EVA AGRO FEEDS PRIVATE LIMITEDversusPUNJAB NATIONAL BANK AND ANR.

                 [2023] 13 S.C.R. 861 : 2023 INSC 809



                           CASE DETAILS

               EVA AGRO FEEDS PRIVATE LIMITED
                                    v.
              PUNJAB NATIONAL BANK AND ANR.
                     (Civil Appeal No.7906 of 2021)
                         SEPTEMBER 06, 2023
        [B. V. NAGARATHNA AND UJJAL BHUYAN, JJ. ]

                             HEADNOTES

     Issue for consideration: Appellate Tribunal whether justified in
upholding the decision of the Liquidator to cancel the auction sale without
assigning any reasons.
      Insolvency and Bankruptcy Code, 2016 – Auction sale cancelled by
Liquidator without assigning any reasons – Appellant submitted its bid
dtd.16.07.21 to Respondent No.2-Liquidator in respect of the assets of
the corporate debtor (in liquidation) – On 20.07.21, appellant received
an E-auction certificate from certifying that it had won the auction of
the subject property– On 21.07.21, the appellant received an email from
Respondent No.2 simply informing that he had cancelled the E-auction
u/Clause 3(k) of the Disclaimer Clause in the E-Auction Process
Information Document and that a fresh E-auction would be conducted–
Appellant filed application before the Tribunal– Tribunal directed the
respondent No.2 vide order dtd. 12.08.21 to send a communication to
the appellant requiring him to deposit the balance sale consideration–
Letter issued to the appellant, entire sum was deposited – Sale certificate
issued in favour of the appellant – Respondent No.1-financial creditor
filed appeal against order dtd. 12.08.21– Appellate Tribunal set aside the
said order and reversed the steps taken pursuant thereto, liberty given
to the Respondent No.2 to initiate fresh process of auction – He issued
sale notice dtd. 24.12.2021 for E-auction sale of the subject property –
Auction scheduled stayed:
     Held: No reasons were assigned by the Liquidator for cancellation
of the E-auction – While the highest bidder has no indefeasible right
                                861
862          SUPREME COURT REPORTS                       [2023] 13 S.C.R.


to demand acceptance of his bid, the Liquidator if he does not want to
accept the bid of the highest bidder has to apply his mind to the relevant
factors – Such application of mind must be visible or manifest in the
rejection order itself – It is incomprehensible that an administrative
authority can take a decision without disclosing the reasons for taking
a decision affecting the rights of parties – Further, while it is true that
para 1(11A), stating that where the Liquidator rejects the highest bid in
an auction process, he shall intimate the reasons for such rejection to
the highest bidder and mention it in the next progress report, came to
be inserted in Schedule 1 to the Regulations w.e.f 30.09.21, it does not
imply that an auction sale or the highest bid prior to the aforesaid date
could be cancelled by the Liquidator exercising unfettered discretion and
without furnishing any reason – Furthermore, in the present case, even
after cancelling the highest bid of the appellant, in the subsequent sale
notice dtd. 24.12.21, Respondent No.2 again fixed the reserve price of
the subject property at Rs.10 crores which was the reserve price in the
previous round of auction sale and which was also the bid value of the
appellant – There was no rationale or justification in rejecting the bid of
the appellant and going for another round of auction at the same reserve
price – Merely because the 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 – There can be no
absolute or unfettered discretion on the part of the Liquidator to cancel an
auction which is otherwise valid – Tribunal rightly held that there were
no objective materials before the Liquidator to cancel the auction process
and to opt for another round of auction – Appellate Tribunal not justified
in setting aside the order of the Tribunal dtd.12.08.2021 – Impugned order
set aside, order dtd.12.08.2021 restored – Insolvency and Bankruptcy
Board of India (Liquidation Process) Regulations, 2016– Regulation 33;
Schedule 1, Para 1(11A)– Auction– National Company Law Tribunal
Rules, 2016– Administrative Law – Principles of natural justice. [Paras
20.1, 29, 34.1, 41, 42 and 51]
     Insolvency and Bankruptcy Code, 2016 – ss.5(24), 29A – ‘related
party’ suffering ineligibility u/s.29A – Intervenor argued that one ‘VKG’,
the director and principal shareholder of the appellant was also one of
      EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB                           863
             NATIONAL BANK AND ANR.

the promotor director and principal shareholder of the corporate debtor
and therefore, a ‘related party’ of the corporate debtor and as such was
not eligible; rather debarred from participating in the auction of the
subject property of the corporate debtor:
      Held: The disqualification sought to be attached to the appellant is
without any substance as the related party had ceased to be in the helm
of affairs of the corporate debtor more than a decade ago – He was not in
charge of the company or an influential member of the company i.e., the
corporate debtor when the appellant had made its bid pursuant to the auction
sale notice. [Para 50]
     Insolvency and Bankruptcy Board of India (Liquidation
Process) Regulations, 2016 – Schedule 1, Para 1(11A) – Plea of the
intervenor that since para 1(11A) was inserted in Schedule I vide
notifi cation dtd.30.09.2021 w.e.f 30.09.2021 and this provision is
prospective thus, it cannot be applied to auctions conducted prior to
30.09.2021, including the auction in question – Therefore, there was
no requirement for the Liquidator to give reasons for cancellation of
the bid of the appellant:
      Held: Plea not accepted – Furnishing of reasons is an important aspect
rather a check on the arbitrary exercise of power – It presupposes application
of mind to the relevant factors and consideration by the concerned authority
before passing an order – Absence of reasons may be a good reason to draw
inference that the decision making process was arbitrary – Therefore, what
para 1(11A) has done is to give statutory recognition to the requirement for
furnishing reasons, if the Liquidator wishes to reject the bid of the highest
bidder – Furnishing of reasons, which is an integral facet of the principles
of natural justice, is embedded in a provision or action, whereby the highest
bid is rejected by the Liquidator – Thus, what para 1(11A) has done is to
give statutory recognition to this well-established principle – It has made
explicit what was implicit. [Para 29]
     Insolvency and Bankruptcy Code, 2016 – Powers and duties of the
Liquidator – Discussed – Insolvency and Bankruptcy Board of India
(Liquidation Process) Regulations, 2016.
864         SUPREME COURT REPORTS                    [2023] 13 S.C.R.



       LIST OF CITATIONS AND OTHER REFERENCES

      S.N. Mukherjee versus Union of India (1990) 4 SCC 594: [1990]
1 Suppl. SCR 44; State of Orissa versus Dhaniram Luhar (2004) 5
SCC 568: [2004] 2 SCR 68; East Coast Railway versus Mahadev Appa
Rao (2010) 7 SCC 678: [2010] 7 SCR 908; Kranti Associates (P) Ltd.
Versus Masood Ahmed Khan (2010) 9 SCC 496: [2010] 10 SCR 1070;
Valji Khimji and Company Versus Official Liquidator of Hindustan Nitro
Product (Gujarat) Limited and Others (2008) 9 SCC 299: [2008] 12
SCR 1; K. Kumara Gupta Versus Sri Markendaya and Sri Omkareswara
Swamy Temple and Ors (2022) 5 SCC 710 – relied on.
      Swiss Ribbons Private Limited and Another versus Union of India
and Others (2019) 4 SCC 17: [2019] 3 SCR 535; Phoenix ARC Private
Limited versus Spade Financial Services Limited (2021) 3 SCC 475;
Arcelor Mittal (India) (P) Ltd. V. Satish Kumar Gupta (2019) 2 SCC 1:
[2018] 12 SCR 362; Arun Kumar Jagatramka Versus Jindal Steel and
Power Limited and Another (2021) 7 SCC 474: [2021] 3 SCR 114 –
referred to.
       OTHER CASE DETAILS INCLUDING IMPUGNED
              ORDER AND APPEARANCES
      CIVIL APPELLATE JURISDICTION : Civil Appeal No.7906 of 2021.
   From the Judgment and Order dated 30.11.2021 of the National
Company Law Appellate Tribunal (Principal Bench) at New Delhi in
Company Appeal (AT) (Insolvency) No.757 of 2021.
      Appearances:
    Neeraj Kishan Kaul, Sr. Adv., Parag Maini, Varun Lamba, Raghav
Chadha, Ms. Nishtha Kumar, Ms. Ira Mahajan, Advs. for the Appellant.
     Siddharth Bhatnagar, Sr. Adv., Rajesh Kumar Gautam, Anant Achuni,
Dinesh Sharma, Sumit Sharma, Krishnaraj Thaker, Ms. Pallavi Langar,
Rahul Arya, Ashish Choudhury, Ms. Pracheta Kar, Aditya Sidhra, Nadeem
Afroz, Rohit Amit Sthalekar, Advs. for the Respondents.
      EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB                            865
             NATIONAL BANK AND ANR.


      JUDGMENT / ORDER OF THE SUPREME COURT

                              JUDGMENT

     UJJAL BHUYAN, J.
     Application (I. A. No.14220 of 2022) for intervention is allowed.
      2. This appeal has been preferred under Section 62 of The Insolvency
and Bankruptcy Code, 2016 (hereinafter referred to as the ‘Code’) against
the order dated 30.11.2021 passed by the National Company Law Appellate
Tribunal, Principal Bench, New Delhi (briefly ‘the Appellate Tribunal’
hereinafter) allowing the appeal of Punjab National Bank i.e. Respondent
No.1 being Company Appeal (AT) (Insolvency) No.757 of 2021. The
aforesaid appeal was filed by the Punjab National Bank against the order
dated 12.08.2021 passed by the National Company Law Tribunal, Kolkata
Bench, Kolkata (briefly the ‘Tribunal’ hereinafter) in I.A. (IB) No.663/
KB/2021 in CP (IB) 440/KB/2018.
     3. At the outset, it would be necessary to advert to the relevant facts:-
      (i) One Huvepharma Sea (Pune) Private Limited filed an application
          under Section 9 of the Code against M/s. Amrit Feeds Limited i.e.
          corporate debtor before the Tribunal. The same was registered
          as CP(IB) No.440/KB/2018. The Tribunal passed an order dated
          22.10.2019 admitting the application filed under Section 9 of the
          Code as a result of which corporate insolvency resolution process
          of the corporate debtor commenced.
     (ii) On 19.02.2021, the Tribunal passed an order for liquidation of
          the corporate debtor. Respondent No.2 was appointed as the
          Liquidator to oversee the corporate insolvency resolution process.
     (iii) Respondent No.2 by an e-mail dated 07.06.2021 forwarded a sale
           notice dated 02.06.2021 for sale of the assets of the corporate
           debtor. 23.06.2021 was the date fixed by Respondent No.2 for
           auction sale of the assets of the corporate debtor. It appears that
           the aforesaid auction sale did not materialize. Thereafter by way
           of an e-mail dated 29.06.2021, Respondent No.2 forwarded a
866           SUPREME COURT REPORTS                         [2023] 13 S.C.R.


