REPORTABLE

2023INSC809
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7906 OF 2021

EVA AGRO FEEDS PRIVATE LIMITED APPELLANT(S)

VERSUS

PUNJAB NATIONAL BANK AND ANR. RESPONDENT(S)

JUDGMENT

UJJAL BHUYAN, J.

Application (I. A. No.14220 of 2022) for intervention is allowed.

2. This appeal has been preferred under Section 62 of The

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘Code’)

against the order dated 30.11.2021 passed by the National Company Law

Appellate Tribunal, Principal Bench, New Delhi (briefly ‘the Appellate

Tribunal’ hereinafter) allowing the appeal of Punjab National Bank i.e.

Respondent No.1 being Company Appeal (AT) (Insolvency) No.757 of 2021.

The aforesaid appeal was filed by the Punjab National Bank against the order
Signature Not Verified

dated 12.08.2021 passed by the National Company Law Tribunal, Kolkata

Digitally signed by
Neetu Sachdeva
Date: 2023.09.06
16:38:10 IST
Reason:
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Bench, Kolkata (briefly the ‘Tribunal’ hereinafter) in I.A. (IB) No.663/KB/2021

in CP (IB) 440/KB/2018.

3. At the outset, it would be necessary to advert to the relevant

facts:-

(i) One Huvepharma Sea (Pune) Private Limited filed an application under

Section 9 of the Code against M/s. Amrit Feeds Limited i.e. corporate

debtor before the Tribunal. The same was registered as CP(IB)

No.440/KB/2018. The Tribunal passed an order dated 22.10.2019

admitting the application filed under Section 9 of the Code as a result

of which corporate insolvency resolution process of the corporate debtor

commenced.

(ii) On 19.02.2021, the Tribunal passed an order for liquidation of the

corporate debtor. Respondent No.2 was appointed as the Liquidator to

oversee the corporate insolvency resolution process.

(iii) Respondent No.2 by an e-mail dated 07.06.2021 forwarded a sale notice

dated 02.06.2021 for sale of the assets of the corporate debtor.

23.06.2021 was the date fixed by Respondent No.2 for auction sale of

the assets of the corporate debtor. It appears that the aforesaid auction

sale did not materialize. Thereafter by way of an e-mail dated

29.06.2021, Respondent No.2 forwarded a similar notice dated

28.06.2021 for auction sale of the assets of the corporate debtor

scheduled on 20.07.2021.
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(iv) It is stated that the appellant i.e., Eva Agro Feeds Private Limited was

incorporated on 09.07.2021 under the provisions of the Companies Act,

2013.

(v) Appellant submitted its bid dated 16.07.2021 to Respondent No.2 on

17.07.2021 in respect of the assets of the corporate debtor (in

liquidation). The assets put up for auction were lands admeasuring

1,05,250.40 sqft at Plot No.56, Khata Nos.27, 26, 29, 36, 36 (Old) and

362/363 (New), Mouza - Deoria, Pargana Bhuli, Tehsil - Chunar,

District - Mirzapur, Uttar Pradesh with building, plant and machinery

and other fixed assets thereon on a lump sum basis as mentioned at

serial No.3 of the sale notice.

(vi) In terms of the sale notice, appellant paid the earnest money deposit

(EMD) of Rs.1 crore in respect of the subject property. While the last

date/time for submission of bid was 20.07.2021 at 14:30 hours,

appellant had submitted its bid on 19.07.2021 for a sum of Rs.10 crores

which was equivalent to the reserve price as notified in the bid which

ended at 14:30 hours on 20.07.2021.

(vii) On 20.07.2021, appellant received an E-auction certificate from

Respondent No.2 certifying that it had won the auction for the assets of

the corporate debtor put up for auction sale (referred to hereinafter as

the ‘subject property’). On 21.07.2021, appellant by way of an e-mail

requested Respondent No.2 to issue allotment letter in respect of the

subject property. It is stated that on 21.07.2021 itself appellant received

an e-mail of the aforesaid date from Respondent No.2 informing that

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Respondent No.2 had cancelled the E-auction held on 20.07.2021

under Clause 3(k) of the Disclaimer Clause in the E-Auction Process

Information Document. The appellant was further informed that a fresh

E-auction would be conducted for the subject property.

(viii) Aggrieved by the same, appellant filed an application before the

Tribunal under Section 60 and related provisions of the Code read with

The Insolvency and Bankruptcy Board of India (Liquidation Process)

Regulations, 2016 as well as under Rule 11 of the National Company

Law Tribunal Rules, 2016 which was registered as I.A. (IB)

No.663/KB/2021 in CP (IB) 440/KB/2018. Tribunal vide order dated

12.08.2021 disposed of the said application by directing the Liquidator

i.e. respondent No.2 to send a communication to the appellant requiring

him to deposit the balance sale consideration within the time specified

in the E-auction notice.

(ix) According to the appellant, Respondent No.2 complied with the order of

the Tribunal and issued a letter to the appellant to deposit the balance

consideration money. Pursuant to the said letter, appellant deposited

the entire sum on 10.09.2021 following which Respondent No.2 issued

a sale certificate dated 15.09.2021 in respect of the subject property in

favour of the appellant.

(x) While the Liquidator accepted the order of the Tribunal, one of the

financial creditors i.e. Punjab National Bank (Respondent No.1) filed an

appeal before the Appellate Tribunal under Section 61 of the Code

against the order dated 12.08.2021 passed by the Tribunal. The appeal
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was contested by the appellant. However, by the impugned order dated

30.11.2021, Appellate Tribunal allowed the appeal and set aside the

order dated 12.08.2021 passed by the Tribunal. Consequently, the

steps taken pursuant to the said order were also reversed. Liquidator

was given liberty to initiate fresh process of auction in accordance with

the provisions of the Code read with The Insolvency and Bankruptcy

Board of India (Liquidation Process) Regulations, 2016 (briefly the

‘Regulations’ hereinafter).

(xi) Aggrieved, the auction purchaser as the appellant has preferred the

present appeal.

4. This court by order dated 10.01.2022 had issued notice and

passed an interim order staying the subsequent auction which was scheduled

on 17.01.2022.

5. Respondent No.1 - Punjab National Bank in its counter affidavit

at the outset pleaded that the appeal deserves to be dismissed at the threshold

and that the impugned order of the Appellate Tribunal upholding the decision

of the Liquidator to cancel the auction sale is fully justified. Appellant was

the sole bidder and quoted exactly the reserve price. Reasoning given by the

Appellate Tribunal in paragraphs 11 to 22 of the impugned order are just and

proper and calls for no interference. In this connection, Respondent No.1 has

referred to Clause 3 (k) of the auction sale notice which says that the

Liquidator has the absolute right to accept or reject any or all the bids or

adjourn/postpone/cancel the E-auction or withdraw any asset/property or

portion thereof from the E-auction at any stage without assigning any reason.
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Reliance has also been placed on Clause 5 (m) of the auction sale notice as

per which the bidder with the highest offer/bid does not get any right to

demand acceptance of its bid. It is in the above context that Respondent No.1

has contended that the Liquidator was well within his rights to cancel the

auction sale, which decision has been rightly affirmed by the Appellate

Tribunal.

5.1. According to Respondent No.1, it is a settled position that any

auction sale, before completion, can always be cancelled. Tribunal had

overlooked the provisions contained in Clause-13 of the Regulations which

makes it clear that auction sale shall stand completed only on payment of full

amount and not at the stage when the highest bidder is invited to provide

balance sale consideration within 90 days from the date of demand. Tribunal

relied upon Clause 12 of the Regulations as per which, on the closure of

auction, the highest bidder shall be invited to provide the balance sale

consideration within 90 days of the date of demand; first proviso mentions

that payments made after 30 days would attract interest of 12% with the

second proviso clarifying that the sale would be cancelled if the payment is

not received within 90 days. According to Respondent No.1, Tribunal by

placing reliance on Clause 12 mis-directed itself in directing the Liquidator to

send a communication to the appellant for depositing the balance sale

consideration within the time specified in the E-auction notice.

5.2. There is no express bar or prohibition either under the Code or

under the Regulations restraining the Liquidator from cancelling an auction

sale even after declaration of the highest bidder but before completion of sale
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as understood under Clause 13 of the Regulations. In the absence of such

express bar or prohibition and when the auction sale was yet to be concluded,

Liquidator was well within his rights in cancelling the auction sale with the

intent to have another round of auction sale. Tribunal had erred in interfering

with such action of the Liquidator.

5.3. Appellant had accepted the terms and conditions of the auction

sale notice while participating in the auction sale, including Clause 3 (k).

Therefore, it was not open to the appellant to question the decision of the

Liquidator to cancel the auction sale.

5.4. Respondent No.1 has also alleged that the appellant had made

incorrect statements in the appeal and did not bring on record relevant

documents. It is stated that Respondent No.2 in his written submission before

the Tribunal had stated that he was informed by way of e-mail dated

05.08.2021 by Kapila Krishi Udyog Pvt. Ltd. that the promoters of the

appellant were also the founder promoters of the corporate debtor. On receipt

of such e-mail, Liquidator verified the record and found that one of the present

directors of the appellant, Mr. Vijay Kumar Ghidia was a director of the

corporate debtor from its inception i.e. 22.09.1994 to 13.01.2009. Liquidator

had submitted that later on it had received letter dated 05.08.2021 from

Sugna Feeds Pvt. Ltd. expressing its intention to participate in the auction

sale of the subject property. It was contended that Sugna Feeds Pvt. Ltd. is a

well-established player in the poultry feeds sector, whereas appellant was

incorporated only on 09.07.2021 i.e. after issuance of the E-auction sale

notice.
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5.5. Appellant while submitting its bid vide application dated

16.07.2021 had accepted the terms and conditions of the auction process

shared by the Liquidator which contained paragraph-7. Paragraph-7 is

specific: it mentions that applicant would adhere to the terms and conditions

of the E-Auction Process Information Document as shared by the Liquidator.

