M/S. R.K. INDUSTRIES (UNIT-II) LLP v. M/S. H.R. COMMERCIALS PRIVATE LIMITED AND OTHER

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A undertaking inter alia that it would remain unconditionally and irrevocably bound by the Swiss Challenge Process Document and the decision of the respondent No.2 - Liquidator. Given the aforesaid terms and condition of the Anchor Bid Document and the Second Swiss Challenge Process Document, read collectively with the unqualified undertaking given by the appellant acknowledging that the respondent No.2 – Liquidator was well empowered to cancel/modify or even abandon the said process, it does not lie in the mouth of the appellant to urge that once it was set into motion, there was no justification to discontinue the Second Swiss Challenge Process. No special rights came to be bestowed on the appellant as the Anchor Bidder for it to insist that the said process ought to be taken forward and concluded, irrespective of the subsequent decision taken by the respondent No.2 – Liquidator, backed to the hilt by the stakeholders of discontinuing the Swiss Challenge Process and opting for Private Sale of the consolidated assets of the Corporate Debtor to be conducted through direct negotiations

49Copy pinpoint49. To put it otherwise, an Anchor Bidder has no vested right beyond the ROFR, being the origination of the proposal. It must be borne in mind that the Swiss Challenge Process is just another method of private participation that has been recognized by this Court for its transparency [Refer : Ravi Development (supra)]. Ultimately, the IBC has left it to the discretion of the Liquidator to explore the best possible method for E selling the assets of the Corporate Debtor in liquidation, which includes Private Sale through direct negotiations with the object of maximizing the value of the assets offered for sale.

50Copy pinpoint50. In the instant case, there was good reason for the respondent No.2 – Liquidator to have halted the Second Swiss Challenge Process F midstream and approached the Adjudicating Authority (NCLT) armed with an offer of ` 675 croresreceived from the respondent No.7 – Welspun who had shown interest in the composite sale of the Dahej assets. In fact, this was all along the preferred choice of the respondent No.2–Liquidator as can be seen from the fact that when public auctions were conducted by him on five earlier occasions, bids were invited for the composite assets of the Corporate Debtor. It is a different matter that the earlier e-auctions turned out to be unsuccessful, thus compelling the respondent No.2 – Liquidator to explore other options, including the option to sell the assets in smaller lots.

51Copy pinpoint51. In his wisdom, the respondent No.2 – Liquidator found the offer made by the respondent No.7 – Welspun to be of better value for

M/S. R.K. INDUSTRIES (UNIT-II) LLP v. M/S. H.R. 711 COMMERCIALS PRIVATE LIMITED [HIMA KOHLI, J.]

more than one reason. Firstly, unlike the sale proposed under the Second A Swiss Challenge Process that was confined to the Dahej Material, respondent No.7 – Welspun expressed its willingness to purchase the Dahej land and the scrap as a composite asset thereby curtailing two rounds of sales, first for the Dahej Material followed by the Shipyard and the other assets. Secondly, the respondent No.2 – Liquidator had valid reasons to believe that a consolidated sale of the assets of the Corporate Debtor will lead to a higher return and a quicker recovery for the stakeholders. Thirdly, composite sale of the assets would lead to maximization of recovery within a guaranteed timeline. In the assessment of the respondent No.2 – Liquidator, a two tier process of selling the Dahej Material in the first round through the Swiss Challenge method, followed by the sale of the Dahej land in the second round, would have caused prejudice to the stakeholders for the reason that continuing the Second Swiss Challenge Process would have meant that the appellant or the H1 bidder, as the case may be, would have to be granted at least 15 to 18 months to lift the material from the Dahej Shipyard, thus stalling the entire process of the sale of the Dahej land to a period well beyond 18 months. This delay in concluding the process could directly impact the value of the assets of the Corporate Debtor and hurt the interest of the stakeholders.

52Copy pinpoint52. We are of the firm view that it is not for the court to question the judiciousness of the decision taken by the respondent No.2 – E Liquidator with the idea of enhancing the value of the assets of the Corporate Debtor being put up for sale. The right to refuse the highest bid or completely abandon or cancel the bidding process was available to the respondent No.2 – Liquidator. The appellant has not been able to demonstrate that the decision of the respondent No.2 – Liquidator to F discontinue the Second Swiss Challenge Process and go in for a Private Sale through direction negotiations with prospective bidders was a malafide exercise. It is a well-settled principle that in matters relating to commercial transactions, tenders, etc., the scope of judicial review is fairly limited and the court ought to refrain from substituting its decisions for that of the tendering agency [Ref.: State of Madhya Pradesh and G Others v. Nandlal Jaiswal and Others32,Tata Cellular (supra) and Air India (supra)]. In Nandlal Jaiswal and Others (supra), this Court held that while granting a licence for setting up a new industry, the State Government is not under any obligation to advertise and invite offers for 32 (1986) 4 SCC 566 H

