NCLAT Limits Auction Purchaser's Claim For Interest On Delayed Sale Certificate

NCLAT Limits Auction Purchaser's Claim For Interest On Delayed Sale Certificate

The National Company Law Appellate Tribunal (NCLAT) has recently delivered a judgment impacting how delays caused by court orders affect the rights of auction purchasers in insolvency proceedings. The case involved JVL Agro Industries Ltd. (Corporate Debtor), which was admitted into the Corporate Insolvency Resolution Process (CIRP) by the NCLT. After failing to revive the company, the NCLT ordered its liquidation on August 19, 2020.

Following the liquidation order, the appointed Liquidator issued a Sale Notice on March 4, 2022, inviting bids for the Corporate Debtor's assets through an e-auction. Notably, Clause 4 of the E-Auction Process Information Document clearly stated that bidders would not be entitled to claim any loss, damage, or expense arising from anything contained in the document or otherwise.

However, a hurdle emerged when the Employee Welfare Trust, a stakeholder in the liquidation process, challenged the Sale Notice by filing an application (IA No.98 of 2022) before the NCLT. While the NCLT allowed the auction to proceed on April 4, 2022, it placed a critical restriction – the Liquidator was prohibited from issuing any Sale Certificate without seeking prior approval from the NCLT.

Supriyo Kumar Chaudhuri, participating in the auction, emerged as the successful bidder. The Letter of Intent dated April 29, 2022, issued by the Liquidator, clearly informed him about the NCLT's restraint order. Despite this knowledge, the Auction Purchaser (Chaudhuri) deposited the entire sale consideration with the Liquidator on June 1, 2022.]

However, the wait for the Sale Certificate stretched on. Unable to obtain the certificate due to the NCLT order, Chaudhuri filed an application before the NCLT on November 4, 2022, seeking its issuance.

Finally, on June 1, 2023, the NCLT provided relief. It dismissed the application filed by the Employee Welfare Trust, paving the way for the issuance of the Sale Certificate. The Liquidator promptly acted upon this order and issued the certificate to Chaudhuri.

Despite receiving the Sale Certificate and the assets, Chaudhuri was not entirely satisfied. He appealed to the NCLAT, claiming interest on the sale consideration amount. His argument rested on the delay in issuing the Sale Certificate, which he attributed to the Liquidator's inaction. He further claimed financial hardship due to a loan he had availed for the sale consideration, which he could not manage smoothly in the absence of the certificate.

The NCLAT bench, however, sided with the Liquidator. They highlighted Clause 4 of the E-Auction Process Information Document, which explicitly limited the bidder's claims for losses or expenses arising from anything related to the auction process. More importantly, the tribunal emphasised that the delay was not due to the Liquidator's fault but rather a direct consequence of the NCLT's restraint order.

"As noted above, when the Sale Certificate was prohibited by the Adjudicating Authority and the Sale Certificate could be issued only after the order dated 01.06.2023 passed by the Adjudicating Authority, rejecting IA Nos.89 and 98 of 2022, no blame can be put on the Liquidator for not issuing Sale Certificate, immediately after the deposit of sale consideration by the Appellant," the NCLAT bench remarked.

The Tribunal further observed that the NCLT order lifting the restriction was promptly followed by the Liquidator issuing the Sale Certificate and handing over the assets. They also underscored a key legal principle – no party can be held prejudiced by a court order.

"The present is a case where assets have been handed over to the Appellant. The present is not a case where due to any reason, the Appellant is entitled for refund of sale consideration," the NCLAT clarified

The bench acknowledged that Chaudhuri might have been entitled to interest if he had sought a refund of the sale consideration. However, since the assets were ultimately delivered, the question of interest on the sale consideration became irrelevant.