6. Mr. Sunil Mohan Acharya- Liquidator of the corporate debtor i.e.,

Respondent No.2 has filed counter affidavit. He was appointed as Liquidator

of the corporate debtor by the Tribunal vide order dated 19.02.2021.

According to him, the admitted debts of the corporate debtor are Rs.530

Crores of which claims of financial creditors are Rs.371 Crores.

6.1. By an E-auction notice dated 02.06.2021, the assets of the

corporate debtor being, inter alia, poultry feed farms at Lucknow (Lot No.2)

and Mirzapur (Lot No.3) were put up for auction with reserve prices of

Rs.11.30 crores and Rs. 12.69 crores respectively. By an e-mail dated

07.06.2021, respondent No. 2 had forwarded the E-auction notice to the

prospective bidders, including to the appellant. However, as no bids were

received in respect of any of the assets of the corporate debtor, reserve prices

were reduced by 25% as provided in the Regulations, whereafter Lot No.2 and

Lot No.3-subject property, with revised reserve prices of Rs.8.50 crores and

Rs. 10.00 crores respectively were again put up for auction vide E-auction

notice dated 28.06.2021. By an e-mail dated 29.06.2021, the E-auction notice

along with E-Auction Process Information Document were sent to the

prospective bidders, including the appellant.

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6.2. Before the date of auction on 20.07.2021, earnest money deposit

(EMD) was paid by the appellant and another intending bidder both for Lot

No.2 and the subject property. Five minutes before the scheduled closure of

bidding time there was a spurt of counter bids for Lot No.2 by the appellant

and the other bidder, taking the price from Rs.8.50 crores to Rs.14.79 crores.

The pattern of bidding in respect of Lot No.2 and the fact that the same two

entities had submitted EMD for the subject property, but the bid being

ultimately made only by the appellant led Respondent No.2 to believe that

higher bids could be received for the subject property on further re-auction.

6.3. According to Respondent No.2, the subject property had a cost of

Rs.17.30 crores and written down book value of Rs.8.59 crores as compared

to Lot No.2, which had cost of Rs.9.28 crores and written down book value of

only Rs.2.45 crores. However, Lot No.2 was sold for Rs.14.39 crores as against

its reserve price of Rs.8.50 crores. Respondent No.2 therefore expected a price

higher than Rs.10 crores for the subject property as Lot No.2 despite having

a substantially lower worth as per the available record had fetched bids higher

than Rs.10 crores.

6.4. For the aforesaid reasons and to maximise the value of the

subject property which would enure to the benefit of all stakeholders,

Respondent No.2 thought it prudent to explore the possibility of further price

enhancement in respect of the subject property and therefore decided to

cancel the auction for the subject property.

6.5. In support of the above averments, Respondent No.2 has referred

to certain terms and conditions in the E-auction notice and the E-Auction
 10

Process Information Document. Clause 3(f) binds the applicant to accept the

terms of the disclaimer, which forms an integral part of the E-Auction Process

Information Document. Clause 3 (k) says that the Liquidator has the absolute

right to accept or reject any or all bids or adjourn/postpone/cancel the E-

auction or withdraw any asset/property or portion thereof from the E-auction

at any stage without assigning any reason thereof. As per Clause 5 (m), the

bidder with the highest offer/bid does not get any right to demand acceptance

of his bid. Clause 5 (n) provides for intimation to be sent to the successful

bidder via e-mail. Date of sending the mail would be considered as the date of

receipt of the intimation. As per Clause 2 (h), on the close of the auction, the

highest bidder shall be invited to provide balance sale consideration within

90 days of the date of such demand. Clause 2 (i) makes it clear that on

payment of the full amount, the sale shall stand completed. The Liquidator

shall then execute certificate of sale or sale deed to transfer such assets and

thereafter the assets shall be delivered to the highest bidder in the manner

specified in terms of the sale.

6.6. Respondent No.2 has contended that while submitting its bid for

the subject property, the appellant was well aware of the terms and conditions

governing the sale by auction. Appellant expressly accepted the aforesaid

terms and conditions while submitting its application dated 16.07.2021 for

participating in the auction bid process. According to him, on expiry of the

time to submit bids on 20.07.2021, an auto generated e-mail from the web

portal of ‘eauctioneer.com’ was sent to the appellant stating that the bid

submitted by it was the highest.

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6.7. Thereafter, by an e-mail dated 21.07.2021, Respondent No.2

informed the appellant about cancellation of E-auction held on 20.07.2021

under Clause 3(k) of the E-Auction Process Information Document. Appellant

was advised to collect the EMD as a fresh E-auction sale was to be conducted.

6.8. Respondent No.2 has mentioned that he had received an e-mail

dated 10.09.2021 from one Mr. Amit Ghidia alleging that the directors of the

appellant were also the founder promoters of M/s. Amrit Feeds Limited, the

corporate debtor. On receipt of such e-mail, Respondent No.2 carried out

inspection and upon verification came to know that one of the present

directors of the appellant, Mr. Vijay Kumar Ghidia was a director and the

principal shareholder of the corporate debtor during the period 22.09.1994 to

13.08.2019. Respondent No.2 has also mentioned that appellant was

incorporated only in July, 2021.

6.9. Referring to the proceeding before the Tribunal instituted by the

appellant, he submits that the application filed by the appellant against

cancellation of the E-auction was taken up for hearing on 29.07.2021 and

concluded on the same day without giving any opportunity to Respondent

No.2 to file reply. However, the parties were permitted to file written

submissions which were duly filed by Respondent No.2.

6.10. By order dated 12.08.2021, Tribunal allowed the application of

the appellant and directed Respondent No.2 to send a communication to the

appellant for depositing the balance sale consideration within the time

specified in the E-auction notice.

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6.11. Punjab National Bank i.e., Respondent No.1, a financial creditor

of the corporate debtor, having claims of Rs.136,61,93,948/- assailed the

order dated 12.08.2021 before the Appellate Tribunal. In such proceedings,

Respondent No.2 supported the stand of Respondent No.1. Appellate Tribunal

by order dated 30.11.2021 allowed the appeal of Punjab National Bank and

directed Respondent No.2 to initiate a fresh process of auction in accordance

with the provisions of the Code and the Regulations.

6.12. It is stated that after the order dated 30.11.2021 was passed by

the Appellate Tribunal, Respondent No.2 had sent an e-mail dated 02.12.2021

calling upon the appellant to comply with the order of the Appellate Tribunal

and to handover peaceful possession of the subject property. As there was no

response from the appellant, Respondent No.2 made several calls to Navneet

Kumar Ghidia, Director of Eva Agro Feeds Pvt. Ltd. on his mobile phone but

the calls went unanswered. Appellant did not allow even the representative of

Respondent No.2 to enter into the subject property. That apart, representative

of Respondent No.2 had informed him that the appellant was wrongfully

removing materials and equipments from the subject property.

6.13. It is further stated that subsequent to cancellation of the E-

auction sale of the subject property, Respondent No.2 had received a letter

dated 05.08.2021 from Sugna Feeds Pvt. Ltd., a well-established player in the

poultry feeds sector, expressing its intention to participate in the auction of

the subject property. It is stated that in addition to the above, respondent

No.2 had received an e-mail dated 20.08.2021 from IFFCO KISAN Delhi, a
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subsidiary company of Indian Farmers Fertilisers Cooperative (IFFCO)

expressing its interest in the assets of the corporate debtor.

6.14. In the above circumstances, Respondent No.2 has contended that

cancellation of E-auction was justified and was done in the best interest of

the stakeholders of the corporate debtor.

7. Appellant has filed rejoinder affidavit to the counter affidavit of

Respondent No.1.

7.1. While reiterating its contentions, appellant has stated that the

adjudicating authority i.e., the Tribunal had rightly set aside the decision of

the Liquidator (Respondent No.2). Respondent No.2 after issuing the

certificate certifying that appellant had won the auction of the subject

property, cancelled the E-auction without giving any justification or reason

for such cancellation. Referring to Clause 3 (a) of the E-Auction Process

Information Document, appellant has contended that the said clause is

contrary to the Regulations. In the facts and circumstances of the case,

Respondent No.2 could not have cancelled the auction. Such act of

cancellation of E-auction was wholly illegal and arbitrary. In this connection,

reliance has been placed upon para 1(12) of Schedule I to the Regulations.

Appellant was the highest and sole bidder in the second round of auction and

its bid amount matched the reserve price as mentioned in the sale notice.

Reserve price in the first round of auction was fixed at Rs.12,69,00,000/-.

However, as the auction sale did not materialise, Respondent No.2 in the

second round reduced the reserve price in order to get bidders to at least

match the reserve price. This was done successfully by the appellant
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whereafter appellant was informed that it had won the bid. Action of

Respondent No.2 in cancelling the E-auction after e-mailing the appellant that

it had won the bid is a clear case of abuse of the process.