            similar notice dated 28.06.2021 for auction sale of the assets of
            the corporate debtor scheduled on 20.07.2021.
      (iv) It is stated that the appellant i.e., Eva Agro Feeds Private Limited
           was incorporated on 09.07.2021 under the provisions of the
           Companies Act, 2013.
      (v)   Appellant submitted its bid dated 16.07.2021 to Respondent
            No.2 on 17.07.2021 in respect of the assets of the corporate
            debtor (in liquidation). The assets put up for auction were lands
            admeasuring 1,05,250.40 sqft at Plot No.56, Khata Nos.27, 26,
            29, 36, 36 (Old) and 362/363 (New), Mouza - Deoria, Pargana
            Bhuli, Tehsil - Chunar, District - Mirzapur, Uttar Pradesh with
            building, plant and machinery and other fixed assets thereon on
            a lump sum basis as mentioned at serial No.3 of the sale notice.
      (vi) In terms of the sale notice, appellant paid the earnest money
           deposit (EMD) of Rs.1 crore in respect of the subject property.
           While the last date/time for submission of bid was 20.07.2021 at
           14:30 hours, appellant had submitted its bid on 19.07.2021 for
           a sum of Rs.10 crores which was equivalent to the reserve price
           as notified in the bid which ended at 14:30 hours on 20.07.2021.
      (vii) On 20.07.2021, appellant received an E-auction certificate from
            Respondent No.2 certifying that it had won the auction for the
            assets of the corporate debtor put up for auction sale (referred to
            hereinafter as the ‘subject property’). On 21.07.2021, appellant by
            way of an e-mail requested Respondent No.2 to issue allotment
            letter in respect of the subject property. It is stated that on
            21.07.2021 itself appellant received an e-mail of the aforesaid
            date from Respondent No.2 informing that Respondent No.2 had
            cancelled the E-auction held on 20.07.2021 under Clause 3(k)
            of the Disclaimer Clause in the E-Auction Process Information
            Document. The appellant was further informed that a fresh
            E-auction would be conducted for the subject property.
      (viii) Aggrieved by the same, appellant filed an application before
             the Tribunal under Section 60 and related provisions of the
             Code read with The Insolvency and Bankruptcy Board of India
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 867
         BANK AND ANR. [UJJAL BHUYAN, J.]

           (Liquidation Process) Regulations, 2016 as well as under Rule
           11 of the National Company Law Tribunal Rules, 2016 which
           was registered as I.A. (IB) No.663/KB/2021 in CP (IB) 440/
           KB/2018. Tribunal vide order dated 12.08.2021 disposed of
           the said application by directing the Liquidator i.e. respondent
           No.2 to send a communication to the appellant requiring him to
           deposit the balance sale consideration within the time specified
           in the E-auction notice.
     (ix) According to the appellant, Respondent No.2 complied with
          the order of the Tribunal and issued a letter to the appellant to
          deposit the balance consideration money. Pursuant to the said
          letter, appellant deposited the entire sum on 10.09.2021 following
          which Respondent No.2 issued a sale certificate dated 15.09.2021
          in respect of the subject property in favour of the appellant.
     (x)   While the Liquidator accepted the order of the Tribunal, one of
           the financial creditors i.e. Punjab National Bank (Respondent
           No.1) filed an appeal before the Appellate Tribunal under Section
           61 of the Code against the order dated 12.08.2021 passed by the
           Tribunal. The appeal was contested by the appellant. However,
           by the impugned order dated 30.11.2021, Appellate Tribunal
           allowed the appeal and set aside the order dated 12.08.2021
           passed by the Tribunal. Consequently, the steps taken pursuant to
           the said order were also reversed. Liquidator was given liberty to
           initiate fresh process of auction in accordance with the provisions
           of the Code read with The Insolvency and Bankruptcy Board
           of India (Liquidation Process) Regulations, 2016 (briefly the
           ‘Regulations’ hereinafter).
     (xi) Aggrieved, the auction purchaser as the appellant has preferred
          the present appeal.
      4. This court by order dated 10.01.2022 had issued notice and passed
an interim order staying the subsequent auction which was scheduled on
17.01.2022.
     5. Respondent No.1 - Punjab National Bank in its counter affidavit at
the outset pleaded that the appeal deserves to be dismissed at the threshold
868          SUPREME COURT REPORTS                         [2023] 13 S.C.R.


and that the impugned order of the Appellate Tribunal upholding the decision
of the Liquidator to cancel the auction sale is fully justified. Appellant was
the sole bidder and quoted exactly the reserve price. Reasoning given by
the Appellate Tribunal in paragraphs 11 to 22 of the impugned order are
just and proper and calls for no interference. In this connection, Respondent
No.1 has referred to Clause 3 (k) of the auction sale notice which says that
the Liquidator has the absolute right to accept or reject any or all the bids
or adjourn/postpone/cancel the E-auction or withdraw any asset/property or
portion thereof from the E-auction at any stage without assigning any reason.
Reliance has also been placed on Clause 5 (m) of the auction sale notice
as per which the bidder with the highest offer/bid does not get any right to
demand acceptance of its bid. It is in the above context that Respondent
No.1 has contended that the Liquidator was well within his rights to cancel
the auction sale, which decision has been rightly affirmed by the Appellate
Tribunal.
      5.1. According to Respondent No.1, it is a settled position that any
auction sale, before completion, can always be cancelled. Tribunal had
overlooked the provisions contained in Clause-13 of the Regulations which
makes it clear that auction sale shall stand completed only on payment of
full amount and not at the stage when the highest bidder is invited to provide
balance sale consideration within 90 days from the date of demand. Tribunal
relied upon Clause 12 of the Regulations as per which, on the closure of
auction, the highest bidder shall be invited to provide the balance sale
consideration within 90 days of the date of demand; first proviso mentions
that payments made after 30 days would attract interest of 12% with the
second proviso clarifying that the sale would be cancelled if the payment
is not received within 90 days. According to Respondent No.1, Tribunal by
placing reliance on Clause 12 mis-directed itself in directing the Liquidator
to send a communication to the appellant for depositing the balance sale
consideration within the time specified in the E-auction notice.
      5.2. There is no express bar or prohibition either under the Code or
under the Regulations restraining the Liquidator from cancelling an auction
sale even after declaration of the highest bidder but before completion of
sale as understood under Clause 13 of the Regulations. In the absence of
such express bar or prohibition and when the auction sale was yet to be
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 869
         BANK AND ANR. [UJJAL BHUYAN, J.]

concluded, Liquidator was well within his rights in cancelling the auction
sale with the intent to have another round of auction sale. Tribunal had erred
in interfering with such action of the Liquidator.
      5.3. Appellant had accepted the terms and conditions of the auction
sale notice while participating in the auction sale, including Clause 3 (k).
Therefore, it was not open to the appellant to question the decision of the
Liquidator to cancel the auction sale.
      5.4. Respondent No.1 has also alleged that the appellant had made
incorrect statements in the appeal and did not bring on record relevant
documents. It is stated that Respondent No.2 in his written submission
before the Tribunal had stated that he was informed by way of e-mail
dated 05.08.2021 by Kapila Krishi Udyog Pvt. Ltd. that the promoters of
the appellant were also the founder promoters of the corporate debtor. On
receipt of such e-mail, Liquidator verified the record and found that one of
the present directors of the appellant, Mr. Vijay Kumar Ghidia was a director
of the corporate debtor from its inception i.e. 22.09.1994 to 13.01.2009.
Liquidator had submitted that later on it had received letter dated 05.08.2021
from Sugna Feeds Pvt. Ltd. expressing its intention to participate in the
auction sale of the subject property. It was contended that Sugna Feeds
Pvt. Ltd. is a well-established player in the poultry feeds sector, whereas
appellant was incorporated only on 09.07.2021 i.e. after issuance of the
E-auction sale notice.
      5.5. Appellant while submitting its bid vide application dated
16.07.2021 had accepted the terms and conditions of the auction process
shared by the Liquidator which contained paragraph-7. Paragraph-7 is
specific: it mentions that applicant would adhere to the terms and conditions
of the E-Auction Process Information Document as shared by the Liquidator.
     6. Mr. Sunil Mohan Acharya- Liquidator of the corporate debtor i.e.,
Respondent No.2 has filed counter affidavit. He was appointed as Liquidator
of the corporate debtor by the Tribunal vide order dated 19.02.2021.
According to him, the admitted debts of the corporate debtor are Rs.530
Crores of which claims of financial creditors are Rs.371 Crores.
     6.1. By an E-auction notice dated 02.06.2021, the assets of the
corporate debtor being, inter alia, poultry feed farms at Lucknow (Lot
870          SUPREME COURT REPORTS                         [2023] 13 S.C.R.


No.2) and Mirzapur (Lot No.3) were put up for auction with reserve prices
of Rs.11.30 crores and Rs. 12.69 crores respectively. By an e-mail dated
07.06.2021, respondent No. 2 had forwarded the E-auction notice to the
prospective bidders, including to the appellant. However, as no bids were
received in respect of any of the assets of the corporate debtor, reserve
prices were reduced by 25% as provided in the Regulations, whereafter Lot
No.2 and Lot No.3-subject property, with revised reserve prices of Rs.8.50
crores and Rs. 10.00 crores respectively were again put up for auction vide
E-auction notice dated 28.06.2021. By an e-mail dated 29.06.2021, the
E-auction notice along with E-Auction Process Information Document were
sent to the prospective bidders, including the appellant.
      6.2. Before the date of auction on 20.07.2021, earnest money deposit
(EMD) was paid by the appellant and another intending bidder both for Lot
No.2 and the subject property. Five minutes before the scheduled closure of
bidding time there was a spurt of counter bids for Lot No.2 by the appellant
and the other bidder, taking the price from Rs.8.50 crores to Rs.14.79 crores.
The pattern of bidding in respect of Lot No.2 and the fact that the same
two entities had submitted EMD for the subject property, but the bid being
ultimately made only by the appellant led Respondent No.2 to believe that
higher bids could be received for the subject property on further re-auction.
     6.3. According to Respondent No.2, the subject property had a cost of
Rs.17.30 crores and written down book value of Rs.8.59 crores as compared
to Lot No.2, which had cost of Rs.9.28 crores and written down book value
of only Rs.2.45 crores. However, Lot No.2 was sold for Rs.14.39 crores
as against its reserve price of Rs.8.50 crores. Respondent No.2 therefore
expected a price higher than Rs.10 crores for the subject property as Lot
No.2 despite having a substantially lower worth as per the available record
had fetched bids higher than Rs.10 crores.
      6.4. For the aforesaid reasons and to maximise the value of the
subject property which would enure to the benefit of all stakeholders,
Respondent No.2 thought it prudent to explore the possibility of further
price enhancement in respect of the subject property and therefore decided
to cancel the auction for the subject property.
      6.5. In support of the above averments, Respondent No.2 has referred
to certain terms and conditions in the E-auction notice and the E-Auction
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 871
         BANK AND ANR. [UJJAL BHUYAN, J.]

