Case Title: M/s. SGA Fashion Pvt. Ltd. v CMA Sandeep Kumar Bhatt
When deciding on an appeal filed in M/s. SGA Fashion Pvt. Ltd. v. CMA Sandeep Kumar Bhatt, the National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprised of Justice Anant Bijay Singh (Judicial Member) and Ms Shreesha Merla (Technical Member), rejected the application filed by an auction bidder close to the auction date, wherein the bidder after having participated in the bidding process had turned The Bench noted that the bidder had not raised the eligibility requirement in a suitable venue, making it ill-advised to file an application with the NCLT. The bidder had to pay the Bench a fine of Rs. 2 Lakh.
FACTS OF THE CASE
KMG A to Z System Pvt. Ltd. ("Corporate Debtor") was enrolled in the corporate insolvency resolution process on August 6, 2019, by the adjudicating authority. An order for liquidation was subsequently approved and set to begin on May 13, 2021. After that, on November 28, 2021, the liquidator released the tender documents for the sale of the corporate debtor's properties. The qualifying requirements for bidders were outlined in Clause 1.15 of the tender document, which specified that the bidder must have a revenue of Rs. 20 Crores and a net worth of Rs. 3 Crores for each pair of Land and Building. The Stakeholders Consultation Committee established the eligibility requirements.
The Liquidator received the offer documents from M/s. SGA Fashion Pvt. Ltd. ("Appellant") on December 6, 2021, for both of the properties up for auction, namely the industrial land and buildings located at C-48 and C-49 in Sector 81, Noida. The Liquidator claimed that the Appellant did not fulfil the qualifying requirements and hence rejected the Appellant's offer.
On 10.12.2021, the Appellant emailed the Liquidator to request permission to submit a bid on one of the properties, C-49 in Sector 81 NOIDA, because it was qualified to do so. The Appellant submitted an application to the Adjudicating Authority on the same day asking for a directive to the Liquidator to let the Appellant take part in the auction. Additionally, the Appellant contested the requirements of revenue of Rs. 20 crore and a net worth of Rs. 3 crores for bids on each property, claiming that pre-bid qualifying would not bind the bidders.
In an email dated 11.12.2021, the Liquidator granted the Appellant's request while the application was still awaiting a hearing.
The application was subsequently scheduled for hearing by the adjudicating authority on December 14, 2021, the day of the auction. The adjudicating authority noted that the appellant had not contested the auction's terms and conditions and was not permitted to request a change to the eligibility requirements for his case alone because doing so would require rewriting the bid papers.
The Bench determined that on the day of the e-auction, the Appellant had wasted the time of the Tribunal. The claim that pre-bid qualification would not bind the bidders was rejected since eligibility requirements are a crucial part of the bidding process and their absence would imperil the auction process. The Adjudicating Authority rejected the arguments in an order dated 14.12.2021 after listening to the arguments for more than two hours on the grounds that the eligibility requirements are a necessary part of the bidding process and that their removal would imperil the auction process. The Adjudicating Authority dismissed the application and assessed the Appellant a cost of Rs. 9 Lakhs in a judgement dated 14.12.2021 after listening to arguments for more than 2 hours based on ill-conceived litigation. In opposition to the ruling of 14.12.2021, the appellant brought an appeal before the NCLAT.
APPELLANT CONTENTIONS
The Appellant claimed that by delaying the liquidation process in no way, it was the Liquidator's fault that both of the Appellant's offers were rejected rather than just one. The appellant has been unfairly charged a fee of Rs. 9 Lakhs.
RESPONDENT CONTENTIONS
The Liquidator claimed that although it had given the Appellant chances to demonstrate its eligibility, they had been unsuccessful. Furthermore, the Liquidator had granted the Appellant's request to bid in one property, for which he had bid but again fled, demonstrating their mala fide purpose. By submitting an application to the adjudicating authority on the day of the bid, or 14.12.2021, the appellant hoped to have the offer rejected.
FINAL DECISION
The Bench noted that the Appellant cannot claim that pre-bid qualification will not bind the bidders after having requested participation in the bidding process, as this would undermine the Liquidator's efforts to "maximise the value of the asset" and lengthen the proceedings as everyone would participate in the bidding process.
Furthermore, it was noted that the Appellant was given the option to participate when the Liquidator certified his eligibility for one property on December 9, 2021, and December 11, 2021, based on his turnover and net worth. After taking part in the bidding process, the appellant's actions in claiming that the qualifying requirements are incorrect without contesting them in the proper venue are misguided.
“We are also conscious of the fact that the Learned Adjudicating Authority has recorded in their Order that the Application preferred by the Appellant/Applicant was taken up as it was the last date for the bidding and spent two long hours in futility and vexed with the conduct of the Appellant herein for wasting the time and energy of the Court by indulging in this misconceived litigation, has imposed a cost of Rs.9 Lakhs/-."
The fee imposed by the Adjudicating Authority was lowered from Rs. 9 Lakhs to Rs. 2 Lakhs in the interest of justice, even though the Bench ruled that the Appellant had engaged in frivolous litigation.