7.2. Respondent No.2 vide public notice dated 24.12.2021 scheduled

fresh E-auction on 17.01.2022 again fixing the reserve price in relation to the

subject property at Rs.10 crores which was the same amount as the reserve

price in the second round of bidding and which was the bid amount of the

appellant

7.3. Respondent No.1 has misinterpreted Clause 3 (k) to mean that

since full amount was not paid, it was entitled to invoke the said clause and

cancel the bid. Such a contention is wholly untenable having regard to the

overall scheme of the Regulations. No reasons were assigned by the Liquidator

while cancelling the auction process. The order cancelling the auction being

devoid of any reasons does not indicate application of mind by the Liquidator.

7.4. Appellant has asserted that the Liquidator i.e. Respondent No.2

had accepted the decision of the Tribunal by not filing any appeal against the

order dated 12.8.2021. Therefore, it is not open to the Liquidator to contest

the claim of the appellant.

8. As noticed above, one Mr. Harish Bagla has filed an application

seeking intervention which we have allowed.

9. In addition to narrating the facts and commenting thereupon, the

intervenor has averred that the principal person in control of the appellant is

one Mr. Vijay Kumar Ghidia who is a director and principal shareholder of the

appellant. Mr. Vijay Kumar Ghidia was also one of the promoter directors and
 15

principal shareholders of the corporate debtor. Sale of any asset of the

corporate debtor could not have been conducted in favour of a related party

of the corporate debtor in view of the specific bar under Section 29A of the

Code. As a matter of fact, Mr. Vijay Kumar Ghidia is also the maternal uncle

of the intervenor who is the ex-managing director of the corporate debtor.

Mr. Vijay Kumar Ghidia therefore comes within the meaning of ‘related party’

as defined under Sections 5(24) and 5(24A) of the Code. Therefore, the auction

sale in favour of the appellant is bad in law and cannot be sustained.

9.1. This aspect was also brought to the notice of Respondent No.2

i.e. the Liquidator.

9.2. It is stated that the intervenor had filed an appeal before the

Appellate Tribunal being Company Appeal (AD) (Insolvency) No.789 of 2021.

In the said appeal, an interim order was passed on 27.09.2021 directing the

parties to maintain status quo. Before the appeal of the intervenor could be

heard, the Appellate Tribunal had passed the order dated 30.11.2021 allowing

the appeal of Respondent No.1 by setting aside the order of the Tribunal dated

12.08.2021. Therefore, when the appeal of the intervenor came up for hearing

before the Appellate Tribunal, the same was disposed of vide order dated

09.12.2021 as having been rendered infructuous. When the intervenor came

to know that the appellant has filed the present appeal, it had filed the

intervention application.

10. We have heard Mr. Neeraj Kishan Kaul, learned senior counsel

for the appellant; Mr. Rajesh Kumar Gautam, learned counsel for Respondent

No.1; Mr. Krishnaraj Thakker, learned counsel for Respondent No.2; and Mr.
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Siddharth Bhatnagar, learned senior counsel for the intervenor - Mr. Harish

Bagla.

11. Mr. Neeraj Kishan Kaul, learned senior counsel for the appellant

at the outset submits that Appellate Tribunal fell in complete error in setting

aside the order of the Tribunal and restoring the order of the Liquidator.

Adverting to the order of the Liquidator cancelling the auction sale, he

submits that the same is devoid of any reasons. Such an order is not only

arbitrary but is non est in the eye of law. There could not have been any

occasion for the Liquidator to go for a fresh auction keeping the reserve price

at the same amount of Rs.10 crores which was the bid offered by the appellant

and accepted by the Liquidator. In fact, Liquidator had declared that the

appellant had won the bid. Tribunal had rightly appreciated the grievance of

the appellant and interfered with the aforesaid order of the Liquidator.

Liquidator did not challenge the order of the Tribunal dated 12.08.2021,

rather Liquidator had complied with the same by accepting the balance sale

consideration from the appellant and issuing the sale certificate. Since

Liquidator had accepted the order of the Tribunal, it was not open for him to

support Respondent No.1 or the order of the Appellate Tribunal in the appeal

filed by the appellant. He has also pointed out that at the time of auction, Mr.

Vijay Kumar Ghidia was no longer connected with the corporate debtor having

retired from the said company way back in the year 2011. Therefore, he

cannot come within the ambit of the expression ‘related party’ as defined

under the Code. He submits that the present is a fit case for setting aside the

order of the Appellate Tribunal and restoring the order of the Tribunal which

as a matter of fact has been complied with by the Liquidator.

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12. Mr. Rajesh Kumar Gautam, learned counsel for Respondent No.1

submits that appellant has failed to point out any particular provision either

in the Code or in the Regulations prohibiting the Liquidator from cancelling

the auction sale after declaring the highest bidder but before completion of

sale. Power of cancellation is available to the Liquidator under Clause 3(k) of

the auction notice. Such a power could be exercised by the Liquidator without

assigning any reason. While bidding, the appellant had unconditionally

accepted all the clauses of the auction notice, including Clause 3(k).

Therefore, the Tribunal was not justified in interfering with such a decision of

the Liquidator and further directing the Liquidator to conclude the auction

sale process. Before completion of sale, highest bidder has no vested right for

confirmation of sale in his favour. Insofar as the maintainability of the appeal

before the Appellate Tribunal is concerned, he submits that there is no bar or

prohibition restraining a financial creditor from preferring an appeal against

an order of the Tribunal since the financial creditor is certainly an aggrieved

person and has substantial interest in the auction sale of the subject property

of the corporate debtor. That apart, under para 1(11) of Schedule I to the

Regulations, the Liquidator has the discretion to conduct multiple rounds of

auction to maximize realization in the sale of assets and to promote the best

interest of the financial creditors. He submits that reliance on para 1(13) of

Schedule I to the Regulations by learned senior counsel for the appellant is

misplaced inasmuch as a sale can be said to have been completed only on

payment of the full amount and not on declaration of a bidder as the highest

bidder who in any case has no vested right to claim confirmation of sale. He

submits that appellant is in no way prejudiced by the next round of auction

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which was scheduled on 17.01.2022 but could not proceed because of the

restraint imposed by this Court. Appellant can certainly participate in the

next round of auction.

12.1. In the above context, he submits that Tribunal was not justified

in interfering with the decision of the Liquidator and therefore, Appellate

Tribunal rightly set aside the said order of the Tribunal and in restoring the

order of the Liquidator. He has referred to Clause 3 (k) of the auction notice

which confers discretion upon the Liquidator to cancel the E-auction at any

stage without assigning any reason. Adverting to the facts of the present case,

he submits that the appellant was the sole bidder and his bid amount was

exactly the same as the reserve price. It was in that context that the Liquidator

decided to cancel the auction with a view to have another round of auction to

fetch a better price. There was nothing wrong or illegal in the exercise of such

discretion by the Liquidator.

13. Mr. Krishnaraj Thakker, learned counsel for Respondent No.2

has also adopted and reiterated the above submissions made by learned

counsel for Respondent No.1. Additionally, he submits that Liquidator had

received an e-mail dated 10.09.2021 from one Mr. Amit Ghidia informing him

that the promoter of the appellant was also the founder promoter of the

corporate debtor. Mr. Vijay Kumar Ghidia who is one of the directors of the

appellant was also a director and principal shareholder of the corporate

debtor. Recent incorporation of the appellant in the month of July 2021 also

raised suspicion about the nature of the appellant and its intentions.
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13.1. Appellant while submitting its bid had accepted the terms and

conditions of the auction process. Therefore, it is not open to the appellant to

question the exercise of discretion by the Liquidator, which is one of the terms

and conditions of the auction.

13.2. In so far issuance of e-mail to the appellant declaring it as the

winner of the auction process is concerned, he submits that on expiry of the

time for placing of bids, an auto generated e-mail from the e-auction website

“www.eauctioneer.com” was sent to the appellant stating that the bid

submitted by it was the highest. It was an auto-generated e-mail and cannot

be construed to be the E-auction certificate. In so far acceptance of the

balance sale consideration and issuance of sale certificate is concerned, he

submits that the same was done as per the direction of the Tribunal.

13.3. In the course of the hearing, he submitted that there were two

assets of the corporate debtor; one at Lucknow (Lot No. 2) and the other at

Mirzapur (Lot No.3). Since the assets at Lot No.2 fetched Rs.4.79 crores more

than the reserve price, Liquidator believed that the subject property could

fetch a higher amount than the reserve price of Rs.10 crores. Keeping this in

mind, he had cancelled the E-auction process.

13.4. On the submission that Liquidator did not assail the decision of

the Tribunal and therefore had accepted the same, his contention is that in

all the proceedings Liquidator had contested the case projected by the

appellant. Now that the appeal of Respondent No.1 has been allowed by the

Appellate Tribunal, Liquidator is bound by the same. He submits that decision

of the Liquidator to cancel the auction was vindicated when post cancellation
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of auction, Liquidator received letter dated 05.08.2021 from Sugna Feeds

Private Limited expressing its intention to participate in the auction of the

subject property. Sugna Feeds Private Limited is a well-established player in

the poultry sector whereas appellant was incorporated after issuance of the

E-auction sale notice.