Process Information Document. Clause 3(f) binds the applicant to accept
the terms of the disclaimer, which forms an integral part of the E-Auction
Process Information Document. Clause 3 (k) says that the Liquidator has the
absolute right to accept or reject any or all bids or adjourn/postpone/cancel
the E-auction or withdraw any asset/property or portion thereof from the
E-auction at any stage without assigning any reason thereof. As per Clause
5 (m), the bidder with the highest offer/bid does not get any right to demand
acceptance of his bid. Clause 5 (n) provides for intimation to be sent to the
successful bidder via e-mail. Date of sending the mail would be considered
as the date of receipt of the intimation. As per Clause 2 (h), on the close
of the auction, the highest bidder shall be invited to provide balance sale
consideration within 90 days of the date of such demand. Clause 2 (i) makes
it clear that on payment of the full amount, the sale shall stand completed.
The Liquidator shall then execute certificate of sale or sale deed to transfer
such assets and thereafter the assets shall be delivered to the highest bidder
in the manner specified in terms of the sale.
      6.6. Respondent No.2 has contended that while submitting its bid for
the subject property, the appellant was well aware of the terms and conditions
governing the sale by auction. Appellant expressly accepted the aforesaid
terms and conditions while submitting its application dated 16.07.2021 for
participating in the auction bid process. According to him, on expiry of the
time to submit bids on 20.07.2021, an auto generated e-mail from the web
portal of ‘eauctioneer.com’ was sent to the appellant stating that the bid
submitted by it was the highest.
     6.7. Thereafter, by an e-mail dated 21.07.2021, Respondent No.2
informed the appellant about cancellation of E-auction held on 20.07.2021
under Clause 3(k) of the E-Auction Process Information Document.
Appellant was advised to collect the EMD as a fresh E-auction sale was to
be conducted.
      6.8. Respondent No.2 has mentioned that he had received an e-mail
dated 10.09.2021 from one Mr. Amit Ghidia alleging that the directors of
the appellant were also the founder promoters of M/s. Amrit Feeds Limited,
the corporate debtor. On receipt of such e-mail, Respondent No.2 carried
out inspection and upon verification came to know that one of the present
directors of the appellant, Mr. Vijay Kumar Ghidia was a director and the
872           SUPREME COURT REPORTS                          [2023] 13 S.C.R.


principal shareholder of the corporate debtor during the period 22.09.1994
to 13.08.2019. Respondent No.2 has also mentioned that appellant was
incorporated only in July, 2021.
     6.9. Referring to the proceeding before the Tribunal instituted by the
appellant, he submits that the application filed by the appellant against
cancellation of the E-auction was taken up for hearing on 29.07.2021 and
concluded on the same day without giving any opportunity to Respondent
No.2 to file reply. However, the parties were permitted to file written
submissions which were duly filed by Respondent No.2.
      6.10. By order dated 12.08.2021, Tribunal allowed the application of
the appellant and directed Respondent No.2 to send a communication to
the appellant for depositing the balance sale consideration within the time
specified in the E-auction notice.
      6.11. Punjab National Bank i.e., Respondent No.1, a financial creditor
of the corporate debtor, having claims of Rs.136,61,93,948/- assailed the
order dated 12.08.2021 before the Appellate Tribunal. In such proceedings,
Respondent No.2 supported the stand of Respondent No.1. Appellate
Tribunal by order dated 30.11.2021 allowed the appeal of Punjab National
Bank and directed Respondent No.2 to initiate a fresh process of auction in
accordance with the provisions of the Code and the Regulations.
      6.12. It is stated that after the order dated 30.11.2021 was passed by the
Appellate Tribunal, Respondent No.2 had sent an e-mail dated 02.12.2021
calling upon the appellant to comply with the order of the Appellate Tribunal
and to handover peaceful possession of the subject property. As there was no
response from the appellant, Respondent No.2 made several calls to Navneet
Kumar Ghidia, Director of Eva Agro Feeds Pvt. Ltd. on his mobile phone but
the calls went unanswered. Appellant did not allow even the representative of
Respondent No.2 to enter into the subject property. That apart, representative
of Respondent No.2 had informed him that the appellant was wrongfully
removing materials and equipments from the subject property.
      6.13. It is further stated that subsequent to cancellation of the E-auction
sale of the subject property, Respondent No.2 had received a letter dated
05.08.2021 from Sugna Feeds Pvt. Ltd., a well-established player in the
poultry feeds sector, expressing its intention to participate in the auction of
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 873
         BANK AND ANR. [UJJAL BHUYAN, J.]

the subject property. It is stated that in addition to the above, respondent
No.2 had received an e-mail dated 20.08.2021 from IFFCO KISAN Delhi,
a subsidiary company of Indian Farmers Fertilisers Cooperative (IFFCO)
expressing its interest in the assets of the corporate debtor.
      6.14. In the above circumstances, Respondent No.2 has contended that
cancellation of E-auction was justified and was done in the best interest of
the stakeholders of the corporate debtor.
    7. Appellant has filed rejoinder affidavit to the counter affidavit of
Respondent No.1.
      7.1. While reiterating its contentions, appellant has stated that the
adjudicating authority i.e., the Tribunal had rightly set aside the decision
of the Liquidator (Respondent No.2). Respondent No.2 after issuing the
certificate certifying that appellant had won the auction of the subject property,
cancelled the E-auction without giving any justification or reason for such
cancellation. Referring to Clause 3 (a) of the E-Auction Process Information
Document, appellant has contended that the said clause is contrary to the
Regulations. In the facts and circumstances of the case, Respondent No.2
could not have cancelled the auction. Such act of cancellation of E-auction
was wholly illegal and arbitrary. In this connection, reliance has been
placed upon para 1(12) of Schedule I to the Regulations. Appellant was the
highest and sole bidder in the second round of auction and its bid amount
matched the reserve price as mentioned in the sale notice. Reserve price
in the first round of auction was fixed at Rs.12,69,00,000/-. However, as
the auction sale did not materialise, Respondent No.2 in the second round
reduced the reserve price in order to get bidders to at least match the reserve
price. This was done successfully by the appellant whereafter appellant was
informed that it had won the bid. Action of Respondent No.2 in cancelling
the E-auction after e-mailing the appellant that it had won the bid is a clear
case of abuse of the process.
      7.2. Respondent No.2 vide public notice dated 24.12.2021 scheduled
fresh E-auction on 17.01.2022 again fixing the reserve price in relation
to the subject property at Rs.10 crores which was the same amount as the
reserve price in the second round of bidding and which was the bid amount
of the appellant
874          SUPREME COURT REPORTS                        [2023] 13 S.C.R.


      7.3. Respondent No.1 has misinterpreted Clause 3 (k) to mean that
since full amount was not paid, it was entitled to invoke the said clause
and cancel the bid. Such a contention is wholly untenable having regard
to the overall scheme of the Regulations. No reasons were assigned by the
Liquidator while cancelling the auction process. The order cancelling the
auction being devoid of any reasons does not indicate application of mind
by the Liquidator.
     7.4. Appellant has asserted that the Liquidator i.e. Respondent No.2
had accepted the decision of the Tribunal by not filing any appeal against
the order dated 12.8.2021. Therefore, it is not open to the Liquidator to
contest the claim of the appellant.
     8. As noticed above, one Mr. Harish Bagla has filed an application
seeking intervention which we have allowed.
      9. In addition to narrating the facts and commenting thereupon, the
intervenor has averred that the principal person in control of the appellant
is one Mr. Vijay Kumar Ghidia who is a director and principal shareholder
of the appellant. Mr. Vijay Kumar Ghidia was also one of the promoter
directors and principal shareholders of the corporate debtor. Sale of any
asset of the corporate debtor could not have been conducted in favour of
a related party of the corporate debtor in view of the specific bar under
Section 29A of the Code. As a matter of fact, Mr. Vijay Kumar Ghidia is
also the maternal uncle of the intervenor who is the ex-managing director
of the corporate debtor. Mr. Vijay Kumar Ghidia therefore comes within
the meaning of ‘related party’ as defined under Sections 5(24) and 5(24A)
of the Code. Therefore, the auction sale in favour of the appellant is bad in
law and cannot be sustained.
       9.1. This aspect was also brought to the notice of Respondent No.2
i.e. the Liquidator.
      9.2. It is stated that the intervenor had filed an appeal before the
Appellate Tribunal being Company Appeal (AD) (Insolvency) No.789 of
2021. In the said appeal, an interim order was passed on 27.09.2021 directing
the parties to maintain status quo. Before the appeal of the intervenor could
be heard, the Appellate Tribunal had passed the order dated 30.11.2021
allowing the appeal of Respondent No.1 by setting aside the order of the
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 875
         BANK AND ANR. [UJJAL BHUYAN, J.]

Tribunal dated 12.08.2021. Therefore, when the appeal of the intervenor
came up for hearing before the Appellate Tribunal, the same was disposed
of vide order dated 09.12.2021 as having been rendered infructuous. When
the intervenor came to know that the appellant has filed the present appeal,
it had filed the intervention application.
      10. We have heard Mr. Neeraj Kishan Kaul, learned senior counsel for
the appellant; Mr. Rajesh Kumar Gautam, learned counsel for Respondent
No.1; Mr. Krishnaraj Thakker, learned counsel for Respondent No.2; and
Mr. Siddharth Bhatnagar, learned senior counsel for the intervenor - Mr.
Harish Bagla.
      11. Mr. Neeraj Kishan Kaul, learned senior counsel for the appellant
at the outset submits that Appellate Tribunal fell in complete error in setting
aside the order of the Tribunal and restoring the order of the Liquidator.
Adverting to the order of the Liquidator cancelling the auction sale, he
submits that the same is devoid of any reasons. Such an order is not only
arbitrary but is non est in the eye of law. There could not have been any
occasion for the Liquidator to go for a fresh auction keeping the reserve
price at the same amount of Rs.10 crores which was the bid offered by the
appellant and accepted by the Liquidator. In fact, Liquidator had declared
that the appellant had won the bid. Tribunal had rightly appreciated the
grievance of the appellant and interfered with the aforesaid order of the
Liquidator. Liquidator did not challenge the order of the Tribunal dated
12.08.2021, rather Liquidator had complied with the same by accepting
the balance sale consideration from the appellant and issuing the sale
certificate. Since Liquidator had accepted the order of the Tribunal, it was
not open for him to support Respondent No.1 or the order of the Appellate
Tribunal in the appeal filed by the appellant. He has also pointed out that at
the time of auction, Mr. Vijay Kumar Ghidia was no longer connected with
the corporate debtor having retired from the said company way back in the
year 2011. Therefore, he cannot come within the ambit of the expression
‘related party’ as defined under the Code. He submits that the present is a
fit case for setting aside the order of the Appellate Tribunal and restoring
the order of the Tribunal which as a matter of fact has been complied with
by the Liquidator.
876          SUPREME COURT REPORTS                         [2023] 13 S.C.R.


