IBC: Timeline For Auction Purchaser To Pay Balance Sale Consideration In Liquidation Proceedings Is Mandatory, Rules Supreme Court

IBC: Timeline For Auction Purchaser To Pay Balance Sale Consideration In Liquidation Proceedings Is Mandatory, Rules Supreme Court

The Supreme Court recently provided an important interpretation of Rule 12 of Schedule 1 under Regulation 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, emphasizing that the rule is mandatory in nature. Rule 12 outlines the procedure for the sale of assets by the liquidator during the liquidation of a corporate debtor.

Rule 12 specifies: "On the close of the auction, the highest bidder shall be invited to provide balance sale consideration within ninety days of the date of such demand, provided that payments made after thirty days shall attract interest at the rate of 12%. Provided further that the sale shall be cancelled if the payment is not received within ninety days."

In the case before the Court, the appellant argued that since the highest bidder failed to provide the balance sale consideration within the 90-day period, the auction should be cancelled. The Supreme Court agreed, stating: "Rule 12 must be treated as mandatory in character because it contemplates a consequence in the event of non-payment of the balance sale consideration by the highest bidder within the stipulated timeline of 90 days, which is cancellation of the sale by the liquidator. To that extent, there is merit in the appellant's submission that since the second proviso under Rule 12 contemplates cancellation of the auction on non-payment within 90 days, the liquidator was not authorized to extend the timeline."

Rule 13, on the other hand, governs the completion of the sale process. It reads: "On payment of the full amount, the sale shall stand completed, the liquidator shall execute a certificate of sale or sale deed to transfer such assets, and the assets shall be delivered to him in the manner specified in the terms of sale."

In this case, the appellant contended that the auction sale could not be completed as per Rule 12 unless the sale deed was executed under Rule 13. The appellant argued that this could not happen due to an attachment order by the Income Tax authorities on the subject property, which required lifting before the sale could proceed.

However, the Supreme Court distinguished between the mandatory nature of Rule 12 and the procedural nature of Rule 13. It stated: "While Rule 12 is mandatory because non-payment within the timeline has specific consequences, Rule 13 does not outline any adverse consequences for non-compliance and is therefore procedural, or 'directory.' The rule lays down steps for completing the sale process but does not stipulate that any delay in lifting the attachment order would prevent the execution of the sale."

The Court thus rejected the respondents' argument that the auction could not be completed until the income tax attachment was lifted, affirming that the liquidator was within their rights to proceed under Rule 13 without waiting for the attachment to be removed.