14. Mr. Siddharth Bhatnagar, learned senior counsel appearing for the

intervenor highlighted the issue of ‘related party’. According to him, appellant

should have been disqualified from participating in the E-auction by reason

of being a ‘related party’. Promoter director of the appellant, Mr. Vijay Kumar

Ghidia, is the maternal uncle of Mr. Harish Bagla, the intervener. Mr. Vijay

Kumar Ghidia is one of the directors of the appellant. He was also one of the

promoter directors and original subscribers to the Memorandum and Articles

of Association of the corporate debtor. Elaborating further, he submits that

mother of the intervenor Smt. Chanda Bagla is the sister of Mr. Vijay Kumar

Ghidia. Intervenor has a significant stake in the corporate debtor having held

about fifty-three per cent of the paid-up share-capital of the corporate debtor.

Liquidator, therefore, should have cancelled the auction sale notice only on

the ground that appellant is a ‘related party’ to the corporate debtor. Referring

to the e-mail dated 10.09.2021, he submits that Mr. Amit Ghidia, son of Mr.

Vijay Kumar Ghidia had brought to the notice of the Liquidator that Mr. Vijay

Kumar Ghidia is the maternal uncle of the intervenor. By virtue of such

relationship, appellant would attract disqualification under Section 29A read

with Section 5(24) and Section 5(24A) of the Code.

 21

15. Referring to the above contentions, Mr. Neeraj Kishan Kaul,

learned senior counsel for the appellant submits that it was because of the

activities of persons like the intervenor that the corporate debtor has landed

in the present situation. Therefore, it is not open to such persons to talk

about getting proper valuation of the auctioned assets of the corporate debtor.

In so far allegation of ‘related party’ is concerned, he submits that the same

is no bar at all and cannot be held as a disqualification for the appellant

inasmuch as Mr. Vijay Kumar Ghidia had ceased to be a director of the

corporate debtor way back in the year 2011. To attract disqualification under

Section 29A, the relationship has to be proximate. In this connection, he has

placed reliance on the decision of this Court in the case of Swiss Ribbons

Private Limited and Another versus Union of India and Others1.

16. Submissions made by learned counsel for the parties have

received due consideration of the Court.

17. As we have noted above after initiation of the corporate insolvency

resolution process, Liquidator i.e. Respondent No.2 had issued sale notice

dated 02.06.2021 for sale of the subject property of the corporate debtor. The

reserve price of the subject property was fixed at Rs.12.69 crores, whereas

EMD was fixed at Rs.1,26,19,000.00. E-auction was scheduled on 23.06.2021

between 14.00 to 14.30 hrs. This E-auction did not fructify in the absence of

any bidders. Thereafter, Respondent No. 2 issued second sale notice dated

28.06.2021 for auction sale amongst others of the subject property. This time

the reserve price was scaled down to Rs.10 crores and correspondingly, the

1
(2019) 4 SCC 17
 22

EMD was fixed at Rs.1 crore. Last date for deposit of EMD was 19.07.2021

and the date and time of bid was fixed as 20.07.2021 at 14.30 hrs. It was

mentioned therein that the E-auction sale would be subject to the terms and

conditions prescribed in E-Auction Process Information Document available

at the website of the second Respondent.

17.1. As it appears, appellant was the sole bidder and its bid value was

Rs.10 crores which was equivalent to the reserve price.

18. Pausing here for a moment, we may advert to the Bid Application

Form. As per Clause-7 of the Bid Application Form, the applicant i.e. the

bidder was required to adhere to the terms and conditions mentioned in the

E-Auction Process Information Document. Clause-9 provided that the

applicant would participate in the E-auction for the sale of assets on as is

where is basis, as is what is basis, whatever there is basis and no recourse

basis. Further, if selected as the highest bidder, the bid amount would be

unconditionally binding on the applicant. Clause-12 made it clear that the

applicant would at all time adhere to the provisions of the Code and the

Regulations.

19. The E-Auction Process Information Document was issued by the

Liquidator i.e. Respondent No.2 for regulating the E-auction of the subject

property of the corporate debtor. As per Clause 2 (g), unless specified

otherwise, EMD of the successful bidder would be retained towards part of

the sale consideration and EMD of unsuccessful bidder would be refunded,

which would not bear any interest. Clause 2 (h) says that in accordance with

para 1(12) of Schedule I to the Regulations, on the closure of the auction, the
 23

highest bidder would be invited to provide balance sale consideration within

90 days of the date of such demand. As per proviso (i) of Clause 2(h), payments

made after 30 days would attract interest at the rate of 12 per cent and as per

proviso (ii) of Clause 2(h), the sale shall be cancelled if the payment is not

received within 90 days. Clause 2 (i) says that on payment of the full amount,

the sale would stand completed and the Liquidator would execute the

certificate of sale or sale deed to transfer such assets which would be delivered

to him in the manner specified in the terms of sale. As per Clause 2(m), the

information provided in the E-Auction Process Information Document should

be read together with the provisions of the Code and the Regulations. In the

event of a conflict between the E-Auction Process Information Document and

the Code or the Regulations, provisions of the Code or the Regulations, as the

case may be, would prevail. Mandate of Clause 2(r) is that the successful

bidder would have to take over possession of the movable assets being sold

under the E-auction within 15 days from the date of the complete payment to

the Liquidator without any damage to the premises where the assets were

kept.

19.1. Clause 3 of the E-Auction Process Information Document deals

with disclaimer. While Clause 3 (a) says that the said document has been

issued by the Liquidator for general information purposes only; sub-clause (b)

clarifies that the said document is not a statutory document; it has not been

approved or registered with any regulatory or statutory authority of

Government of India or any State Government. Further, nothing relating to

the E-Auction Process Information Document should be construed as legal,

 24

financial, accounting, regulatory or tax advice by the Liquidator. Clause 3 (f)

declares that by procuring a copy of the E-Auction Process Information

Document, the recipient accepted the terms of the disclaimer, which forms an

integral part of the E-Auction Process Information Document. As per Clause

3(i), E-Auction Process Information Document is neither an agreement nor an

offer by the Liquidator to the prospective bidders or any other person.

Objective of the E-Auction Process Information Document is to provide

interested parties with information that may be useful to them in making their

bids. Clause 3(k) declares that the Liquidator has absolute right to accept or

reject any or all bids or adjourn/postpone/cancel the E-auction or withdraw

any asset/property or portion thereof from the E-auction at any stage without

assigning any reason thereof. As per Clause 5(m), the highest bid on the E-

auction shall supersede all the previous bids of the respective bidders.

However, the bidder of the highest offer/bid does not get any right to demand

acceptance of his bid.

20. On 21.07.2021, appellant received a congratulatory e-mail from

the second respondent i.e., the Liquidator. The language of this e-mail is quite

important. Appellant was informed that it had won the auction for the subject

property. The winning bidders’ order had been prepared and the item was

listed on the appellant’s web page. If the appellant had any queries, it was

advised to contact the auction administrator. When the appellant requested

Respondent No.2 for issuance of allotment letter in respect of the subject

property, it received an e-mail from the Respondent No.2 on 21.07.2021 itself

at 17:56 pm. Appellant was informed that in terms of Clause 3 (k) of the E-

Auction Process Information Document, he had cancelled the E-auction held

 25

on 20.07.2021. Appellant was informed that the Liquidator would come up

with a fresh E-auction for sale of the subject property.

20.1. From the aforesaid, we find that no reasons were assigned by the

Liquidator for cancellation of the E-auction held on 20.07.2021. Appellant

was simply informed that the E-auction was cancelled in terms of Clause 3(k)

of the E-Auction Process Information Document. Clause 3 (k) as discussed

above only declares that the Liquidator has 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. We will advert to this clause a little

later.

21. To complete the narrative, we may mention that aggrieved by

such cancellation, appellant had filed an application under Section 60 of the

Code before the Tribunal assailing such cancellation. Issue before the

Tribunal was whether the Liquidator was justified in cancelling the E-auction.

Tribunal noted that the Liquidator had cancelled the auction without

assigning any reason. Though a contention was advanced by the Liquidator

before the Tribunal that the other assets (at Lucknow) of the corporate debtor

put up for auction fetched a higher price and therefore, the Liquidator chose

to cancel the auction expecting a higher price in future auction process, the

same was not accepted by the Tribunal. It would amount to comparing apples

with oranges. Tribunal further noted that there was no material on record to

support the perception of the Liquidator that cancelling the present auction

and going for further auction would result in better price for the assets in

question and that there cannot be an endless wait to obtain a better price.
 26

Holding that there was no reason for the Liquidator to cancel the E-auction

when the earlier round of auction process did not fructify resulting in decrease

in reserve price, Tribunal vide the order dated 12.08.2021 directed the

Liquidator to send a communication to the appellant for depositing the

balance sale consideration within the time specified in the E-auction notice.

21.1. It has come on record that following the aforesaid order of the

Tribunal, Liquidator i.e. Respondent No.2 had called upon the appellant to

pay the balance sale consideration and on payment of the same by the

appellant, issued the sale certificate to the appellant in respect of the subject

property.

22. We may further mention that Respondent No.2, i.e. the Liquidator

did not assail the order of the Tribunal before the Appellate Tribunal. One of

the financial creditors i.e. Respondent No.1 had filed the appeal before the

Appellate Tribunal assailing the order of the Tribunal. Appellate Tribunal by

the judgment and order dated 30.11.2021 observed that appellant was the

sole bidder, its bid being equal to the reserve price. Liquidator invoked Clause

3(k) of the E-Auction Process Information Document and decided to cancel

the auction. There was no concluded contract till that point of time; it is only

after the total amount is paid that the sale is concluded. Before the sale can

be successfully concluded, Liquidator had the right to cancel the sale.