      12. Mr. Rajesh Kumar Gautam, learned counsel for Respondent
No.1 submits that appellant has failed to point out any particular provision
either in the Code or in the Regulations prohibiting the Liquidator from
cancelling the auction sale after declaring the highest bidder but before
completion of sale. Power of cancellation is available to the Liquidator under
Clause 3(k) of the auction notice. Such a power could be exercised by the
Liquidator without assigning any reason. While bidding, the appellant had
unconditionally accepted all the clauses of the auction notice, including
Clause 3(k). Therefore, the Tribunal was not justified in interfering with
such a decision of the Liquidator and further directing the Liquidator to
conclude the auction sale process. Before completion of sale, highest bidder
has no vested right for confirmation of sale in his favour. Insofar as the
maintainability of the appeal before the Appellate Tribunal is concerned,
he submits that there is no bar or prohibition restraining a financial creditor
from preferring an appeal against an order of the Tribunal since the financial
creditor is certainly an aggrieved person and has substantial interest in the
auction sale of the subject property of the corporate debtor. That apart,
under para 1(11) of Schedule I to the Regulations, the Liquidator has the
discretion to conduct multiple rounds of auction to maximize realization in
the sale of assets and to promote the best interest of the financial creditors.
He submits that reliance on para 1(13) of Schedule I to the Regulations by
learned senior counsel for the appellant is misplaced inasmuch as a sale
can be said to have been completed only on payment of the full amount
and not on declaration of a bidder as the highest bidder who in any case
has no vested right to claim confirmation of sale. He submits that appellant
is in no way prejudiced by the next round of auction which was scheduled
on 17.01.2022 but could not proceed because of the restraint imposed by
this Court. Appellant can certainly participate in the next round of auction.
      12.1. In the above context, he submits that Tribunal was not justified
in interfering with the decision of the Liquidator and therefore, Appellate
Tribunal rightly set aside the said order of the Tribunal and in restoring the
order of the Liquidator. He has referred to Clause 3 (k) of the auction notice
which confers discretion upon the Liquidator to cancel the E-auction at any
stage without assigning any reason. Adverting to the facts of the present
case, he submits that the appellant was the sole bidder and his bid amount
was exactly the same as the reserve price. It was in that context that the
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 877
         BANK AND ANR. [UJJAL BHUYAN, J.]

Liquidator decided to cancel the auction with a view to have another round
of auction to fetch a better price. There was nothing wrong or illegal in the
exercise of such discretion by the Liquidator.
      13. Mr. Krishnaraj Thakker, learned counsel for Respondent No.2 has
also adopted and reiterated the above submissions made by learned counsel
for Respondent No.1. Additionally, he submits that Liquidator had received
an e-mail dated 10.09.2021 from one Mr. Amit Ghidia informing him that
the promoter of the appellant was also the founder promoter of the corporate
debtor. Mr. Vijay Kumar Ghidia who is one of the directors of the appellant
was also a director and principal shareholder of the corporate debtor. Recent
incorporation of the appellant in the month of July 2021 also raised suspicion
about the nature of the appellant and its intentions.
     13.1. Appellant while submitting its bid had accepted the terms and
conditions of the auction process. Therefore, it is not open to the appellant
to question the exercise of discretion by the Liquidator, which is one of the
terms and conditions of the auction.
      13.2. In so far issuance of e-mail to the appellant declaring it as the
winner of the auction process is concerned, he submits that on expiry of
the time for placing of bids, an auto generated e-mail from the e-auction
website “www.eauctioneer.com” was sent to the appellant stating that the
bid submitted by it was the highest. It was an auto-generated e-mail and
cannot be construed to be the E-auction certificate. In so far acceptance of
the balance sale consideration and issuance of sale certificate is concerned,
he submits that the same was done as per the direction of the Tribunal.
      13.3. In the course of the hearing, he submitted that there were two
assets of the corporate debtor; one at Lucknow (Lot No. 2) and the other at
Mirzapur (Lot No.3). Since the assets at Lot No.2 fetched Rs.4.79 crores
more than the reserve price, Liquidator believed that the subject property
could fetch a higher amount than the reserve price of Rs.10 crores. Keeping
this in mind, he had cancelled the E-auction process.
      13.4. On the submission that Liquidator did not assail the decision of
the Tribunal and therefore had accepted the same, his contention is that in all
the proceedings Liquidator had contested the case projected by the appellant.
Now that the appeal of Respondent No.1 has been allowed by the Appellate
878           SUPREME COURT REPORTS                          [2023] 13 S.C.R.


Tribunal, Liquidator is bound by the same. He submits that decision of the
Liquidator to cancel the auction was vindicated when post cancellation of
auction, Liquidator received letter dated 05.08.2021 from Sugna Feeds
Private Limited expressing its intention to participate in the auction of the
subject property. Sugna Feeds Private Limited is a well-established player
in the poultry sector whereas appellant was incorporated after issuance of
the E-auction sale notice.
      14. Mr. Siddharth Bhatnagar, learned senior counsel appearing for
the intervenor highlighted the issue of ‘related party’. According to him,
appellant should have been disqualified from participating in the E-auction
by reason of being a ‘related party’. Promoter director of the appellant,
Mr. Vijay Kumar Ghidia, is the maternal uncle of Mr. Harish Bagla, the
intervener. Mr. Vijay Kumar Ghidia is one of the directors of the appellant.
He was also one of the promoter directors and original subscribers to
the Memorandum and Articles of Association of the corporate debtor.
Elaborating further, he submits that mother of the intervenor Smt. Chanda
Bagla is the sister of Mr. Vijay Kumar Ghidia. Intervenor has a significant
stake in the corporate debtor having held about fifty-three per cent of the
paid-up share-capital of the corporate debtor. Liquidator, therefore, should
have cancelled the auction sale notice only on the ground that appellant
is a ‘related party’ to the corporate debtor. Referring to the e-mail dated
10.09.2021, he submits that Mr. Amit Ghidia, son of Mr. Vijay Kumar Ghidia
had brought to the notice of the Liquidator that Mr. Vijay Kumar Ghidia is
the maternal uncle of the intervenor. By virtue of such relationship, appellant
would attract disqualification under Section 29A read with Section 5(24)
and Section 5(24A) of the Code.
      15. Referring to the above contentions, Mr. Neeraj Kishan Kaul,
learned senior counsel for the appellant submits that it was because of the
activities of persons like the intervenor that the corporate debtor has landed
in the present situation. Therefore, it is not open to such persons to talk about
getting proper valuation of the auctioned assets of the corporate debtor. In so
far allegation of ‘related party’ is concerned, he submits that the same is no
bar at all and cannot be held as a disqualification for the appellant inasmuch
as Mr. Vijay Kumar Ghidia had ceased to be a director of the corporate
debtor way back in the year 2011. To attract disqualification under Section
    EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 879
            BANK AND ANR. [UJJAL BHUYAN, J.]

29A, the relationship has to be proximate. In this connection, he has placed
reliance on the decision of this Court in the case of Swiss Ribbons Private
Limited and Another versus Union of India and Others1.
     16. Submissions made by learned counsel for the parties have received
due consideration of the Court.
      17. As we have noted above after initiation of the corporate insolvency
resolution process, Liquidator i.e. Respondent No.2 had issued sale notice
dated 02.06.2021 for sale of the subject property of the corporate debtor.
The reserve price of the subject property was fixed at Rs.12.69 crores,
whereas EMD was fixed at Rs.1,26,19,000.00. E-auction was scheduled
on 23.06.2021 between 14.00 to 14.30 hrs. This E-auction did not fructify
in the absence of any bidders. Thereafter, Respondent No. 2 issued second
sale notice dated 28.06.2021 for auction sale amongst others of the subject
property. This time the reserve price was scaled down to Rs.10 crores and
correspondingly, the EMD was fixed at Rs.1 crore. Last date for deposit of
EMD was 19.07.2021 and the date and time of bid was fixed as 20.07.2021 at
14.30 hrs. It was mentioned therein that the E-auction sale would be subject
to the terms and conditions prescribed in E-Auction Process Information
Document available at the website of the second Respondent.
     17.1. As it appears, appellant was the sole bidder and its bid value was
Rs.10 crores which was equivalent to the reserve price.
      18. Pausing here for a moment, we may advert to the Bid Application
Form. As per Clause-7 of the Bid Application Form, the applicant i.e. the
bidder was required to adhere to the terms and conditions mentioned in
the E-Auction Process Information Document. Clause-9 provided that the
applicant would participate in the E-auction for the sale of assets on as is
where is basis, as is what is basis, whatever there is basis and no recourse
basis. Further, if selected as the highest bidder, the bid amount would be
unconditionally binding on the applicant. Clause-12 made it clear that the
applicant would at all time adhere to the provisions of the Code and the
Regulations.



1    (2019) 4 SCC 17
880          SUPREME COURT REPORTS                          [2023] 13 S.C.R.


      19. The E-Auction Process Information Document was issued by the
Liquidator i.e. Respondent No.2 for regulating the E-auction of the subject
property of the corporate debtor. As per Clause 2 (g), unless specified
otherwise, EMD of the successful bidder would be retained towards part of
the sale consideration and EMD of unsuccessful bidder would be refunded,
which would not bear any interest. Clause 2 (h) says that in accordance with
para 1(12) of Schedule I to the Regulations, on the closure of the auction,
the highest bidder would be invited to provide balance sale consideration
within 90 days of the date of such demand. As per proviso (i) of Clause
2(h), payments made after 30 days would attract interest at the rate of 12 per
cent and as per proviso (ii) of Clause 2(h), the sale shall be cancelled if the
payment is not received within 90 days. Clause 2 (i) says that on payment
of the full amount, the sale would stand completed and the Liquidator
would execute the certificate of sale or sale deed to transfer such assets
which would be delivered to him in the manner specified in the terms of
sale. As per Clause 2(m), the information provided in the E-Auction Process
Information Document should be read together with the provisions of the
Code and the Regulations. In the event of a conflict between the E-Auction
Process Information Document and the Code or the Regulations, provisions
of the Code or the Regulations, as the case may be, would prevail. Mandate
of Clause 2(r) is that the successful bidder would have to take over possession
of the movable assets being sold under the E-auction within 15 days from
the date of the complete payment to the Liquidator without any damage to
the premises where the assets were kept.
      19.1. Clause 3 of the E-Auction Process Information Document deals
with disclaimer. While Clause 3 (a) says that the said document has been
issued by the Liquidator for general information purposes only; sub-clause
(b) clarifies that the said document is not a statutory document; it has not
been approved or registered with any regulatory or statutory authority of
Government of India or any State Government. Further, nothing relating to
the E-Auction Process Information Document should be construed as legal,
financial, accounting, regulatory or tax advice by the Liquidator. Clause 3
(f) declares that by procuring a copy of the E-Auction Process Information
Document, the recipient accepted the terms of the disclaimer, which forms an
integral part of the E-Auction Process Information Document. As per Clause
3(i), E-Auction Process Information Document is neither an agreement nor
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 881
         BANK AND ANR. [UJJAL BHUYAN, J.]

