Liquidator empowered to decide mode of sale of corporate Debtor, not bound by recommendations of Stakeholders' Consultation Committee: NCLT, Kolkata Bench

Liquidator empowered to decide mode of sale of corporate Debtor, not bound by recommendations of Stakeholders' Consultation Committee: NCLT, Kolkata Bench

The bench comprised of Shri Rohit Kapoor ("Judicial Member") and Shri Balraj Joshi (Technical Member)

The National Company Law Tribunal ("NCLT"), Kolkata Bench has held that a Liquidator is empowered to decide the mode of sale of the Corporate Debtor which is in best interest for maximization of asset value and the Liquidator is not bound by the recommendations of Stakeholders' Consultation Committee while determining such mode of sale.

A petition was filed under Section 9 of the Insolvency and Bankruptcy Act, 2016 ("IBC") by Sauria Corporation ("Operational Creditor") seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Kohinoor Pulp & Paper Pvt. Ltd. ("Corporate Debtor"). The Adjudicating Authority admitted the petition and CIRP was initiated. Subsequently, the Adjudicating Authority passed an order for liquidation of the Corporate Debtor.

On 02.08.2022 the Liquidator issued a notice for conducting sale of the Corporate Debtor as a going concern by Swiss Challenge Method. The notice mentioned, "Liquidator reserves the right to amend and or /annul this invitation including any timelines or the process therein, without giving reasons, at any time and in any respect. Any such amendment in the invitation, including the aforementioned timelines, shall be notified".

Thereafter, the Liquidator issued a fresh notice on 22.08.2022 stating that now the sale of the Corporate Debtor would be conducted through normal e-auction process instead of Swiss Challenge Method and the date for auction was fixed to 31.08.2022.

Universaltech Paper LLP ("Applicant") being a Swiss Challenger in the auction, filed an application before the Adjudicating Authority, challenging the change in mode for conducting the e-auction and sought stay on notice dated 22.08.2022.

The Bench was of the opinion that it is the Liquidator who has to take call on what mode of sale is in the best in the interest for maximizing the asset value. The Liquidator is not bound by the recommendations/ advice of Stakeholder' Consultation Committee, however, in exercise of process of consultation if something better transpires; he can take the same into consideration.

It was observed that Stakeholders Consultation Committee was of the opinion that reserve price should be increased and auction should be conducted through normal process. Therefore, the reserve price was increased to Rs. 48 Crores from the previous value of Rs. 36 Crores fixed by the Liquidator.

The Bench held that there was no arbitrariness in the conduct of auction through normal process and the Applicant was free to participate in the newly notified auction process by the Liquidator.

Reliance was placed on the Supreme Court judgments in R.K. Industries (UNIT-II) LLP Vs. H.R. Commercials Private Limited and Ors. and Welspun Steel Resources Private Limited Vs. R.K. Industries (UNIT II) LLP, wherein it was held that:

"The Statute enjoins the Liquidator to sell the immovable and movable assets of the Corporate Debtor in a manner that would result in maximization of value, lead to a higher and quicker recovery for the stakeholders, cut short the delay and afford a guaranteed timeline for completion of the process. On examining the records, we find that these were the considerations that have weighed not only with the Respondent No. 2 - Liquidator, but also with the stakeholders, who were unanimous in their decision that the Second Swiss Challenge Process Document ought to be abandoned in favour of the Private Sale process where not only the Appellant, but all the other prospective bidders who had participated in the process were permitted by the Adjudicating Authority (NCLT) to make a bid in respect of the consolidated assets of the Corporate Debtor…..He is authorized to directly liaise with the potential buyers to ensure that realization from the sale of the assets can be maximized. We do not find any infirmity in the said approach adopted by the Respondent No. 2 – Liquidator".

The application was, thus, rejected.