Successful bidder in the auction sale does not acquire any vested right in law

to enforce the auction. Therefore, the Tribunal was not justified in setting

aside cancellation of auction by the Liquidator. Tribunal had further failed to

notice that the terms of the auction sale notice provided absolute right to the
 27

Liquidator to accept or reject any bid or to cancel the auction without

assigning any reason. While setting aside the order of the Tribunal as well as

the steps taken in compliance thereto, Appellate Tribunal gave liberty to the

Liquidator to initiate fresh process of auction. Pursuant thereto, Liquidator

i.e. Respondent No.2 had issued a subsequent sale notice dated 24.12.2021

for E-auction sale of the subject property, the date of auction being

17.01.2022. Interestingly, in this round of auction, the reserve price was also

maintained at Rs.10 crores. As we have noticed above, this Court by order

dated 10.01.2022 while issuing notice had stayed the auction scheduled on

17.01.2022.

23. Section-5 of the Code deals with the definition of various

expressions used in the Code. As per section 5(18), ‘Liquidator’ means an

insolvency professional appointed as a liquidator in accordance with the

provisions of Chapter III or Chapter V of Part I of the Code, as the case may

be. Chapter III deals with liquidation process, whereas Chapter V deals with

voluntary liquidation of corporate persons. Section 34, which is under

Chapter III, provides for appointment of Liquidator and the fee to be paid.

Sub-section (1) of Section 34 says that where an adjudicating authority passes

an order for liquidation of the corporate debtor under Section 33, the

resolution professional appointed for the corporate insolvency resolution

process shall, subject to submission of written consent, act as the Liquidator

for the purposes of liquidation unless replaced by the adjudicating authority.

As per sub-section (2), on the appointment of a Liquidator under Section 34

all powers of the board of directors, key managerial personnel and partners

of the corporate debtor, as the case may be, shall cease to have effect and
 28

shall be vested in the Liquidator. Sub-section (3) requires personnel of the

corporate debtor to extend all assistance and cooperation to the Liquidator in

managing the affairs of the corporate debtor. Sub-sections (4) to (7) deal with

replacement of a resolution professional whereas sub-sections (8) and (9) deal

with fees to be charged by the Liquidator.

23.1. Powers and duties of Liquidator are provided in Section 35 of the

Code. Sub-section (1) enumerates the various powers and duties that has to

be performed and discharged by the Liquidator. Clause (f) says that the

Liquidator has the power and duty to sell the immovable and movable

properties 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. As per the proviso, the Liquidator shall not sell the

immovable and movable properties or actionable claims of the corporate

debtor in liquidation to any person who is not eligible to be a resolution

applicant.

23.2. As per Section 36, for the purpose of liquidation, the Liquidator

shall form an estate of the assets to be called the liquidation estate in relation

to the corporate debtor and shall hold the liquidation estate as a fiduciary for

the benefit of all the creditors.

23.3. In addition to the above, there are various other powers and

duties of the Liquidator.

24. From a conjoint reading of the above provisions, it is evident that

the Liquidator virtually steps into the shoes of the management of the
 29

corporate debtor and oversees the liquidation process. In this process, he

holds the liquidation estate of the corporate debtor as a fiduciary for the

benefit of all the creditors. While overseeing the liquidation process, he has

the mandate to sell all movable and immovable properties and actionable

claims of the corporate debtor in liquidation by way of either public auction

or by private contract, though he cannot sell such property or claims to any

person who is not eligible to be a resolution applicant.

25. While we are on the powers and duties of the Liquidator, it would be

apposite to refer to certain provisions of the Regulations framed in exercise of

the powers conferred by Section 5 and other sections of the Code read with

Section 240 of the Code as per which the Insolvency and Bankruptcy Board

of India may make regulations to carry out provisions of the Code. Regulation

3 deals with eligibility for appointment as Liquidator. As per Regulation 3(1),

an insolvency professional shall be eligible to be appointed as a Liquidator if

he and every partner or director of the insolvency professional entity of which

he is a partner or director is independent of the corporate debtor. Explanation

below Regulation 3 (1) explains as to who are the persons considered

independent of the corporate debtor. As per Explanation (b), a person shall be

considered independent of the corporate debtor if he is not a related party of

the corporate debtor.

25.1. Regulation 5 says that the Liquidator shall prepare and submit

various reports to the adjudicating authority (Tribunal) regarding the

liquidation process. If in this process the books of account of the corporate

debtor are incomplete on the liquidation commencement date, the Liquidator

 30

under Regulation 6 shall have them completed and brought up to date. That

apart, the Liquidator is required to maintain various registers and books in

relation to the liquidation of the corporate debtor. In addition to that, as per

Regulation 7, he may appoint a professional to assist him in discharging his

duties, obligations and functions. However, those professionals should not be

his relative or related party of the corporate debtor or has served as an auditor

to the corporate debtor in the preceding five years. Under Regulation 8, the

Liquidator is required to engage in consultation with the stakeholders and the

stakeholders consulted under Section 35 (2) of the Code shall extend all

assistance and cooperation to the Liquidator to complete the liquidation of

the corporate debtor.

25.2. Regulation 32 empowers the Liquidator to sell the assets of the

corporate debtor. Mode of sale is referred to in Regulation 33. As per

Regulation 33(1), the Liquidator shall ordinarily sell the assets of the

corporate debtor through an auction in the manner specified in Schedule I.

26. This brings us to Schedule I of the Regulations dealing with mode

of sale. Para 1 lays down the steps to be taken for auction sale of an asset by

the Liquidator. The steps to be taken are mentioned in paras 1(2) to 1(13). As

per para 1(3), the Liquidator shall prepare terms and conditions of sale,

including reserve price, earnest money deposit (EMD) as well as pre-bid

qualifications, if any. The second proviso clarifies that EMD shall not exceed

10 per cent of the reserve price, which as per para 1(4) shall be the value of

the asset arrived at in accordance with Regulation 35.

 31

27. Reverting to Regulation 35, we may mention that as per sub-

Regulation (1) of the aforesaid provision, the Liquidator shall consider the

average of the estimates of the values arrived under Regulation 35. As per

sub-Regulation (2), in cases not covered under sub-Regulation (1) or where

the Liquidator is of the opinion that fresh valuation is required under the

circumstances, he shall within seven days of the liquidation commencement

date, appoint two registered valuers to determine the realisable value of the

assets or the businesses of the corporate debtor. The first proviso mentions

certain persons who should not be appointed as registered valuers, such as,

a relative of the Liquidator; a related party of the corporate debtor etc. Sub-

Regulation (3) says that the registered valuers appointed under sub-

Regulation (2) shall independently submit to the Liquidator the estimates of

realisable value of the assets or the businesses, as the case may be, computed

in accordance with the Companies (Registered Valuers and Valuation) Rules,

2017 after physical verification of the assets of the corporate debtor. Sub-

Regulation (4) provides that the average of the two estimates received under

sub-Regulation (3) shall be taken as the value of the assets or businesses.

28. Coming back to Schedule-I, we find that as per para 1(4A), where

an auction fails at the reserve price, the Liquidator may reduce the price by

up to 25% of such value to conduct subsequent auction.

28.1. Paras 1(11), (11A), (12) and (13) of Schedule-I are relevant since

much emphasis has been placed by learned counsel for the parties on these

provisions. As per para 1(11), if it is required, Liquidator may conduct

multiple rounds of auction to maximize the realization from the sale of the
 32

assets and to promote the best interest of the creditors. Para 1(11A) says 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 learned senior counsel for the appellant has

laid great emphasis on this provision on the basis of which he has assailed

the unreasoned cancellation of the bid of the appellant, learned senior counsel

for the intervenor has pointed out that para 1(11A) was inserted in Schedule

I vide notification dated 30.09.2021 with effect from 30.09.2021. According to

him, this provision is prospective and cannot be applied to auctions

conducted prior to 30.09.2021, including the auction in question. Therefore,

there was no requirement for the Liquidator to give reasons for cancellation

of the bid of the appellant.

29. We are afraid we cannot accept such a contention made on behalf

of the intervenor. 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

 33

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.

30. In S. N. Mukherjee versus Union of India2, this Court opined

that the requirement to record reason can be regarded as one of the principles

of natural justice which governs exercise of power by administrative

authorities. The rules of natural justice are not embodied rules. The extent of

their application depends upon the particular statutory framework

whereunder jurisdiction has been conferred on the administrative authority.

Except in cases where the requirement of recording reasons has been

dispensed with expressly or by necessary implication, an administrative

authority exercising judicial or quasi-judicial functions is required to record

the reasons for its decision. This Court held as follows: -

39. The object underlying the rules of natural justice “is to

prevent miscarriage of justice” and secure “fair play in action”.
As pointed out earlier the requirement about recording of
reasons for its decision by an administrative authority exercising
quasi-judicial functions achieves this object by excluding
chances of arbitrariness and ensuring a degree of fairness in the
process of decision-making. Keeping in view the expanding
horizon of the principles of natural justice, we are of the opinion,
that the requirement to record reason can be regarded as one of
the principles of natural justice which govern exercise of power
by administrative authorities. The rules of natural justice are not
embodied rules. The extent of their application depends upon the
particular statutory framework whereunder jurisdiction has
been conferred on the administrative authority. With regard to
the exercise of a particular power by an administrative authority
including exercise of judicial or quasi-judicial functions the

2
(1990) 4 SCC 594
 34

legislature, while conferring the said power, may feel that it

would not be in the larger public interest that the reasons for the
order passed by the administrative authority be recorded in the
order and be communicated to the aggrieved party and it may
dispense with such a requirement. It may do so by making an
express provision to that effect as those contained in the
Administrative Procedure Act, 1946 of U.S.A. and the
Administrative Decisions (Judicial Review) Act, 1977 of Australia
whereby the orders passed by certain specified authorities are
excluded from the ambit of the enactment. Such an exclusion
can also arise by necessary implication from the nature of the
subject matter, the scheme and the provisions of the enactment.
The public interest underlying such a provision would outweigh
the salutary purpose served by the requirement to record the
reasons. The said requirement cannot, therefore, be insisted
upon in such a case.

