Dd International Private Limited & Anr vs Rajesh Kumar Agarwal & Ors

Comp. App. (AT) (Ins) No. 1559 of 2023 & I.A. No. 5604, 5605 of 2023 IN THE MATTER OF:

D.D. International Pvt. Ltd. & Anr. ...Appellant

Versus

Rajesh Kumar Agarwal Liquidator, Divine Alloys & ...Respondents Power Company Ltd. & Ors.

Present: For Appellant: Mr. Gaurav Mitra, Mansu Arya, Surabhi Gupta, Adv. For Respondents: Mr. Saunak Mitra, Adv. with Mr. Rajesh Kumar Agarwal, R1 Mr. Shantanu Kumar, R2 Mr. Aditya Kumar, Illa Nath, R4 Mr. Akash Sharma, R10

ORDER

(Hybrid Mode)

Per: Justice Rakesh Kumar Jain: (Oral)

06.12.2024: Punjab National Bank filed an application under Section 7

of the Insolvency and Bankruptcy Code, 2016 (in short 'Code') against Divine

Alloys & Power Company Limited (Corporate Debtor) which was admitted on

07.03.2019 and Rajesh Kumar Agarwal was appointed as the RP.

2. Since, there was no resolution plan forthcoming, therefore, the CoC of

the CD with 97.21% voting share resolved to liquidate the CD. The RP filed an

application before the Tribunal for liquidation which was allowed on

11.03.2021 and Rajesh Kumar Agarwal was appointed as the Liquidator as

well to commence the liquidation process.

3. Shorn of unnecessary details, the property in question was put to sale

in the 13th e-auction vide sale notice, for the CD as going concern, on

05.09.2022. The notice contained the particulars of assets, reserve price and

EMD amount, which read as under:-

Assets Reserve Price EMD Amount

Sale of CD as a going Rs. 42.55 CR. Rs. 4.255 Cr.

concern with all assets

including Land &

Building, Plant &

Machinery and

Securities & Financial

Assets

4. The Appellant deposited Rs. 10 lac on 09.09.2022 as refundable

participation deposit and EMD to the tune of Rs. 4.225 Cr. on 27.09.2022. E-

auction was held on 29.09.2022 in which the Appellant was declared as the

highest bidder.

5. LOI dated 17.10.2022 was issued by the liquidator to the Appellant

being the successful bidder. The 1st instalment was to be paid by the Appellant

on 10.14.2022. However, the Appellant requested for an extension of 15 days

to pay the instalment and another extension was given up to 28.11.2022.

6. The Appellant raised an issue regarding land under the DRI plant which

was not owned by the CD but the Respondent forfeited both EMD amount of

Rs. 4.225 Cr. and Rs. 10 lac as refundable deposit for not making the balance

payment on time. It led to the filing of an application i.e. I.A No. 238 of 2023

under Section 60(5)(c) r/w Section 35(1) of the Code and Regulation 32A and

33 of the IBBI (Liquidation Process) Regulation, 2016 alongwith Rule 11 of the

NCLT, 2016 with the following prayers:-

7. The Tribunal noticed the contention of the Appellant in para 3.12, 4.2

& 4.3 which read as under:-

8. After taking into consideration the pleadings, two questions were

framed which read as under:-

"(a) Whether details relating to ownership of land on which the DRI plant is situated in the factory is vital and should be there in the process information documents or teaser or another preliminary documents.

(b) If answer is in affirmative, whether the highest and successful bidder can raise an allegation against the Liquidator for supressing and concealing the information relating to the liquidation after the e-auction and accordingly can seek the refund of its EMD amount deposited for the liquidation process was forfeited by the liquidator for non-compliance of timeline/regulations."

9. The Tribunal ultimately recorded finding that there was an error on the

part of the liquidator in not giving true details of the land sold to the Appellant

and it also found that the Appellant had full access to the virtual data room

where he could have accessed to all the relevant documents and recorded a

finding in this regard which is reproduced as under:-

10. The Tribunal also recorded the finding that 'secondly, the Applicant,

before commencement of the e-auction, availed opportunities to verify the

documents furnished by the liquidator and it is admitted fact that the Applicant has inspected the site also before the payment of EMD. Further, in

terms of forfeiture of the EMD and Refundable participation deposit furnished

by the Applicant.

11. The Tribunal, however, ultimately recorded in para no. '7.24. Further,

the e-auction held on 29.09.2022, where the applicant became the highest and

successful bidder, shall have no effect further and the liquidator is free to

conduct a fresh e-auction with the publication of a fresh e-auction process

information memorandum by clearly mentioning all the facts and information

which may affect the interest of an interested bidder in case of hiding such.

7.25. Further, in new e-auction process information memorandum, the

liquidator has to ensure the location, acreage and other relevant information

relating to the DRI plant and in that respect, the liquidator shall furnish the

Govt. authorized report including mutation certificate of the respective land and

construction. Further the liquidator shall verify all the sale deeds and

documents with the authorised body to confirm the sale of the CD as a going

concern. 7.26. Further, the Applicant shall have the liberty to participate in the

fresh auction conducted by the Liquidator.'

