A) ABSTRACT / HEADNOTE

This case revolves around critical issues arising under the Insolvency and Bankruptcy Code, 2016 (IBC), regarding the liquidation process of a corporate debtor and the auction of its assets during the COVID-19 pandemic. The appellant contested the tribunal’s decision concerning the timeline extension granted to the auction purchaser for depositing the balance sale consideration, alleged undervaluation of the auctioned property, failure to constitute a Stakeholders’ Consultation Committee (SCC), and compliance with statutory regulations. The Supreme Court upheld the tribunal’s decision, emphasizing leniency in extraordinary circumstances, interpreting the mandatory and directory nature of regulations, and focusing on the principles of equity and procedural propriety.

Keywords: COVID-19 pandemic, liquidation process, e-auction, time extension, stakeholder consultation committee.

B) CASE DETAILS

• i) Judgement Cause Title: V.S. Palanivel v. P. Sriram, CS, Liquidator, Etc.
• ii) Case Number: Civil Appeal Nos. 9059-9061 of 2022
• iii) Judgement Date: August 28, 2024
• iv) Court: Supreme Court of India
• v) Quorum: Justices Hima Kohli and Ahsanuddin Amanullah
• vi) Author: Justice Hima Kohli
• vii) Citation: [2024] 8 S.C.R. 1263
• viii) Legal Provisions Involved:
  • Insolvency and Bankruptcy Code, 2016
  • Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
  • Regulation 47A, 33, and 31A
  • Schedule I, Rule 12 and 13
  • National Company Law Tribunal Rules, 2016 (Rule 11)
• ix) Judgments Overruled by the Case: None.
• x) Related Law Subjects: Insolvency Law, Liquidation, Auction Process, Corporate Law.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case originated from the liquidation of Sri Lakshmi Hotels Private Limited, which defaulted on loan repayments. The appellant contested the auction process conducted by the liquidator, raising concerns over the delay in depositing the sale consideration by the purchaser, the reduced valuation of the property, and procedural lapses by the liquidator. The National Company Law Appellate Tribunal (NCLAT) dismissed the appellant’s objections, prompting an appeal to the Supreme Court.

D) FACTS OF THE CASE

1. The corporate debtor was liquidated following a failed resolution under the IBC, 2016.
2. The liquidator conducted an e-auction of the debtor’s property on December 23, 2019, with a reserve price of ₹29.55 crore.
3. The auction purchaser failed to deposit the balance consideration within the stipulated 90-day timeline due to the COVID-19 lockdown.
4. The liquidator sought an extension from the Adjudicating Authority, which allowed the purchaser until the lockdown lifted.
5. The appellant raised concerns over undervaluation, alleging that the property was worth ₹48 crores based on registered valuation.
6. The appellant also challenged the liquidator’s non-constitution of a Stakeholders’ Consultation Committee (SCC).

E) LEGAL ISSUES RAISED

1. Was the COVID-19 lockdown a valid ground for extending the timeline for depositing the balance sale consideration?
2. Did the liquidator undervalue the property, and was this prejudicial to the stakeholders’ interests?
3. Was the liquidator required to constitute an SCC as per the IBBI Regulations, 2016?
4. Did the liquidator violate Regulation 33 by failing to cancel the sale after non-payment within 90 days?
5. What was the impact of the Income Tax Department’s attachment order on the sale process?

F) PETITIONER / APPELLANT’S ARGUMENTS

• Timeline Extension: The COVID-19 pandemic did not prevent banking operations; hence, the purchaser could have paid within the stipulated period.
• Property Valuation: The reserve price was set below the fair market value, causing a loss to stakeholders.
• Constitution of SCC: The liquidator breached statutory duties by not forming an SCC, which was mandatory under Regulation 31A.
• Attachment Order: The sale was conducted on an “as is where is” basis; the attachment order should not justify delay in payment.
• Strict Adherence to Rule 12: The timeline for depositing the balance was mandatory and could not be extended.

G) RESPONDENT’S ARGUMENTS

• Exceptional Circumstances: The pandemic warranted leniency. The Supreme Court’s suo motu extension of limitation applied.
• Discretion of Adjudicating Authority: The Adjudicating Authority had the inherent power to extend timelines under Rule 11 of the NCLT Rules.
• Directory Nature of Timelines: The rules for liquidation timelines were directory, not mandatory.
• Valuation Process: The property’s reserve price was based on the average liquidation value provided by registered valuers.
• Compliance with Regulations: SCC was not required as the liquidation process commenced before the relevant amendments to Regulation 31A.

H) JUDGEMENT

a. Ratio Decidendi:

1. The Supreme Court upheld the NCLAT’s decision, emphasizing leniency under extraordinary circumstances like the pandemic.
2. Regulation 31A’s requirement for constituting an SCC applied prospectively and was not binding on this case.
3. Timelines under Rule 12 of Schedule I were directory in nature; procedural equity prevailed.

b. Obiter Dicta:

1. Auction purchasers must diligently comply with payment timelines to avoid disputes.
2. Liquidators should exercise transparency and fairness in valuation and stakeholder consultations.

c. Guidelines:

1. Adjudicating Authorities may extend procedural timelines under extraordinary circumstances.
2. Stakeholders should actively participate in the liquidation process to address valuation concerns.
3. Courts must balance procedural rigor with equity in unprecedented scenarios like a pandemic.

I) CONCLUSION & COMMENTS

The judgment underscores the need for a balanced approach in insolvency proceedings, especially during unforeseen crises. It highlights the interplay between statutory compliance and equitable considerations, reinforcing the discretion of judicial authorities to address extraordinary circumstances.

J) REFERENCES

a. Important Cases Referred:

1. Sharif-ud-din v. Abdul Gani Lone (1980) 1 SCC 403
2. Pioneer Urban Land v. Union of India (2019) 8 SCC 416
3. Vidarbha Industries v. Axis Bank (2022) 8 SCC 352

b. Important Statutes Referred:

1. Insolvency and Bankruptcy Code, 2016
2. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
3. National Company Law Tribunal Rules, 2016