40. For the reasons aforesaid, it must be concluded that except

in cases where the requirement has been dispensed with
expressly or by necessary implication, an administrative
authority exercising judicial or quasi-judicial functions is
required to record the reasons for its decision.

31. This Court in State of Orissa versus Dhaniram Luhar3 reiterated the

importance of furnishing reasons in decision making, be it administrative,

quasi-judicial or judicial. It was in that context that this Court opined that

reason is the heartbeat of every conclusion, and without the same it becomes

lifeless. Reasons are live links between the mind of the decision-taker and the

decision or conclusion arrived at. Reasons substitute subjectivity by

objectivity. One of the salutary requirements of natural justice is spelling out

reasons for an order made; in other words, a speaking out. This is what has

been opined in paragraph Nos. 7 and 8:

3
(2004) 5 SCC 568
 35

7. Reason is the heartbeat of every conclusion, and

without the same it becomes lifeless. (See Raj Kishore
Jha v. State of Bihar [(2003) 11 SCC 519 : 2004 SCC (Cri)
212 : (2003) 7 Supreme 152] .)

8. Even in respect of administrative orders Lord Denning,

M.R. in Breen v. Amalgamated Engg. Union [(1971) 1 All
ER 1148 : (1971) 2 QB 175 : (1971) 2 WLR 742 (CA)]
observed: “The giving of reasons is one of the fundamentals
of good administration.” In Alexander Machinery (Dudley)
Ltd. v. Crabtree [1974 ICR 120 (NIRC)] it was observed:
“Failure to give reasons amounts to denial of justice.”
“Reasons are live links between the mind of the decision-
taker to the controversy in question and the decision or
conclusion arrived at.” Reasons substitute subjectivity by
objectivity. The emphasis on recording reasons is that if
the decision reveals the “inscrutable face of the sphinx”, it
can, by its silence, render it virtually impossible for the
courts to perform their appellate function or exercise the
power of judicial review in adjudging the validity of the
decision. Right to reason is an indispensable part of a
sound judicial system; reasons at least sufficient to
indicate an application of mind to the matter before court.
Another rationale is that the affected party can know why
the decision has gone against him. One of the salutary
requirements of natural justice is spelling out reasons for
the order made; in other words, a speaking-out. The
“inscrutable face of the sphinx” is ordinarily incongruous
with a judicial or quasi-judicial performance.”

32. Again, in East Coast Railway versus Mahadev Appa Rao4, this

Court observed that arbitrariness in the making of an order by an authority

can manifest itself in different forms. Non-application of mind by the authority

making the order is only one of them. Application of mind is best

demonstrated by disclosure of mind by the authority making the order and

disclosure is best done by recording the reasons that led the authority to pass

4
(2010) 7 SCC 678
 36

the order in question. Absence of reasons either in the order passed by the

authority or in the record contemporaneously maintained is clearly suggestive

of the order being arbitrary, hence legally unsustainable. The above

observations of this Court find place in paragraph No.23 which is extracted

hereinunder:

23. Arbitrariness in the making of an order by an authority

can manifest itself in different forms. Non-application of
mind by the authority making the order is only one of them.
Every order passed by a public authority must disclose due
and proper application of mind by the person making the
order. This may be evident from the order itself or the record
contemporaneously maintained. Application of mind is best
demonstrated by disclosure of mind by the authority making
the order. And disclosure is best done by recording the
reasons that led the authority to pass the order in question.
Absence of reasons either in the order passed by the
authority or in the record contemporaneously maintained is
clearly suggestive of the order being arbitrary hence legally
unsustainable.

33. This position has been reiterated by this Court in Kranti Associates

(P) Ltd. Versus Masood Ahmed Khan5, wherein this Court emphasized that

an order passed by a quasi-judicial authority or even an administrative

authority affecting the rights of parties, must be a speaking order. In other

words, the order must speak for itself. This Court held as follows: -

12. The necessity of giving reason by a body or authority in

support of its decision came up for consideration before this
Court in several cases. Initially this Court recognised a sort
of demarcation between administrative orders and quasi-
judicial orders but with the passage of time the distinction
between the two got blurred and thinned out and virtually

5
(2010) 9 SCC 496
 37

reached a vanishing point in the judgment of this Court

in A.K. Kraipak v. Union of India [(1969) 2 SCC 262 : AIR
1970 SC 150] .

13. In Keshav Mills Co. Ltd. v. Union of India [(1973) 1 SCC

380 : AIR 1973 SC 389] this Court approvingly referred to the
opinion of Lord Denning in R. v. Gaming Board for Great
Britain, ex p Benaim [(1970) 2 QB 417 : (1970) 2 WLR 1009
: (1970) 2 All ER 528 (CA)] and quoted him as saying “that
heresy was scotched in Ridge v. Baldwin [1964 AC 40 :
(1963) 2 WLR 935 : (1963) 2 All ER 66 (HL)] ”.

14. The expression “speaking order” was first coined by Lord

Chancellor Earl Cairns in a rather strange context. The Lord
Chancellor, while explaining the ambit of the writ of
certiorari, referred to orders with errors on the face of the
record and pointed out that an order with errors on its face,
is a speaking order. (See pp. 1878-97, Vol. 4, Appeal Cases
30 at 40 of the Report).

15. This Court always opined that the face of an order passed
by a quasi-judicial authority or even an administrative
authority affecting the rights of parties, must speak. It must
not be like the “inscrutable face of a sphinx”.

34. Having discussed the above, we may again advert to the

impugned e-mail dated 21.07.2021, as per which Liquidator informed the

appellant that in terms of Clause 3(k) of the E-Auction Process Information

Document he had cancelled the E-auction held on 20.07.2021. As we have

already noted, Clause 3(k) of the E-Auction Process Information Document

simply says that the Liquidator has absolute right to accept or reject any or

all bids or adjourn/postpone/cancel the E-auction or withdraw any asset/

property or portion thereof from the E-auction at any stage without assigning

any reason thereof. While the Liquidator has traced his authority to the
 38

aforesaid provision, we may mention that as per Clause 2(m), the information

provided in the E-Auction Process Information Document should be read

together with the provisions of the Code and the Regulations. In the event of

a conflict between the E-Auction Process Information Document and the Code

or the Regulations, the provisions of the Code or the Regulations, as the case

may be, shall always prevail. That apart, Clause 3(i) clarifies that the E-

Auction Process Information Document is neither an agreement nor an offer

by the Liquidator to the prospective bidders or any other person. The objective

of the E-Auction Process Information Document is to provide information to

the interested party to enable it to offer its bid. As per Clause 5(n) the bidder

with the highest offer/bid does not get any right to demand acceptance of his

bid.

34.1. A conjoint reading of the aforesaid provisions would make it clear

that while the highest bidder has no indefeasible right to demand acceptance

of his bid, the Liquidator if he does not want to accept the bid of the highest

bidder has to apply his mind to the relevant factors. Such application of mind

must be visible or manifest in the rejection order itself. As this Court has

emphasized the importance and necessity of furnishing reasons while taking

a decision affecting the rights of parties, it is incomprehensible that an

administrative authority can take a decision without disclosing the reasons

for taking such a decision.

35. It follows therefore that though para 1(11A) has been inserted in

Schedule I to the Regulations w.e.f. 30.9.20221, it only recognizes the need

and necessity for giving reasons in the event of rejecting the highest bid. It is
 39

an acknowledgment of the fundamental principle. Thus, intimation of the

reasons for rejection of the highest bid would also be the requirement prior to

30.09.2021.

36. In so far the present case is concerned, we have already noted the

language employed by the Liquidator at the end of the bidding process. Vide

the e-mail dated 21.07.2021 the appellant was informed that it had won the

auction and that its winning order had been prepared. The language of this

e-mail clearly indicates finality of the decision making by the Liquidator.

37. As per para 1(12) of Schedule-I, on the close of the auction the

highest bidder shall be invited to provide balance sale consideration within

90 days of the date of such demand. As per the first proviso, payments made

after 30 days shall attract interest @ 12%. The second proviso says that the

sale shall be cancelled if the payment is not received within 90 days.

37.1 Para 1(13) says that on payment of the full amount the sale shall

stand completed. The Liquidator shall execute the certificate of sale or sale

deed to transfer such assets and the assets shall be delivered to the successful

bidder in the manner specified in the terms of sale.

38. 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.

 40

39. In Valji Khimji and Company Versus Official Liquidator of

Hindustan Nitro Product (Gujarat) Limited and Others6, this Court

deprecated entertaining objections after confirmation of sale. Entertaining of

objections after the sale is confirmed should not ordinarily be allowed, except

on very limited grounds like fraud. Otherwise, no auction-sale will ever be

complete. In the facts of that case, this Court noted that it was an open

auction after wide publicity. There was no allegation of fraud in the auction.