an offer by the Liquidator to the prospective bidders or any other person.
Objective of the E-Auction Process Information Document is to provide
interested parties with information that may be useful to them in making
their bids. Clause 3(k) declares that the Liquidator has absolute right to
accept or reject any or all bids or adjourn/postpone/cancel the E-auction or
withdraw any asset/property or portion thereof from the E-auction at any
stage without assigning any reason thereof. As per Clause 5(m), the highest
bid on the E-auction shall supersede all the previous bids of the respective
bidders. However, the bidder of the highest offer/bid does not get any right
to demand acceptance of his bid.
      20. On 21.07.2021, appellant received a congratulatory e-mail from the
second respondent i.e., the Liquidator. The language of this e-mail is quite
important. Appellant was informed that it had won the auction for the subject
property. The winning bidders’ order had been prepared and the item was
listed on the appellant’s web page. If the appellant had any queries, it was
advised to contact the auction administrator. When the appellant requested
Respondent No.2 for issuance of allotment letter in respect of the subject
property, it received an e-mail from the Respondent No.2 on 21.07.2021 itself
at 17:56 pm. Appellant was informed that in terms of Clause 3 (k) of the
E-Auction Process Information Document, he had cancelled the E-auction
held on 20.07.2021. Appellant was informed that the Liquidator would come
up with a fresh E-auction for sale of the subject property.
       20.1. From the aforesaid, we find that no reasons were assigned
by the Liquidator for cancellation of the E-auction held on 20.07.2021.
Appellant was simply informed that the E-auction was cancelled in terms
of Clause 3(k) of the E-Auction Process Information Document. Clause 3
(k) as discussed above only declares that the Liquidator has absolute right
to accept or reject any or all bids or adjourn/postpone/cancel the E-auction
etc., at any stage without assigning any reason therefor. We will advert to
this clause a little later.
     21. To complete the narrative, we may mention that aggrieved by such
cancellation, appellant had filed an application under Section 60 of the Code
before the Tribunal assailing such cancellation. Issue before the Tribunal was
whether the Liquidator was justified in cancelling the E-auction. Tribunal
noted that the Liquidator had cancelled the auction without assigning any
882           SUPREME COURT REPORTS                         [2023] 13 S.C.R.


reason. Though a contention was advanced by the Liquidator before the
Tribunal that the other assets (at Lucknow) of the corporate debtor put up
for auction fetched a higher price and therefore, the Liquidator chose to
cancel the auction expecting a higher price in future auction process, the
same was not accepted by the Tribunal. It would amount to comparing apples
with oranges. Tribunal further noted that there was no material on record to
support the perception of the Liquidator that cancelling the present auction
and going for further auction would result in better price for the assets in
question and that there cannot be an endless wait to obtain a better price.
Holding that there was no reason for the Liquidator to cancel the E-auction
when the earlier round of auction process did not fructify resulting in
decrease in reserve price, Tribunal vide the order dated 12.08.2021 directed
the Liquidator to send a communication to the appellant for depositing the
balance sale consideration within the time specified in the E-auction notice.
     21.1. It has come on record that following the aforesaid order of the
Tribunal, Liquidator i.e. Respondent No.2 had called upon the appellant
to pay the balance sale consideration and on payment of the same by the
appellant, issued the sale certificate to the appellant in respect of the subject
property.
       22. We may further mention that Respondent No.2, i.e. the Liquidator
did not assail the order of the Tribunal before the Appellate Tribunal. One of
the financial creditors i.e. Respondent No.1 had filed the appeal before the
Appellate Tribunal assailing the order of the Tribunal. Appellate Tribunal
by the judgment and order dated 30.11.2021 observed that appellant was
the sole bidder, its bid being equal to the reserve price. Liquidator invoked
Clause 3(k) of the E-Auction Process Information Document and decided to
cancel the auction. There was no concluded contract till that point of time;
it is only after the total amount is paid that the sale is concluded. Before the
sale can be successfully concluded, Liquidator had the right to cancel the
sale. Successful bidder in the auction sale does not acquire any vested right
in law to enforce the auction. Therefore, the Tribunal was not justified in
setting aside cancellation of auction by the Liquidator. Tribunal had further
failed to notice that the terms of the auction sale notice provided absolute
right to the Liquidator to accept or reject any bid or to cancel the auction
without assigning any reason. While setting aside the order of the Tribunal
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 883
         BANK AND ANR. [UJJAL BHUYAN, J.]

as well as the steps taken in compliance thereto, Appellate Tribunal gave
liberty to the Liquidator to initiate fresh process of auction. Pursuant thereto,
Liquidator i.e. Respondent No.2 had issued a subsequent sale notice dated
24.12.2021 for E-auction sale of the subject property, the date of auction
being 17.01.2022. Interestingly, in this round of auction, the reserve price
was also maintained at Rs.10 crores. As we have noticed above, this Court
by order dated 10.01.2022 while issuing notice had stayed the auction
scheduled on 17.01.2022.
      23. Section-5 of the Code deals with the definition of various
expressions used in the Code. As per section 5(18), ‘Liquidator’ means an
insolvency professional appointed as a liquidator in accordance with the
provisions of Chapter III or Chapter V of Part I of the Code, as the case
may be. Chapter III deals with liquidation process, whereas Chapter V deals
with voluntary liquidation of corporate persons. Section 34, which is under
Chapter III, provides for appointment of Liquidator and the fee to be paid.
Sub-section (1) of Section 34 says that where an adjudicating authority
passes an order for liquidation of the corporate debtor under Section 33, the
resolution professional appointed for the corporate insolvency resolution
process shall, subject to submission of written consent, act as the Liquidator
for the purposes of liquidation unless replaced by the adjudicating authority.
As per sub-section (2), on the appointment of a Liquidator under Section 34
all powers of the board of directors, key managerial personnel and partners
of the corporate debtor, as the case may be, shall cease to have effect and
shall be vested in the Liquidator. Sub-section (3) requires personnel of the
corporate debtor to extend all assistance and cooperation to the Liquidator
in managing the affairs of the corporate debtor. Sub-sections (4) to (7) deal
with replacement of a resolution professional whereas sub-sections (8) and
(9) deal with fees to be charged by the Liquidator.
      23.1. Powers and duties of Liquidator are provided in Section 35 of
the Code. Sub-section (1) enumerates the various powers and duties that
has to be performed and discharged by the Liquidator. Clause (f) says that
the Liquidator has the power and duty to sell the immovable and movable
properties and actionable claims of the corporate debtor in liquidation by
public auction or private contract, with power to transfer such property to
any person or body corporate, or to sell the same in parcels in such manner
884           SUPREME COURT REPORTS                           [2023] 13 S.C.R.


as may be specified. As per the proviso, the Liquidator shall not sell the
immovable and movable properties or actionable claims of the corporate
debtor in liquidation to any person who is not eligible to be a resolution
applicant.
      23.2. As per Section 36, for the purpose of liquidation, the Liquidator
shall form an estate of the assets to be called the liquidation estate in relation
to the corporate debtor and shall hold the liquidation estate as a fiduciary
for the benefit of all the creditors.
     23.3. In addition to the above, there are various other powers and
duties of the Liquidator.
      24. From a conjoint reading of the above provisions, it is evident
that the Liquidator virtually steps into the shoes of the management of the
corporate debtor and oversees the liquidation process. In this process, he
holds the liquidation estate of the corporate debtor as a fiduciary for the
benefit of all the creditors. While overseeing the liquidation process, he has
the mandate to sell all movable and immovable properties and actionable
claims of the corporate debtor in liquidation by way of either public auction
or by private contract, though he cannot sell such property or claims to any
person who is not eligible to be a resolution applicant.
      25. While we are on the powers and duties of the Liquidator, it would
be apposite to refer to certain provisions of the Regulations framed in
exercise of the powers conferred by Section 5 and other sections of the
Code read with Section 240 of the Code as per which the Insolvency and
Bankruptcy Board of India may make regulations to carry out provisions of
the Code. Regulation 3 deals with eligibility for appointment as Liquidator.
As per Regulation 3(1), an insolvency professional shall be eligible to be
appointed as a Liquidator if he and every partner or director of the insolvency
professional entity of which he is a partner or director is independent of the
corporate debtor. Explanation below Regulation 3 (1) explains as to who
are the persons considered independent of the corporate debtor. As per
Explanation (b), a person shall be considered independent of the corporate
debtor if he is not a related party of the corporate debtor.
     25.1. Regulation 5 says that the Liquidator shall prepare and submit
various reports to the adjudicating authority (Tribunal) regarding the
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 885
         BANK AND ANR. [UJJAL BHUYAN, J.]

liquidation process. If in this process the books of account of the corporate
debtor are incomplete on the liquidation commencement date, the Liquidator
under Regulation 6 shall have them completed and brought up to date. That
apart, the Liquidator is required to maintain various registers and books in
relation to the liquidation of the corporate debtor. In addition to that, as per
Regulation 7, he may appoint a professional to assist him in discharging his
duties, obligations and functions. However, those professionals should not
be his relative or related party of the corporate debtor or has served as an
auditor to the corporate debtor in the preceding five years. Under Regulation
8, the Liquidator is required to engage in consultation with the stakeholders
and the stakeholders consulted under Section 35 (2) of the Code shall extend
all assistance and cooperation to the Liquidator to complete the liquidation
of the corporate debtor.
     25.2. Regulation 32 empowers the Liquidator to sell the assets of
the corporate debtor. Mode of sale is referred to in Regulation 33. As
per Regulation 33(1), the Liquidator shall ordinarily sell the assets of the
corporate debtor through an auction in the manner specified in Schedule I.
      26. This brings us to Schedule I of the Regulations dealing with mode
of sale. Para 1 lays down the steps to be taken for auction sale of an asset by
the Liquidator. The steps to be taken are mentioned in paras 1(2) to 1(13).
As per para 1(3), the Liquidator shall prepare terms and conditions of sale,
including reserve price, earnest money deposit (EMD) as well as pre-bid
qualifications, if any. The second proviso clarifies that EMD shall not exceed
10 per cent of the reserve price, which as per para 1(4) shall be the value
of the asset arrived at in accordance with Regulation 35.
      27. Reverting to Regulation 35, we may mention that as per sub-
Regulation (1) of the aforesaid provision, the Liquidator shall consider the
average of the estimates of the values arrived under Regulation 35. As per
sub-Regulation (2), in cases not covered under sub-Regulation (1) or where
the Liquidator is of the opinion that fresh valuation is required under the
circumstances, he shall within seven days of the liquidation commencement
date, appoint two registered valuers to determine the realisable value of the
assets or the businesses of the corporate debtor. The first proviso mentions
certain persons who should not be appointed as registered valuers, such
as, a relative of the Liquidator; a related party of the corporate debtor etc.
886           SUPREME COURT REPORTS                          [2023] 13 S.C.R.