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A the said purpose and that the State Government is well entitled to negotiate with those who have come up with an offer to set up such an industry. In 5 M & T Consultants, Secunderabad v. S.Y. Nawab and Another33, the court concluded as under : “17. …… It is by now well settled that non-floating of tenders or absence of public auction or invitation alone is no sufficient reason to castigate the move or an action of a public authority as either arbitrary or unreasonable or amounting to mala fide or improper exercise or improper abuse of power by the authority concerned. Courts have always leaned in favour of sufficient latitude being left with the authorities to adopt their own techniques of management of projects with concomitant economic expediencies depending upon the exigencies of a situation guided by appropriate financial policy in the best interests of the authority motivated by public interest as well in undertaking such ventures……..”

53Copy pinpoint53. On the aspect of rejecting even the highest bid received by an Authority, this Court has held in Laxmikant and Others (supra) as under : “4. Apart from that the High Court overlooked the conditions of auction which had been notified and on basis of which the aforesaid public auction was held. Condition No. 3 clearly said that after the auction of the plot was over, the highest bidder had to remit 1/ 10 of the amount of the highest bid and the balance of the premium amount was to be remitted to the trust office within thirty days “from the date of the letter informing confirmation of the auction bid in the name of the person concerned”. Admittedly, no such confirmation letter was issued to the respondent. Conditions Nos. 5, 6 and 7 are relevant: “5. The acceptance of the highest bid shall depend on the Board of Trustees.

G 6. The Trust shall reserve to itself the right to reject the highest or any bid.

7. The person making the highest bid shall have no right to take back his bid. The decision of the Chairman of the Board

33 H (2003) 8 SCC 100

M/S. R.K. INDUSTRIES (UNIT-II) LLP v. M/S. H.R. 713 COMMERCIALS PRIVATE LIMITED [HIMA KOHLI, J.]

of Trustees regarding acceptance or rejection of the bid shall A be binding on the said person. Before taking the decision as above and informing the same to the individual concerned, if the said individual takes back his bid, the entire amount remitted as deposit towards the amount of bid shall be forfeited by the Trust.” B From a bare reference to the aforesaid conditions, it is apparent and explicit that even if the public auction had been completed and the respondent was the highest bidder, no right had accrued to him till the confirmation letter had been issued to him. The conditions of the auction clearly conceived and contemplated that the acceptance of the highest C bid by the Board of Trustees was a must and the Trust reserved the right to itself to reject the highest or any bid. This Court has examined the right of the highest bidder at public auctions in the cases of Trilochan Mishra v. State of Orissa 34 , State of Orissa v. Harinarayan Jaiswal35 , Union of India v. Bhim Sen D Walaiti Ram36 and State of Uttar Pradesh. v. Vijay Bahadur Singh37 . It has been repeatedly pointed out that State or the authority which can be held to be State within the meaning of Article 12 of the Constitution is not bound to accept the highest tender or bid. The acceptance of the highest bid is subject to the conditions of holding the public auction and the right of the highest bidder has to be examined in context with the different conditions under which such auction has been held. In the present case no right had accrued to the respondent either on the basis of the statutory provision under Rule 4(3) or under the conditions of the sale which had been notified before the public auction was held.” (emphasis added)

54Copy pinpoint54. Further, in CWE - Soma Consortium (supra), this Court had held as under : “23. The right to refuse the lowest or any other tender is always available to the Government. In the case in hand, the 34 (1971) 3 SCC 153 35 (1972) 2 SCC 36 36 (1969) 3 SCC 146 37 (1982) 2 SCC 365 H

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A respondent has neither pleaded nor established mala fide exercise of power by the appellant. While so, the decision of the Tender Committee ought not to have been interfered with by the High Court. In our considered view, the High Court erred in sitting in appeal over the decision of the appellant to cancel the tender and float a fresh tender. Equally, the High Court B was not right in going into the financial implication of a fresh tender.” (emphasis added)

