05 (24) (a)

Merely because Liquidator has the discretion of carrying out multiple auction it does not necessarily imply that he would abandon or cancel a valid auction fetching a reasonable price and opt for another round of auction process with the expectation of a better price – Eva Agro Feeds Pvt. Ltd. Vs. Punjab National Bank and Anr. – Supreme Court

In this important judgment, Hon’ble Supreme Court has interpretated various issues as:
(i) Powers and duties of the Liquidator
(ii) Requirement of reasons for cancellation of the highest bid
(iii) Para 1(11A) was inserted in Schedule I vide notification dated 30.09.2021 is prospective or retrospective
(iv) Cancellation of the auction sale in liquidation process
(v) Ineligibility of retired/ex-Director of the Corporate Debtor to participate in Auction sale
(vi) Date on ineligibility of the Buyer under Section 29A attract

Merely because Liquidator has the discretion of carrying out multiple auction it does not necessarily imply that he would abandon or cancel a valid auction fetching a reasonable price and opt for another round of auction process with the expectation of a better price – Eva Agro Feeds Pvt. Ltd. Vs. Punjab National Bank and Anr. – Supreme Court Read Post »

Only those Financial Creditors that are related parties in praesenti would be debarred from CoC under the first proviso to Section 21(2), those related party Financial Creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder – Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Ltd. and Ors. – Supreme Court

An issue of interpretation in relation to the first proviso of Section 21(2) is whether the disqualification under the proviso would attach to a financial creditor only in praesenti, or if the disqualification also extends to those financial creditors who were related to the corporate debtor at the time of acquiring the debt. Thus, facially, it would appear that the use of the simple present tense in the first proviso to Section 21(2) indicates that the disqualification applies in praesenti. Furthermore, this interpretation would also be supported by a reading of the first proviso to Section 21(2), in light of the definition of ‘related party’ under Section 5(24), which uses phrases such as ‘is accustomed to act’ or ‘is associated’ to define a related party in the present tense.(p82 & 84).

While the default rule under the first proviso to Section 21(2) is that only those financial creditors that are related parties in praesenti would be debarred from the CoC, those related party financial creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder. Mr Kaul has argued, correctly in our opinion, that if this interpretation is not given to the first proviso of Section 21(2), then a related party financial creditor can devise a mechanism to remove its label of a ‘related party’ before the Corporate Debtor undergoes CIRP, so as to be able to enter the CoC and influence its decision making at the cost of other financial creditors. (p95)

Only those Financial Creditors that are related parties in praesenti would be debarred from CoC under the first proviso to Section 21(2), those related party Financial Creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder – Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Ltd. and Ors. – Supreme Court Read Post »

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