Therefore, there was no justification to set aside the confirmation of sale. It

was opined that if every confirmed sale can be set aside the result would be

that no auction-sale will ever be completed because always somebody can

come after the auction or its confirmation offering a higher amount.

40. K. Kumara Gupta Versus Sri Markendaya and Sri

Omkareswara Swamy Temple and Ors.7, is a case relating to auctioning of

land belonging to the Devasthanam. This Court opined that unless and until

it was found that there was any material irregularity and/or illegality in

holding the public auction and/or the auction sale was vitiated by any fraud

or collusion it is not open to set aside the auction or sale in favour of the

highest bidder on the basis of some representations made by a third party

who did not even participate in the auction proceedings and did not make any

offer. If there is repeated interference in the auction process, the object and

purpose of holding public auction and the sanctity of public auction would be

frustrated. This Court in paragraph 23 of the judgment held that unless there

are allegations of fraud, collusion etc., the highest offer received in the public

6
(2008) 9 SCC 299
7
(2022) 5 SCC 710
 41

auction should be accepted as a fair value. Otherwise, there shall not be any

sanctity of a public auction.

41. It is interesting to note that insofar the present case is concerned,

even after cancelling the highest bid of the appellant, in the subsequent sale

notice dated 24.12.2021, Respondent No.2 i.e. the Liquidator had again fixed

the reserve price of the subject property at Rs.10 crores which was the reserve

price in the previous round of auction sale and which was also the bid value

of the appellant. If this is the position, we fail to find any rationale or

justification in rejecting the bid of the appellant and going for another round

of auction at the same reserve price.

42. Thus, mere expectation of the Liquidator that a still higher price

may be obtained can be no good ground to cancel an otherwise valid auction

and go for another round of auction. Such a cause of action would not only

lead to incurring of avoidable expenses but also erode credibility of the auction

process itself. That apart, post auction it is not open to the Liquidator to act

on third party communication and cancel an auction, unless it is found that

fraud or collusion had vitiated the auction. 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

 42

ensuring that the auction process is carried out in accordance with law and

to the benefit of all the stakeholders. Merely because the Liquidator has the

discretion of carrying out multiple auction 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.

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.

43. Learned senior counsel for the intervenor argued that Shri Vijay

Kumar Ghidia who is the director and principal shareholder of the appellant

was also one of the promotor director and principal shareholder of the

corporate debtor. Therefore, he is a ‘related party’ of the corporate debtor and

as such is not eligible; rather debarred from participating in the auction of

the subject property of the corporate debtor. However, it was pointed out by

learned senior counsel for the appellant that Shri Vijay Kumar Ghidia is no

longer connected with the corporate debtor having retired from the said

company way back in the year 2011.

44. At this stage, we may advert to Section 5(24) of the Code which

defines the expression ‘related party’ in relation to a corporate debtor. Section

5(24) reads as follows:-

5. Definitions – In this part, unless the context other

requires, -
(24) “related party”, in relation to a corporate debtor,
means—
(a) a director or partner of the corporate debtor or a
relative of a director or partner of the corporate debtor;
 43

(b) a key managerial personnel of the corporate debtor

or a relative of a key managerial personnel of the
corporate debtor;
(c) a limited liability partnership or a partnership firm
in which a director, partner, or manager of the corporate
debtor or his relative is a partner;
(d) a private company in which a director, partner or
manager of the corporate debtor is a director and holds
along with his relatives, more than two per cent of its
share capital;
(e) a public company in which a director, partner or
manager of the corporate debtor is a director and holds
along with relatives, more than two per cent of its paid-
up share capital;
(f) anybody corporate whose board of directors,
managing director or manager, in the ordinary course of
business, acts on the advice, directions or instructions
of a director, partner or manager of the corporate
debtor;
(g) any limited liability partnership or a partnership
firm whose partners or employees in the ordinary course
of business, acts on the advice, directions or
instructions of a director, partner or manager of the
corporate debtor;
(h) any person on whose advice, directions or
instructions, a director, partner or manager of the
corporate debtor is accustomed to act;
(i) a body corporate which is a holding, subsidiary or an
associate company of the corporate debtor, or a
subsidiary of a holding company to which the corporate
debtor is a subsidiary;
(j) any person who controls more than twenty per cent
of voting rights in the corporate debtor on account of
ownership or a voting agreement;
(k) any person in whom the corporate debtor controls
more than twenty per cent of voting rights on account
of ownership or a voting agreement;
 44

(l) any person who can control the composition of the

board of directors or corresponding governing body of
the corporate debtor;
(m) any person who is associated with the corporate
debtor on account of—
(i) participation in policy-making processes of
the corporate debtor; or
(ii) having more than two directors in common
between the corporate debtor and such person;
or
(iii) interchange of managerial personnel
between the corporate debtor and such person;
or
(iv) provision of essential technical information
to, or from, the corporate debtor;

44.1 Clause (a) of Section 5(24) says that a director or partner of the

corporate debtor or a relative of a director or partner of the corporate debtor

would be a related party. Likewise, as per Clause (e) of Section 5(24), ‘related

party’ in relation to a corporate debtor would mean a private or public

company in which a director, partner or manager of the corporate debtor is a

director and holds along with relatives more than two percent of its share

capital or paid-up share capital, as the case may be.

45. Similarly, Section 5(24A) defines ‘related party’ in relation to an

individual which is as follows: -

5. Definitions – In this Part, unless the context otherwise

requires,-

(24A) “related party”, in relation to an individual, means—

(a) a person who is a relative of the individual or a relative

of the spouse of the individual;
 45

(b) a partner of a limited liability partnership, or a limited

liability partnership or a partnership firm, in which the
individual is a partner;

(c) a person who is a trustee of a trust in which the

beneficiary of the trust includes the individual, or the
terms of the trust confers a power on the trustee which
may be exercised for the benefit of the individual;

(d) a private company in which the individual is a director

and holds along with his relatives, more than two per cent.
of its share capital;

(e) a public company in which the individual is a director

and holds along with relatives, more than two per cent. of
its paid-up share capital;

(f) a body corporate whose board of directors, managing

director or manager, in the ordinary course of business,
acts on the advice, directions or instructions of the
individual;

(g) a limited liability partnership or a partnership firm

whose partners or employees in the ordinary course of
business, act on the advice, directions or instructions of
the individual;

(h) a person on whose advice, directions or instructions,

the individual is accustomed to act;

(i) a company, where the individual or the individual along

with its related party, own more than fifty per cent. of the
share capital of the company or controls the appointment
of the board of directors of the company.

Explanation.—For the purposes of this clause,—

(a) “relative”, with reference to any person, means anyone
who is related to another, in the following manner,
namely—
(i) members of a Hindu Undivided Family,
(ii) husband,
(iii) wife,
(iv) father,
(v) mother,
(vi) son,
 46

(vii) daughter,
(viii) son's daughter and son,
(ix) daughter's daughter and son,
(x) grandson's daughter and son,
(xi) granddaughter's daughter and son,
(xii) brother,
(xiii) sister,
(xiv) brother's son and daughter,
(xv) sister's son and daughter,
(xvi) father's father and mother,
(xvii) mother's father and mother,
(xviii) father's brother and sister,
(xix) mother's brother and sister, and
(b) wherever the relation is that of a son, daughter, sister
or brother, their spouses shall also be included;]

45.1. From the above, it is evident that a person who is a relative of the

individual or a relative of the spouse of the individual would be a ‘related

party’ in relation to that individual. That apart, a private company or a public

company in which the individual is a director and holds along with relatives

more than two percent of its share capital or paid up share capital, as the

case may be, would be a ‘related party’ in relation to an individual. Further,

as per the explanation, both maternal and paternal uncles would be covered

within the definition of ‘related party’.

46. Section 29A of the Code mentions persons not eligible to be a

resolution applicant. Section 29A reads as follows: -

29-A. Persons not eligible to be resolution applicant.—A

person shall not be eligible to submit a resolution plan, if
such person, or any other person acting jointly or in concert
with such person,—
 47

(a) is an undischarged insolvent;

(b) is a wilful defaulter in accordance with the guidelines of

the Reserve Bank of India issued under the Banking
Regulation Act, 1949 (10 of 1949);

(c) [at the time of submission of the resolution plan has an

account,] or an account of a corporate debtor under the
management or control of such person or of whom such
person is a promoter, classified as non-performing asset in
accordance with the guidelines of the Reserve Bank of India
issued under the Banking Regulation Act, 1949 (10 of
1949) [or the guidelines of a financial sector regulator
issued under any other law for the time being in force,] and
at least a period of one year has lapsed from the date of such
classification till the date of commencement of the corporate
insolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a

resolution plan if such person makes payment of all overdue
amounts with interest thereon and charges relating to non-
performing asset accounts before submission of resolution
plan:

[Provided further that nothing in this clause shall apply to

a resolution applicant where such applicant is a financial
entity and is not a related party to the corporate debtor.

Explanation I.—For the purposes of this proviso, the

expression “related party” shall not include a financial
entity, regulated by a financial sector regulator, if it is a
financial creditor of the corporate debtor and is a related
party of the corporate debtor solely on account of conversion
or substitution of debt into equity shares or instruments
convertible into equity shares [or completion of such
transactions as may be prescribed,] prior to the insolvency
commencement date.