55Copy pinpoint55. On the scope of judicial review in examining the decision of the tenderer to cancel the process if the tender document so permits, we may usefully refer to Montecarlo Limited (supra), wherein it is has been held as under : “26. ……. Exercise of power of judicial review would be called for if the approach is arbitrary or mala fide or procedure adopted is meant to favour one. The decision-making process should clearly show that the said maladies are kept at bay. But where a decision is taken that is manifestly in consonance with the language of the tender document or subserves the purpose for which the tender is floated, the court should follow the principle of restraint. Technical evaluation or comparison by the court would be impermissible. The principle that is applied to scan and understand an ordinary instrument relatable to contract in other spheres has to be treated differently than interpreting and appreciating tender documents relating to technical works and projects requiring special skills. The owner should be allowed to carry out the purpose and there has to be allowance of free play in the joints.” (emphasis added) [Also refer : Sterling Computers Limited v. M/s M & N Publications Limited and Others38, Tata Cellular (Supra), Mauleshwar Mani and Others v. Jagdish Prasad and Others39, G B.S.N. Joshi & Sons Limited v. Nair Coal Services Limited and Others40, Jagdish Mandal v. State of Orissa and Others41, 38 (1993) 1 SCC 445 39 (2002) 2 SCC 468 40 (2006) 11 SCC 548 41 (2007) 14 SCC 517 H

M/S. R.K. INDUSTRIES (UNIT-II) LLP v. M/S. H.R. 715 COMMERCIALS PRIVATE LIMITED [HIMA KOHLI, J.]

and Afcons Infrastructure Limited v. Nagpur Metro Rail A Corporation Limited and Another42]

56Copy pinpoint56. 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. In its anxiety to claim a vested right as an Anchor Bidder, the appellant tends to forget that the Swiss Challenge Process adopted by the respondent No.2 – Liquidator also falls in the category of D a Private Sale, referred to in Schedule-I(2) under Regulation 33 of the Liquidation Regulations. For conducting a Private Sale, all that the Liquidator is required to do is to prepare a strategy to approach the interested parties. 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.

57Copy pinpoint57. When compared to the above protracted process described in para 53 above, a single buyer for the Dahej land along with the metal scrap, etc., lying at the complex was bound to speed up the entire process inasmuch as the successful bidder could be handed over the possession straightaway and the respondent No.2 - Liquidator would be in a position to receive the payment for the composite assets in a timebound manner with a higher rate of recovery. All these factors that fall in the realm of commercial considerations were examined holistically by the respondent No.2 – Liquidator who then placed the cards before the stakeholders in the meeting conducted on 6th August, 2021. Even though the provisions of the IBC empower the Liquidator to take an independent decision for the sale of the assets of the Corporate Debtor in liquidation, it can be seen that he has taken the stakeholders into confidence at every step. 42 (2016) 16 SCC 818 H

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A Only after finding them to be in agreement with the option sought to be explored by him of halting the Second Swiss Challenge Process and proceeding with the Private Sale of the consolidated assets of the Corporate Debtor by directly liaising with the potential buyers, did the respondent No.2 – Liquidator take such a decision solely with the object of augmenting realization from the sale of the assets. Thereafter, the matter was taken to the Adjudicating Authority (NCLT) for necessary permissions under Section 35(1) of the IBC that was duly granted. The decision taken by the respondent No.2 – Liquidator cannot be treated as arbitrary, capricious or unreasonable for interference by this Court. The said decision is tempered with sound reason and logic. It is a purely commercial decision centered on the best interest of the stakeholders. The stakeholders having unanimously endorsed the view of the respondent No.2 – Liquidator, it is not for this Court to undertake a further scrutiny of the desirability or the reasonableness of the said decision or substitute the same with its own views.

58Copy pinpoint58. Therefore, we concur with the view expressed by the NCLAT that the decision of the respondent No.2 – Liquidator was driven by the desire of the stakeholders to complete the liquidation process in the shortest possible time. Let us not forget that the aforesaid exercise of selling the assets of the Corporate Debtor has been ongoing for about three years, with several litigations spewed throughout to cause further delay. The sooner the curtains are drawn on the process, the better it would be for all concerned.

59Copy pinpoint59. It is for the very same reason that we are inclined to set aside the subsequent directions issued by the NCLAT of restarting the entire process of Private Sale by issuing fresh notices to all the prospective buyers without limiting them to those who had participated in the process. No doubt, a public auction entails the procedure of issuing public notices. But that is not the case with a Private Sale where the procedure prescribed permits the Liquidator to directly liaise with the potential buyer and conduct the negotiations. It may be emphasized that these are commercial transactions and purely business driven decisions, which are not amenable to judicial review. The insolvency regime introduced under the IBC has placed fetters on the power of interference by the Adjudicating Authority (NCLT) and the Appellant Authority (NCLAT). The decision of the NCLT to have the sale of the composite assets negotiated with the parties who had participated in the earlier rounds of sale, cannot be described as a H

M/S. R.K. INDUSTRIES (UNIT-II) LLP v. M/S. H.R. 717 COMMERCIALS PRIVATE LIMITED [HIMA KOHLI, J.]

rushed decision for the NCLAT to have modified the said order and A direct that the clock be set back to the initial stage of issuing notices to the prospective buyers. No such relief was sought by any of the parties to the lis, nor has the NCLAT given any plausible reason for issuing such a direction.