12. The Tribunal passed the following orders against which the present

appeal has been filed, which read as under:-

"Keeping in view of the above discussion, in the interest of justice, we direct the liquidator of Divine Alloys & Power Company Limited (CD) to refund 50% of the forfeited EMD amount to the Applicant within 30 days from the pronouncement of this order, while the forfeiture of rest 50% of EMD amount shall stand upheld. Further, the amount of Rs. 10 lac, paid in terms of refundable participation deposit by the Applicant shall remain forfeited for the adjustment against the loss caused to the CD alongwith the stakeholders having interest in this auction and for prejudicing the liquidation process due to the failure of the Applicant to comply with its obligations, as claimed in para 42 of the reply affidavit filed by the liquidator."

13. It is pertinent to mention that against the findings recorded by the

Tribunal, no appeal has been filed by the Liquidator though the observations

are against his act and conduct of the liquidator that he did not clearly

mention all the facts and information in the e-auction process information

memorandum on the basis of which the bid was given by the Appellant and

was adjudged the highest bidder.

14. Be that as it may, Counsel for the Appellant has submitted that

firstly, the Tribunal has recorded a concreate finding against the Respondent

holding in para 7.24 that the e-auction held on 29.09.2022 shall have no

effect. Meaning thereby, e-auction held on 29.09.2022, in which the

Appellant participated by depositing Rs. 10 lac and EMD to the tune of Rs.

4.225 Cr. has been completely erased. As result thereof, it is submitted that

whatsoever amount was deposited by the Appellant to participate in the e-

auction, which was deposited as refundable participation deposit as well as

EMD has to be fully returned back to him. It is further submitted that the

Tribunal has further committed an error in forfeiting the amount of 50 %

EMD, 'in the interest of justice' and secondly for the purpose of compensating

the CD for the alleged loss which has not been quantified. He has,

therefore, submitted that directions issued in para 7.22 of the impugned

order deserves to be set aside and the amount of Rs. 10 Lac and entire

amount of EMD has to be returned to the Appellant.

15. In reply, Counsel for Respondent has vehemently argued that the

Tribunal has not only held that the liquidator was at fault in not making full

disclosure in the e-auction process document but the Appellant was also

equally at fault because it has been observed that the Appellant had all the

opportunity to inspect the record because access was given to the virtual

data room which contained all the details relating to the information of the CD including details relating to the land in question whether the same is

owned by the CD or not. In respect of forfeiture, it is submitted that there

was forfeiture clause in e-auction process document, therefore, the Tribunal

has rightly passed the order of forfeiture of 50% of the amount. In respect

of question as to why 50% amount has been forfeited, it is submitted that

since the Appellant was equally at fault, therefore, 50% amount has been

forfeited.

16. We have heard Counsel for the parties and perused the record with

their able assistance.

17. There is no doubt that there was no resolution in this case, therefore,

the property was put up for e-auction by 97.21% voting share of the SCC.

There is no dispute about the fact also that in the past 12 attempts were

made but the property in question could not be sold, ultimately it was the

13th attempt and the Respondent was duty bound, being the custodian of

the record of the CD, to give the exact details of the property which was put

to sale by e-auction but in the e-auction process document the fact that the

property under DRI plant was not belonging to the CD was not disclosed. The

Tribunal has though blamed the Appellant as well that it had the access to

VDR and could have also found out by due diligence that whether the said

land belongs to the CD or not but in our considered opinion the first duty

is cast upon the liquidator to provide exact information to the bidder about

the property which is put to sale and it cannot take the shelter of alleged

fault of the Appellant for justifying the order passed in which the amount of

Rs. 10 lac and EMD deposited to the extent 50% amount has been ordered to

be forfeited despite the fact that the Tribunal has specifically passed an order

that the e-auction held on 29.09.2022 shall have no effect further and put

the property again to auction though giving a chance to the Appellant to participate in the same. Moreover, the Tribunal has erred in forfeiting 50% of

the EMD as it has been mentioned in paragraph 7.22 that it has been done

in the interest of justice. It is really strange as to what interest of justice is to

be served by forfeiting 50% which comes to Rs. 2.1 Cr. and thirdly, in the

Code, there is no procedure for imposing damages. Even if, for the sake of

argument, it is presumed that the Tribunal has the jurisdiction to impose

damages as well, it is incumbent upon the Tribunal to first quantify as to

how much damages has been caused to the CD and how the said damages

have to be compensated. The Tribunal has acted totally arbitrary in awarding

the damages of 50% of the EMD which in law cannot be sustained.

18. Thus, in view of the aforesaid discussion, we are totally satisfied that

the impugned order is patently illegal and arbitrary and therefore, while

allowing the appeal, the impugned order is hereby set aside and direction is

issued to the liquidator to return the amount of Rs. 10 lac deposited as

refundable participation deposit and the entire amount of EMD within a

period of 30 days from the date of passing of this order.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

Sc/RR