Sub-Regulation (3) says that the registered valuers appointed under sub-
Regulation (2) shall independently submit to the Liquidator the estimates of
realisable value of the assets or the businesses, as the case may be, computed
in accordance with the Companies (Registered Valuers and Valuation) Rules,
2017 after physical verification of the assets of the corporate debtor. Sub-
Regulation (4) provides that the average of the two estimates received under
sub-Regulation (3) shall be taken as the value of the assets or businesses.
      28. Coming back to Schedule-I, we find that as per para 1(4A), where
an auction fails at the reserve price, the Liquidator may reduce the price by
up to 25% of such value to conduct subsequent auction.
      28.1. Paras 1(11), (11A), (12) and (13) of Schedule-I are relevant
since much emphasis has been placed by learned counsel for the parties on
these provisions. As per para 1(11), if it is required, Liquidator may conduct
multiple rounds of auction to maximize the realization from the sale of the
assets and to promote the best interest of the creditors. Para 1(11A) says that
where the Liquidator rejects the highest bid in an auction process, he shall
intimate the reasons for such rejection to the highest bidder and mention it in
the next progress report. While learned senior counsel for the appellant has
laid great emphasis on this provision on the basis of which he has assailed
the unreasoned cancellation of the bid of the appellant, learned senior
counsel for the intervenor has pointed out that para 1(11A) was inserted in
Schedule I vide notification dated 30.09.2021 with effect from 30.09.2021.
According to him, this provision is prospective and cannot be applied to
auctions conducted prior to 30.09.2021, including the auction in question.
Therefore, there was no requirement for the Liquidator to give reasons for
cancellation of the bid of the appellant.
      29. We are afraid we cannot accept such a contention made on behalf
of the intervenor. While it is true that para 1(11A) came to be inserted in
Schedule 1 to the Regulations with effect from 30.09.2021, it does not imply
that an auction sale or the highest bid prior to the aforesaid date could be
cancelled by the Liquidator exercising unfettered discretion and without
furnishing any reason. It is trite law that furnishing of reasons is an important
aspect rather a check on the arbitrary exercise of power. Furnishing of reasons
presupposes application of mind to the relevant factors and consideration by
the concerned authority before passing an order. Absence of reasons may be a
    EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 887
            BANK AND ANR. [UJJAL BHUYAN, J.]

good reason to draw inference that the decision making process was arbitrary.
Therefore, what para 1(11A) has done is to give statutory recognition to the
requirement for furnishing reasons, if the Liquidator wishes to reject the bid
of the highest bidder. Furnishing of reasons, which is an integral facet of the
principles of natural justice, is embedded in a provision or action, whereby
the highest bid is rejected by the Liquidator. Thus, what para 1(11A) has
done is to give statutory recognition to this well-established principle. It
has made explicit what was implicit.
      30. In S. N. Mukherjee versus Union of India2, this Court opined that
the requirement to record reason can be regarded as one of the principles of
natural justice which governs exercise of power by administrative authorities.
The rules of natural justice are not embodied rules. The extent of their
application depends upon the particular statutory framework whereunder
jurisdiction has been conferred on the administrative authority. Except in
cases where the requirement of recording reasons has been dispensed with
expressly or by necessary implication, an administrative authority exercising
judicial or quasi-judicial functions is required to record the reasons for its
decision. This Court held as follows: -
       39. The object underlying the rules of natural justice “is to prevent
       miscarriage of justice” and secure “fair play in action”. As pointed out
       earlier the requirement about recording of reasons for its decision by
       an administrative authority exercising quasi-judicial functions achieves
       this object by excluding chances of arbitrariness and ensuring a degree
       of fairness in the process of decision-making. Keeping in view the
       expanding horizon of the principles of natural justice, we are of the
       opinion, that the requirement to record reason can be regarded as one
       of the principles of natural justice which govern exercise of power by
       administrative authorities. The rules of natural justice are not embodied
       rules. The extent of their application depends upon the particular
       statutory framework whereunder jurisdiction has been conferred on
       the administrative authority. With regard to the exercise of a particular
       power by an administrative authority including exercise of judicial or
       quasi-judicial functions the legislature, while conferring the said power,


2    (1990) 4 SCC 594
888            SUPREME COURT REPORTS                           [2023] 13 S.C.R.


       may feel that it would not be in the larger public interest that the reasons
       for the order passed by the administrative authority be recorded in the
       order and be communicated to the aggrieved party and it may dispense
       with such a requirement. It may do so by making an express provision
       to that effect as those contained in the Administrative Procedure Act,
       1946 of U.S.A. and the Administrative Decisions (Judicial Review)
       Act, 1977 of Australia whereby the orders passed by certain specified
       authorities are excluded from the ambit of the enactment. Such an
       exclusion can also arise by necessary implication from the nature of
       the subject matter, the scheme and the provisions of the enactment.
       The public interest underlying such a provision would outweigh the
       salutary purpose served by the requirement to record the reasons. The
       said requirement cannot, therefore, be insisted upon in such a case.
       40. For the reasons aforesaid, it must be concluded that except in
       cases where the requirement has been dispensed with expressly or by
       necessary implication, an administrative authority exercising judicial
       or quasi-judicial functions is required to record the reasons for its
       decision.
      31. This Court in State of Orissa versus Dhaniram Luhar3 reiterated
the importance of furnishing reasons in decision making, be it administrative,
quasi-judicial or judicial. It was in that context that this Court opined that
reason is the heartbeat of every conclusion, and without the same it becomes
lifeless. Reasons are live links between the mind of the decision-taker and
the decision or conclusion arrived at. Reasons substitute subjectivity by
objectivity. One of the salutary requirements of natural justice is spelling
out reasons for an order made; in other words, a speaking out. This is what
has been opined in paragraph Nos. 7 and 8:
       7. Reason is the heartbeat of every conclusion, and without the same
       it becomes lifeless. (See Raj Kishore Jha v. State of Bihar [(2003) 11
       SCC 519 : 2004 SCC (Cri) 212 : (2003) 7 Supreme 152] .)
       8. Even in respect of administrative orders Lord Denning, M.R.
       in Breen v. Amalgamated Engg. Union [(1971) 1 All ER 1148 : (1971)


3     (2004) 5 SCC 568
    EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 889
            BANK AND ANR. [UJJAL BHUYAN, J.]

       2 QB 175 : (1971) 2 WLR 742 (CA)] observed: “The giving of reasons
       is one of the fundamentals of good administration.” In Alexander
       Machinery (Dudley) Ltd. v. Crabtree [1974 ICR 120 (NIRC)] it was
       observed: “Failure to give reasons amounts to denial of justice.”
       “Reasons are live links between the mind of the decision-taker to
       the controversy in question and the decision or conclusion arrived
       at.” Reasons substitute subjectivity by objectivity. The emphasis on
       recording reasons is that if the decision reveals the “inscrutable face
       of the sphinx”, it can, by its silence, render it virtually impossible for
       the courts to perform their appellate function or exercise the power
       of judicial review in adjudging the validity of the decision. Right to
       reason is an indispensable part of a sound judicial system; reasons at
       least sufficient to indicate an application of mind to the matter before
       court. Another rationale is that the affected party can know why the
       decision has gone against him. One of the salutary requirements of
       natural justice is spelling out reasons for the order made; in other
       words, a speaking-out. The “inscrutable face of the sphinx” is ordinarily
       incongruous with a judicial or quasi-judicial performance.”
      32. Again, in East Coast Railway versus Mahadev Appa Rao4, this
Court observed that arbitrariness in the making of an order by an authority
can manifest itself in different forms. Non-application of mind by the
authority making the order is only one of them. Application of mind is best
demonstrated by disclosure of mind by the authority making the order and
disclosure is best done by recording the reasons that led the authority to
pass the order in question. Absence of reasons either in the order passed
by the authority or in the record contemporaneously maintained is clearly
suggestive of the order being arbitrary, hence legally unsustainable. The
above observations of this Court find place in paragraph No.23 which is
extracted hereinunder:
       23. Arbitrariness in the making of an order by an authority can manifest
       itself in different forms. Non-application of mind by the authority
       making the order is only one of them. Every order passed by a public
       authority must disclose due and proper application of mind by the


4    (2010) 7 SCC 678
890            SUPREME COURT REPORTS                         [2023] 13 S.C.R.


       person making the order. This may be evident from the order itself
       or the record contemporaneously maintained. Application of mind is
       best demonstrated by disclosure of mind by the authority making the
       order. And disclosure is best done by recording the reasons that led the
       authority to pass the order in question. Absence of reasons either in
       the order passed by the authority or in the record contemporaneously
       maintained is clearly suggestive of the order being arbitrary hence
       legally unsustainable.
      33. This position has been reiterated by this Court in Kranti Associates
(P) Ltd. Versus Masood Ahmed Khan 5, wherein this Court emphasized
that an order passed by a quasi-judicial authority or even an administrative
authority affecting the rights of parties, must be a speaking order. In other
words, the order must speak for itself. This Court held as follows: -
       12.The necessity of giving reason by a body or authority in support
       of its decision came up for consideration before this Court in several
       cases. Initially this Court recognised a sort of demarcation between
       administrative orders and quasi-judicial orders but with the passage of
       time the distinction between the two got blurred and thinned out and
       virtually reached a vanishing point in the judgment of this Court in A.K.
       Kraipak v. Union of India [(1969) 2 SCC 262 : AIR 1970 SC 150] .
       13. In Keshav Mills Co. Ltd. v. Union of India [(1973) 1 SCC 380 : AIR
       1973 SC 389] this Court approvingly referred to the opinion of Lord
       Denning in R. v. Gaming Board for Great Britain, ex p Benaim [(1970)
       2 QB 417 : (1970) 2 WLR 1009 : (1970) 2 All ER 528 (CA)] and quoted
       him as saying “that heresy was scotched in Ridge v. Baldwin [1964
       AC 40 : (1963) 2 WLR 935 : (1963) 2 All ER 66 (HL)] ”.
       14. The expression “speaking order” was first coined by Lord
       Chancellor Earl Cairns in a rather strange context. The Lord Chancellor,
       while explaining the ambit of the writ of certiorari, referred to orders
       with errors on the face of the record and pointed out that an order with
       errors on its face, is a speaking order. (See pp. 1878-97, Vol. 4, Appeal
       Cases 30 at 40 of the Report).


