since paid the entire consideration, and the sale certificate has since been issued.

The Applicant has not sent the EoI before 03.11.2023. However, the Applicant has filed IA on 02.11.2023 without serving a copy to the Liquidator and that the directions given by this Tribunal on 07.11.2023 were not complied with by the Applicant.

It is contention of R-1 that subsequently another IA being IA No. 1339 of 2023 was filed on 15.11.2023 and no objections as are stated in IA No. 1367 of 2023 were taken in the IA No. 1339 of 2023. The IA No. 1367 of 2023 is an afterthought and is only filed to scuttle the process of liquidation.

R-1 –Liquidator has received 10 Prospective Bidders in the process and that no other bidder has objected the validity of auction process.

Thereafter, the Liquidator has cited the following judgments:-

Eva Agro Feeds Pvt. Ltd. V. Punjab National Bank and Anr.

State Bank of India V. Maithan Alloys Limited

Majit Commercial LLP V. SPM Auto Pvt. Ltd.

It is the contention of R-1 that the Applicant never contacted the Liquidator and has filed multiple IAs and that the Liquidator is not bound to declare the successfully conducted auction void just because some prospective bidder could not even submit EMD on time, wants to participate the auction process.

Upon directions issued by this Tribunal vide order dated 01.12.2023, along with the reply R-1 has filed the following documents in compliance of the said order:-

The respondent seeks dismissal of IA No. 1367 of 2023.

This Tribunal vide order dated 14.12.2023 directed the Liquidator to file certain additional documents. In response to which, the Liquidator has filed the following documents:-

Valuation reports

Minutes of Meeting of SCC held on 16.10.2023

Copy of the filings done relating to auction notice on the IBBI website.

Copy of proof for the presence of the Liquidator in the city of Ahmedabad on 13.12.2023.

I. Ten persons have shown interests in the present auction process though only one person participated in the auction.

Whether the auction notice was defective?

Whether the reserve price was fixed correctly?

What order?

The Applicant herein shall give an unconditional bid to the Liquidator within a period of three working days from the date of pronouncement of this order.

The entire bid amount should be deposited by the Applicant herein in the liquidation account of the Corporate Debtor which is under the control of the Liquidator within a period of seven working days from the date of this order. The details of liquidation account are as under:-

In case, the Applicant fails to adhere to the directions given in (A) and (B) above, this Tribunal will assume that the Applicant is not interested to pursue the matter and the Liquidator will be free to take further steps in pursuance of the Sale Certificate already issued by him in favour of R-3.

In case the Applicant is able to satisfy (A) and (B) above, R-3 – the Successful Resolution Bidder will have an option to match the bid of the Applicant herein of course subject to payment of balance consideration within seven working days from the date of submission of the revised bid.

It is made clear that in no circumstances this Tribunal will accede to any requests of either of the parties for seeking extension of time as specified in this order.

The Liquidator is permitted to issue fresh sale certificate and to cancel already issued sale certificate to comply with the directions given under this order.

The liquidator is directed to strictly adhere to the above directions and file an additional affidavit giving the subsequent development on record within two weeks from the date of this order.

List the matter for compliance on 12.02.2024.