Explanation II.—For the purposes of this clause, where a

resolution applicant has an account, or an account of a
corporate debtor under the management or control of such
person or of whom such person is a promoter, classified as
non-performing asset and such account was acquired
pursuant to a prior resolution plan approved under this
Code, then, the provisions of this clause shall not apply to
such resolution applicant for a period of three years from
 48

the date of approval of such resolution plan by the

Adjudicating Authority under this Code;]

[(d) has been convicted for any offence punishable with

imprisonment—

(i) for two years or more under any Act specified under the
Twelfth Schedule; or

(ii) for seven years or more under any other law for the time
being in force:

Provided that this clause shall not apply to a person after

the expiry of a period of two years from the date of his
release from imprisonment:

Provided further that this clause shall not apply in relation

to a connected person referred to in clause (iii) of
Explanation I;]

(e) is disqualified to act as a director under the Companies

Act, 2013 (18 of 2013):

[Provided that this clause shall not apply in relation to a

connected person referred to in clause (iii) of Explanation I;]

(f) is prohibited by the Securities and Exchange Board of

India from trading in securities or accessing the securities
markets;

(g) has been a promoter or in the management or control of

a corporate debtor in which a preferential transaction,
undervalued transaction, extortionate credit transaction or
fraudulent transaction has taken place and in respect of
which an order has been made by the Adjudicating
Authority under this Code:

[Provided that this clause shall not apply if a preferential

transaction, undervalued transaction, extortionate credit
transaction or fraudulent transaction has taken place prior
to the acquisition of the corporate debtor by the resolution
applicant pursuant to a resolution plan approved under this
Code or pursuant to a scheme or plan approved by a
financial sector regulator or a court, and such resolution
applicant has not otherwise contributed to the preferential
transaction, undervalued transaction, extortionate credit
transaction or fraudulent transaction;]
 49

(h) has executed [a guarantee] in favour of a creditor in

respect of a corporate debtor against which an application
for insolvency resolution made by such creditor has been
admitted under this Code [and such guarantee has been
invoked by the creditor and remains unpaid in full or part];

(i) [is] subject to any disability, corresponding to clauses (a)

to (h), under any law in a jurisdiction outside India; or

(j) has a connected person not eligible under clauses (a) to

(i).

Explanation [I].—For the purposes of this clause, the

expression “connected person” means—

(i) any person who is the promoter or in the management or

control of the resolution applicant; or

(ii) any person who shall be the promoter or in management

or control of the business of the corporate debtor during the
implementation of the resolution plan; or

(iii) the holding company, subsidiary company, associate

company or related party of a person referred to in clauses
(i) and (ii).

* * * * * *

46.1. Thus, as per Section 29A(g), a person shall not be eligible to

submit a resolution plan if such person or any other person acting jointly or

in concert with such person has been a promoter or in the management or

control of a corporate debtor in which a preferential transaction, undervalued

transaction, extortionate credit transaction or fraudulent transaction has

taken place and in respect of which an order has been made by the

adjudicating authority. Clause (j) says that a person shall not be eligible to

submit a resolution plan if such person or any other person acting jointly or

in concert with such person has a connected person not eligible under

Clauses (a) to (i). As per Explanation (i), the expression ‘connected person’

means-(i) any person who is the promoter or in the management or control of

 50

the resolution applicant; or (ii) any person who shall be the promoter or in the

management or control of the business of the corporate debtor during the

implementation of the resolution plan; etc.

47. The expression ‘related party’ appearing in Sections 5(24) and

(24A) suffering ineligibility under Section 29A has received considerable

attention of this Court. In Swiss Ribbons Private Limited and Another

Versus Union of India and Others8, a constitutional challenge was made

to Section 29A(j) of the Code read with the definition of ‘related party’ as

defined under Sections 5(24) and 5(24A). While repelling the challenge, this

Court held as follows:-

109. We are of the view that persons who act jointly or in

concert with others are connected with the business
activity of the resolution applicant. Similarly, all the
categories of persons mentioned in Section 5(24-A) show
that such persons must be “connected” with the resolution
applicant within the meaning of Section 29-A(j). This being
the case, the said categories of persons who are collectively
mentioned under the caption “relative” obviously need to
have a connection with the business activity of the
resolution applicant. In the absence of showing that such
person is “connected” with the business of the activity of
the resolution applicant, such person cannot possibly be
disqualified under Section 29-A(j). All the categories in
Section 29-A(j) deal with persons, natural as well as
artificial, who are connected with the business activity of
the resolution applicant. The expression “related party”,
therefore, and “relative” contained in the definition
sections must be read noscitur a sociis with the categories
of persons mentioned in Explanation I, and so read, would
include only persons who are connected with the business
activity of the resolution applicant.

110. An argument was also made that the expression

“connected person” in Explanation I, clause (ii) to Section

8
(2019) 4 SCC 17
 51

29-A(j) cannot possibly refer to a person who may be in

management or control of the business of the corporate
debtor in future. This would be arbitrary as the
explanation would then apply to an indeterminate person.
This contention also needs to be repelled as Explanation I
seeks to make it clear that if a person is otherwise covered
as a “connected person”, this provision would also cover a
person who is in management or control of the business of
the corporate debtor during the implementation of a
resolution plan. Therefore, any such person is not
indeterminate at all, but is a person who is in the saddle
of the business of the corporate debtor either at an anterior
point of time or even during implementation of the
resolution plan. This disposes of all the contentions raising
questions as to the constitutional validity of Section 29-
A(j).

47.1. After a careful analysis, this Court opined that the expressions

‘related party’ and ‘relative’ contained in the definition sections must be read

noscitur a sociis with the categories of person mentioned in Explanation I. So

read, it would include only persons who are connected with the business

activity of the resolution applicant. This Court further clarified that the

expression ‘connected person’ would also cover a person who is in

management or control of the business of the corporate debtor during the

implementation of a resolution plan.

48. In Phoenix ARC Private Limited versus Spade Financial

Services Limited9, this Court noted that the expression ‘related party’ is

defined in Section 5(24) in relation to a corporate debtor and Section 5(24A)

provides a corresponding definition in relation to an individual. Thereafter, it

has been observed as under:-

9
(2021) 3 SCC 475
 52

88. An issue of interpretation in relation to the first proviso

of Section 21(2) is whether the disqualification under the
proviso would attach to a financial creditor only in
praesenti, or if the disqualification also extends to those
financial creditors who were related to the corporate debtor
at the time of acquiring the debt.

48.1. Referring to its earlier decision in Arcelor Mittal (India) (P) Ltd.

V. Satish Kumar Gupta10, where the issue was whether ineligibility of the

resolution applicant under Section 29 A(c) of the Code is attached to an

applicant at the date of commencement of the corporate insolvency

resolution process or at the time when the resolution plan is submitted by

the resolution applicant. It was clarified that the opening words of Section

29(A) stating “a person shall not be eligible to submit a resolution plan…..”

clearly indicates that the stage of ineligibility attaches when the resolution

plan is submitted by the resolution applicant; thus the disqualification

applies in praesenti. This Court referred to Section 21(2) of the Code, more

particularly to the second proviso thereto which deals with the Committee of

Creditors and the ineligibility of a related party in the consideration and

voting on a resolution plan by the said committee and held as follows:

101. However, if such an interpretation is given to the first

proviso of Section 21(2), all financial creditors would stand
excluded if they were a “related party” of the corporate
debtor at the time when the financial debt was created.
This may arguably lead to absurd conclusions for entities
which have legitimately taken over the debt of related
parties, or where the related party entity had stopped
being a “related party” long ago.

10
(2019) 2 SCC 1
 53

49. Arun Kumar Jagatramka Versus Jindal Steel and Power

Limited and Another11, also deals with Section 29A of the Code. In that case,

this Court observed that the fundamental postulate of the Code is that a

corporate debtor has to be protected from its management and corporate debt.

Hence it would be anomalous if a compromise or arrangement can be

entertained from a person who is responsible for the state of affairs of the

corporate debtor. Referring to Arcelor Mittal (India) (P) Ltd. (supra), this

Court observed that the said decision adverted to Section 29A of the Code as

a typical instance of a see-through provision so that one is able to arrive at

persons who are actually in ‘control’ whether jointly or in concert with other

persons. It was thereafter that this Court held that Section 29A is a crucial

link in ensuring that the objects of the Code are not defeated by allowing

‘ineligible persons’ responsible for running a company (corporate debtor)

aground, to return in the new avatar of a resolution applicant.

50. From the above, it is clearly manifest that the disqualification

sought to be attached to the appellant is without any substance as the related

party had ceased to be in the helm of affairs of the corporate debtor more than

a decade ago. He was not in charge of the company or an influential member

of the company i.e., the corporate debtor when the appellant had made its bid

pursuant to the auction sale notice.

51. Thus having regard to the aforesaid discussion, we have no

hesitation in coming to the conclusion that Appellate Tribunal was not

justified in setting aside the order of the Tribunal dated 12.08.2021.

11
(2021) 7 SCC 474
 54

Consequently, we set aside the order dated 30.11.2021 passed by the

Appellate Tribunal and restore the order dated 12.08.2021. The appeal is

accordingly allowed. However, there shall be no order as to costs.

…………………………………J.
[B. V. NAGARATHNA]

…………………………………J.
[UJJAL BHUYAN]

NEW DELHI;
06.09.2023