5     (2010) 9 SCC 496
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 891
         BANK AND ANR. [UJJAL BHUYAN, J.]

     15. This Court always opined that the face of an order passed by a
     quasi-judicial authority or even an administrative authority affecting
     the rights of parties, must speak. It must not be like the “inscrutable
     face of a sphinx”.
      34. Having discussed the above, we may again advert to the impugned
e-mail dated 21.07.2021, as per which Liquidator informed the appellant that
in terms of Clause 3(k) of the E-Auction Process Information Document he
had cancelled the E-auction held on 20.07.2021. As we have already noted,
Clause 3(k) of the E-Auction Process Information Document simply says
that the Liquidator has absolute right to accept or reject any or all bids or
adjourn/postpone/cancel the E-auction or withdraw any asset/ property
or portion thereof from the E-auction at any stage without assigning any
reason thereof. While the Liquidator has traced his authority to the aforesaid
provision, we may mention that as per Clause 2(m), the information
provided in the E-Auction Process Information Document should be read
together with the provisions of the Code and the Regulations. In the event
of a conflict between the E-Auction Process Information Document and the
Code or the Regulations, the provisions of the Code or the Regulations, as
the case may be, shall always prevail. That apart, Clause 3(i) clarifies that
the E-Auction Process Information Document is neither an agreement nor
an offer by the Liquidator to the prospective bidders or any other person.
The objective of the E-Auction Process Information Document is to provide
information to the interested party to enable it to offer its bid. As per Clause
5(n) the bidder with the highest offer/bid does not get any right to demand
acceptance of his bid.
      34.1. A conjoint reading of the aforesaid provisions would make it clear
that while the highest bidder has no indefeasible right to demand acceptance
of his bid, the Liquidator if he does not want to accept the bid of the highest
bidder has to apply his mind to the relevant factors. Such application of
mind must be visible or manifest in the rejection order itself. As this Court
has emphasized the importance and necessity of furnishing reasons while
taking a decision affecting the rights of parties, it is incomprehensible that an
administrative authority can take a decision without disclosing the reasons
for taking such a decision.
892            SUPREME COURT REPORTS                         [2023] 13 S.C.R.


       35. It follows therefore that though para 1(11A) has been inserted in
Schedule I to the Regulations w.e.f. 30.9.20221, it only recognizes the need
and necessity for giving reasons in the event of rejecting the highest bid.
It is an acknowledgment of the fundamental principle. Thus, intimation of
the reasons for rejection of the highest bid would also be the requirement
prior to 30.09.2021.
      36. In so far the present case is concerned, we have already noted the
language employed by the Liquidator at the end of the bidding process. Vide
the e-mail dated 21.07.2021 the appellant was informed that it had won the
auction and that its winning order had been prepared. The language of this
e-mail clearly indicates finality of the decision making by the Liquidator.
      37. As per para 1(12) of Schedule-I, on the close of the auction the
highest bidder shall be invited to provide balance sale consideration within
90 days of the date of such demand. As per the first proviso, payments made
after 30 days shall attract interest @ 12%. The second proviso says that the
sale shall be cancelled if the payment is not received within 90 days.
     37.1 Para 1(13) says that on payment of the full amount the sale shall
stand completed. The Liquidator shall execute the certificate of sale or sale
deed to transfer such assets and the assets shall be delivered to the successful
bidder in the manner specified in the terms of sale.
      38. Therefore, if we read the provisions of Schedule-I, more particularly
paras 1(11) to (13) thereof, in a conjoint manner a view may reasonably
be taken that ordinarily the highest bid may be accepted by the Liquidator
unless there are statutory infirmities in the bidding or the bidding is collusive
in nature or there is an element of fraud in the bidding process.
      39. In Valji Khimji and Company Versus Official Liquidator of
Hindustan Nitro Product (Gujarat) Limited and Others6, this Court
deprecated entertaining objections after confirmation of sale. Entertaining
of objections after the sale is confirmed should not ordinarily be allowed,
except on very limited grounds like fraud. Otherwise, no auction-sale will
ever be complete. In the facts of that case, this Court noted that it was an open
auction after wide publicity. There was no allegation of fraud in the auction.


6     (2008) 9 SCC 299
    EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 893
            BANK AND ANR. [UJJAL BHUYAN, J.]

Therefore, there was no justification to set aside the confirmation of sale.
It was opined that if every confirmed sale can be set aside the result would
be that no auction-sale will ever be completed because always somebody
can come after the auction or its confirmation offering a higher amount.
      40. K. Kumara Gupta Versus Sri Markendaya and Sri Omkareswara
Swamy Temple and Ors.7, is a case relating to auctioning of land belonging
to the Devasthanam. This Court opined that unless and until it was found
that there was any material irregularity and/or illegality in holding the public
auction and/or the auction sale was vitiated by any fraud or collusion it is
not open to set aside the auction or sale in favour of the highest bidder on
the basis of some representations made by a third party who did not even
participate in the auction proceedings and did not make any offer. If there
is repeated interference in the auction process, the object and purpose of
holding public auction and the sanctity of public auction would be frustrated.
This Court in paragraph 23 of the judgment held that unless there are
allegations of fraud, collusion etc., the highest offer received in the public
auction should be accepted as a fair value. Otherwise, there shall not be any
sanctity of a public auction.
      41. It is interesting to note that insofar the present case is concerned,
even after cancelling the highest bid of the appellant, in the subsequent
sale notice dated 24.12.2021, Respondent No.2 i.e. the Liquidator had
again fixed the reserve price of the subject property at Rs.10 crores which
was the reserve price in the previous round of auction sale and which was
also the bid value of the appellant. If this is the position, we fail to find any
rationale or justification in rejecting the bid of the appellant and going for
another round of auction at the same reserve price.
      42. Thus, mere expectation of the Liquidator that a still higher price
may be obtained can be no good ground to cancel an otherwise valid auction
and go for another round of auction. Such a cause of action would not only
lead to incurring of avoidable expenses but also erode credibility of the
auction process itself. That apart, post auction it is not open to the Liquidator
to act on third party communication and cancel an auction, unless it is found
that fraud or collusion had vitiated the auction. The necessary corollary that


7    (2022) 5 SCC 710
894           SUPREME COURT REPORTS                         [2023] 13 S.C.R.


follows therefrom is that there can be no absolute or unfettered discretion
on the part of the Liquidator to cancel an auction which is otherwise valid.
As it is in an administrative framework governed by the rule of law there
can be no absolute or unfettered discretion of the Liquidator. Further, upon
a thorough analysis of all the provisions concerning the Liquidator it is
evident that the Liquidator is vested with a host of duties, functions and
powers to oversee the liquidation process in which he is not to act in any
adversarial manner while ensuring that the auction process is carried out
in accordance with law and to the benefit of all the stakeholders. Merely
because the 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. Tribunal had rightly held that there were
no objective materials before the Liquidator to cancel the auction process
and to opt for another round of auction.
      43. Learned senior counsel for the intervenor argued that Shri Vijay
Kumar Ghidia who is the director and principal shareholder of the appellant
was also one of the promotor director and principal shareholder of the
corporate debtor. Therefore, he is a ‘related party’ of the corporate debtor
and as such is not eligible; rather debarred from participating in the auction
of the subject property of the corporate debtor. However, it was pointed out
by learned senior counsel for the appellant that Shri Vijay Kumar Ghidia is
no longer connected with the corporate debtor having retired from the said
company way back in the year 2011.
     44. At this stage, we may advert to Section 5(24) of the Code which
defines the expression ‘related party’ in relation to a corporate debtor. Section
5(24) reads as follows:-
      5. Definitions – In this part, unless the context other requires, -
      (24) “related party”, in relation to a corporate debtor, means—
           (a) a director or partner of the corporate debtor or a relative of a
           director or partner of the corporate debtor;
           (b) a key managerial personnel of the corporate debtor or a
           relative of a key managerial personnel of the corporate debtor;
EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 895
        BANK AND ANR. [UJJAL BHUYAN, J.]

       (c) a limited liability partnership or a partnership firm in which
       a director, partner, or manager of the corporate debtor or his
       relative is a partner;
       (d) a private company in which a director, partner or manager
       of the corporate debtor is a director and holds along with his
       relatives, more than two per cent of its share capital;
       (e) a public company in which a director, partner or manager of
       the corporate debtor is a director and holds along with relatives,
       more than two per cent of its paid-up share capital;
       (f) anybody corporate whose board of directors, managing
       director or manager, in the ordinary course of business, acts on
       the advice, directions or instructions of a director, partner or
       manager of the corporate debtor;
       (g) any limited liability partnership or a partnership firm whose
       partners or employees in the ordinary course of business, acts
       on the advice, directions or instructions of a director, partner or
       manager of the corporate debtor;
       (h) any person on whose advice, directions or instructions, a
       director, partner or manager of the corporate debtor is accustomed
       to act;
       (i) a body corporate which is a holding, subsidiary or an associate
       company of the corporate debtor, or a subsidiary of a holding
       company to which the corporate debtor is a subsidiary;
       (j) any person who controls more than twenty per cent of voting
       rights in the corporate debtor on account of ownership or a voting
       agreement;
       (k) any person in whom the corporate debtor controls more than
       twenty per cent of voting rights on account of ownership or a
       voting agreement;
       (l) any person who can control the composition of the board
       of directors or corresponding governing body of the corporate
       debtor;
896          SUPREME COURT REPORTS                          [2023] 13 S.C.R.


           (m) any person who is associated with the corporate debtor on
           account of—
                 (i) participation in policy-making processes of the corporate
                 debtor; or
                 (ii) having more than two directors in common between
                 the corporate debtor and such person; or
                 (iii) interchange of managerial personnel between the
                 corporate debtor and such person; or
                 (iv) provision of essential technical information to, or from,
                 the corporate debtor;
      44.1 Clause (a) of Section 5(24) says that a director or partner of
the corporate debtor or a relative of a director or partner of the corporate
debtor would be a related party. Likewise, as per Clause (e) of Section
5(24), ‘related party’ in relation to a corporate debtor would mean a private
or public company in which a director, partner or manager of the corporate
debtor is a director and holds along with relatives more than two percent of
its share capital or paid-up share capital, as the case may be.
     45. Similarly, Section 5(24A) defines ‘related party’ in relation to an
individual which is as follows: -
      5. Definitions – In this Part, unless the context otherwise requires,-
      (24A) “related party”, in relation to an individual, means—
      (a) a person who is a relative of the individual or a relative of the
      spouse of the individual;
      (b) a partner of a limited liability partnership, or a limited liability
      partnership or a partnership firm, in which the individual is a partner;
      (c) a person who is a trustee of a trust in which the beneficiary of the
      trust includes the individual, or the terms of the trust confers a power
      on the trustee which may be exercised for the benefit of the individual;
      (d) a private company in which the individual is a director and holds
      along with his relatives, more than two per cent. of its share capital;
EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 897
        BANK AND ANR. [UJJAL BHUYAN, J.]