60Copy pinpoint60. The powers vested in and the duties cast upon the Liquidator B have been made subject to the directions of the Adjudication Authority (NCLT) under Section 35 of the IBC. Once the Liquidator applies to the Adjudicating Authority (NCLT) for appropriate orders/directions, including the decision to sell the movable and immovable assets of the Corporate Debtor in liquidation by adopting a particular mode of sale C and the Adjudicating Authority (NCLT) grants approval to such a decision, there is no provision in the IBC that empowers the Appellate Authority (NCLAT) to suo motu conduct a judicial review of the said decision. The jurisdiction bestowed upon the Adjudicating Authority [NCLT] and the Appellate Authority [NCLAT] are circumscribed by the provisions of the IBC and borrowing a leaf from Committee of Creditors of Essar D Steel India Limited v. Satish Kumar Gupta and Others43, they cannot act as a Court of equity or exercise plenary powers to unilaterally reverse the decision of the Liquidator based on commercial wisdom and supported by the stakeholders. The Court has also observed in the captioned case that “from the legislative history, there is contra-indication that the E commercial or business decisions of the financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority.’’ A similar reasoning has prevailed with Respondent in K. Sashidhar v. Indian Overseas Bank and Others44, Committee of Creditors of Amtek Auto Limited v. Dinkar T. Venkatasubramanian and Others 45 , Kalpraj Dharamshi and F Another v. Kotak Investment Advisors Limited and Another. 46, Ghanashyam Mishra And Sons Private Limited through the Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited through the Director and Others.47 and Jaypee Kensington Boulevard Apartments Welfare Association and Others (Supra).The G aforesaid view will apply with equal force to any commercial or business 43 (2020) 8 SCC 531 44 (2019) 12 SCC 150 45 (2021) 4 SCC 457 46 (2021) 10 SCC 401 47 (2021) 9 SCC 657 H

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A decision taken by the Liquidator for conducting the sale of the movable/ immovable assets of the Corporate Debtor in liquidation. The Appellate Authority cannot don the mantle of a supervisory authority for overseeing the validity of the approach of the respondent No.2 – Liquidator in opting for a particular mode of sale of the assets of the Corporate Debtor.

61Copy pinpoint61. In fact, it has been brought to our notice by the respondent No.2 – Liquidator that close on the heels of the impugned judgment passed by the NCLAT delivered on 10th December, 2021, the Core Committee of Financial Creditors of the Corporate Debtor had conducted a meeting on 15th December, 2021 and had unanimously ratified the view of the respondent No.2 – Liquidator that the bid process commenced on 24th August, 2021, ought to be continued and not restarted having regard to the fact that it had taken almost three years to find such buyers and the sale was at the cusp of being closed. It was also recorded in the minutes of the meeting that several attempts had already been made to solicit interest from parties but none had come forward to make an offer for the composite purchase of the assets. We may note that the Core Committee constitutes 70.3% of the financial creditors and when they have weighed in to support the stand taken by the respondent No.2 – Liquidator to continue the bid process commenced on 24th August, 2021, we do not see any reason to foist the view of the NCLAT on the respondent No.2 – Liquidator that he ought to restart the process for sale of the composite assets of the Corporate Debtor from the scratch after issuing an open notice to the prospective buyers. CONCLUSION :

62Copy pinpoint62. Therefore, the impugned judgment dated 10th December, 2021, F passed by NCLAT to the extent that it has modified the order dated 16th August, 2021 passed by the NCLT and directed restraining of the Private Sale Process, is quashed and set aside. In our opinion, the Private Sale process of the composite assets of the Corporate Debtor should be taken further by the respondent No.2 – Liquidator without losing any further G time and be concluded at the earliest.All the eligible bidders who have made Earnest Money Deposits would be entitled to participate in the negotiations to be conducted by the respondent No.2–Liquidator for privately selling the consolidated assets of the Corporate Debtor. Accordingly, we direct that the process of private negotiations that had commenced on 24th August, 2021, shall be taken to its logical end and H

M/S. R.K. INDUSTRIES (UNIT-II) LLP v. M/S. H.R. 719 COMMERCIALS PRIVATE LIMITED [HIMA KOHLI, J.]

brought to a closure by the respondent No.2 – Liquidator within four A weeks from the date of passing of this order.

63Copy pinpoint63. As a result, Civil Appeal No.7722 of 2021 filed by R.K. Industries fails and the same is dismissed along with I.A No. 166862/

2021. Civil Appeal No.7731 of 2021 filed by Welspun is allowed on the afore-stated terms. Parties are left to bear their own costs. Pending B applications, if any other than IA No. 166862/2021 shall stand disposed of.

Divya Pandey Appeals disposed of. (Assisted by : Roopanshi Virang, LCRA) C