   (e) a public company in which the individual is a director and holds
   along with relatives, more than two per cent. of its paid-up share capital;
   (f) a body corporate whose board of directors, managing director
   or manager, in the ordinary course of business, acts on the advice,
   directions or instructions of the individual;
   (g) a limited liability partnership or a partnership firm whose partners
   or employees in the ordinary course of business, act on the advice,
   directions or instructions of the individual;
   (h) a person on whose advice, directions or instructions, the individual
   is accustomed to act;
   (i) a company, where the individual or the individual along with its
   related party, own more than fifty per cent. of the share capital of the
   company or controls the appointment of the board of directors of the
   company.
   Explanation.—For the purposes of this clause,—
   (a) “relative”, with reference to any person, means anyone who is
   related to another, in the following manner, namely—
   (i) members of a Hindu Undivided Family,
   (ii) husband,
   (iii) wife,
   (iv) father,
   (v) mother,
   (vi) son,
   (vii) daughter,
   (viii) son’s daughter and son,
   (ix) daughter’s daughter and son,
   (x) grandson’s daughter and son,
   (xi) granddaughter’s daughter and son,
   (xii) brother,
898            SUPREME COURT REPORTS                        [2023] 13 S.C.R.


      (xiii) sister,
      (xiv) brother’s son and daughter,
      (xv) sister’s son and daughter,
      (xvi) father’s father and mother,
      (xvii) mother’s father and mother,
      (xviii) father’s brother and sister,
      (xix) mother’s brother and sister, and
      (b) wherever the relation is that of a son, daughter, sister or brother,
      their spouses shall also be included;]
      45.1. From the above, it is evident that a person who is a relative of the
individual or a relative of the spouse of the individual would be a ‘related
party’ in relation to that individual. That apart, a private company or a public
company in which the individual is a director and holds along with relatives
more than two percent of its share capital or paid up share capital, as the
case may be, would be a ‘related party’ in relation to an individual. Further,
as per the explanation, both maternal and paternal uncles would be covered
within the definition of ‘related party’.
     46. Section 29A of the Code mentions persons not eligible to be a
resolution applicant. Section 29A reads as follows: -
      29-A. Persons not eligible to be resolution applicant.—A person
      shall not be eligible to submit a resolution plan, if such person, or any
      other person acting jointly or in concert with such person,—
      (a) is an undischarged insolvent;
      (b) is a wilful defaulter in accordance with the guidelines of the Reserve
      Bank of India issued under the Banking Regulation Act, 1949 (10 of
      1949);
      (c) [at the time of submission of the resolution plan has an account,]
      or an account of a corporate debtor under the management or control
      of such person or of whom such person is a promoter, classified as
      non-performing asset in accordance with the guidelines of the Reserve
      Bank of India issued under the Banking Regulation Act, 1949 (10 of
      1949) [or the guidelines of a financial sector regulator issued under
EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 899
        BANK AND ANR. [UJJAL BHUYAN, J.]

   any other law for the time being in force,] and at least a period of
   one year has lapsed from the date of such classification till the date
   of commencement of the corporate insolvency resolution process of
   the corporate debtor:
   Provided that the person shall be eligible to submit a resolution plan
   if such person makes payment of all overdue amounts with interest
   thereon and charges relating to non-performing asset accounts before
   submission of resolution plan:
   [Provided further that nothing in this clause shall apply to a resolution
   applicant where such applicant is a financial entity and is not a related
   party to the corporate debtor.
   Explanation I.—For the purposes of this proviso, the expression
   “related party” shall not include a financial entity, regulated by a
   financial sector regulator, if it is a financial creditor of the corporate
   debtor and is a related party of the corporate debtor solely on account
   of conversion or substitution of debt into equity shares or instruments
   convertible into equity shares [or completion of such transactions
   as may be prescribed,] prior to the insolvency commencement date.
   Explanation II.—For the purposes of this clause, where a resolution
   applicant has an account, or an account of a corporate debtor under
   the management or control of such person or of whom such person is
   a promoter, classified as non-performing asset and such account was
   acquired pursuant to a prior resolution plan approved under this Code,
   then, the provisions of this clause shall not apply to such resolution
   applicant for a period of three years from the date of approval of such
   resolution plan by the Adjudicating Authority under this Code;]
   [(d) has been convicted for any offence punishable with imprisonment—
   (i) for two years or more under any Act specified under the Twelfth
   Schedule; or
   (ii) for seven years or more under any other law for the time being
   in force:
   Provided that this clause shall not apply to a person after the expiry of
   a period of two years from the date of his release from imprisonment:
900           SUPREME COURT REPORTS                         [2023] 13 S.C.R.


      Provided further that this clause shall not apply in relation to a
      connected person referred to in clause (iii) of Explanation I;]
      (e) is disqualified to act as a director under the Companies Act, 2013
      (18 of 2013):
       [Provided that this clause shall not apply in relation to a connected
      person referred to in clause (iii) of Explanation I;]
      (f) is prohibited by the Securities and Exchange Board of India from
      trading in securities or accessing the securities markets;
      (g) has been a promoter or in the management or control of a corporate
      debtor in which a preferential transaction, undervalued transaction,
      extortionate credit transaction or fraudulent transaction has taken place
      and in respect of which an order has been made by the Adjudicating
      Authority under this Code:
       [Provided that this clause shall not apply if a preferential transaction,
      undervalued transaction, extortionate credit transaction or fraudulent
      transaction has taken place prior to the acquisition of the corporate
      debtor by the resolution applicant pursuant to a resolution plan
      approved under this Code or pursuant to a scheme or plan approved by
      a financial sector regulator or a court, and such resolution applicant has
      not otherwise contributed to the preferential transaction, undervalued
      transaction, extortionate credit transaction or fraudulent transaction;]
      (h) has executed [a guarantee] in favour of a creditor in respect of a
      corporate debtor against which an application for insolvency resolution
      made by such creditor has been admitted under this Code [and such
      guarantee has been invoked by the creditor and remains unpaid in
      full or part];
      (i) [is] subject to any disability, corresponding to clauses (a) to (h),
      under any law in a jurisdiction outside India; or
      (j) has a connected person not eligible under clauses (a) to (i).
      Explanation [I].—For the purposes of this clause, the expression
      “connected person” means—
    EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 901
            BANK AND ANR. [UJJAL BHUYAN, J.]

       (i) any person who is the promoter or in the management or control
       of the resolution applicant; or
       (ii) any person who shall be the promoter or in management or control
       of the business of the corporate debtor during the implementation of
       the resolution plan; or
       (iii) the holding company, subsidiary company, associate company or
       related party of a person referred to in clauses (i) and (ii).
       *          *             *              *              *           *
      46.1. Thus, as per Section 29A(g), a person shall not be eligible to
submit a resolution plan if such person or any other person acting jointly or
in concert with such person has been a promoter or in the management or
control of a corporate debtor in which a preferential transaction, undervalued
transaction, extortionate credit transaction or fraudulent transaction has taken
place and in respect of which an order has been made by the adjudicating
authority. Clause (j) says that a person shall not be eligible to submit a
resolution plan if such person or any other person acting jointly or in concert
with such person has a connected person not eligible under Clauses (a) to
(i). As per Explanation (i), the expression ‘connected person’ means-(i)
any person who is the promoter or in the management or control of the
resolution applicant; or (ii) any person who shall be the promoter or in the
management or control of the business of the corporate debtor during the
implementation of the resolution plan; etc.
      47. The expression ‘related party’ appearing in Sections 5(24) and
(24A) suffering ineligibility under Section 29A has received considerable
attention of this Court. In Swiss Ribbons Private Limited and Another
Versus Union of India and Others8, a constitutional challenge was made
to Section 29A(j) of the Code read with the definition of ‘related party’ as
defined under Sections 5(24) and 5(24A). While repelling the challenge,
this Court held as follows:-
       109. We are of the view that persons who act jointly or in concert
       with others are connected with the business activity of the resolution



8    (2019) 4 SCC 17
902           SUPREME COURT REPORTS                         [2023] 13 S.C.R.


      applicant. Similarly, all the categories of persons mentioned in
      Section 5(24-A) show that such persons must be “connected” with the
      resolution applicant within the meaning of Section 29-A(j). This being
      the case, the said categories of persons who are collectively mentioned
      under the caption “relative” obviously need to have a connection
      with the business activity of the resolution applicant. In the absence
      of showing that such person is “connected” with the business of the
      activity of the resolution applicant, such person cannot possibly be
      disqualified under Section 29-A(j). All the categories in Section 29-
      A(j) deal with persons, natural as well as artificial, who are connected
      with the business activity of the resolution applicant. The expression
      “related party”, therefore, and “relative” contained in the definition
      sections must be read noscitur a sociis with the categories of persons
      mentioned in Explanation I, and so read, would include only persons
      who are connected with the business activity of the resolution applicant.
      110. An argument was also made that the expression “connected
      person” in Explanation I, clause (ii) to Section 29-A(j) cannot
      possibly refer to a person who may be in management or control of
      the business of the corporate debtor in future. This would be arbitrary
      as the explanation would then apply to an indeterminate person. This
      contention also needs to be repelled as Explanation I seeks to make it
      clear that if a person is otherwise covered as a “connected person”, this
      provision would also cover a person who is in management or control
      of the business of the corporate debtor during the implementation of
      a resolution plan. Therefore, any such person is not indeterminate at
      all, but is a person who is in the saddle of the business of the corporate
      debtor either at an anterior point of time or even during implementation
      of the resolution plan. This disposes of all the contentions raising
      questions as to the constitutional validity of Section 29-A(j).
      47.1. After a careful analysis, this Court opined that the expressions
‘related party’ and ‘relative’ contained in the definition sections must be read
noscitur a sociis with the categories of person mentioned in Explanation
I. So read, it would include only persons who are connected with the
business activity of the resolution applicant. This Court further clarified
that the expression ‘connected person’ would also cover a person who is in
 EVA AGRO FEEDS PRIVATE LIMITED v. PUNJAB NATIONAL 903
         BANK AND ANR. [UJJAL BHUYAN, J.]

management or control of the business of the corporate debtor during the
implementation of a resolution plan.
      48. In Phoenix ARC Private Limited versus Spade Financial Services
Limited9, this Court noted that the expression ‘related party’ is defined in
Section 5(24) in relation to a corporate debtor and Section 5(24A) provides
a corresponding definition in relation to an individual. Thereafter, it has been
observed as under:-
     88. 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.
      48.1. Referring to its earlier decision in Arcelor Mittal (India) (P)
Ltd. V. Satish Kumar Gupta10, where the issue was whether ineligibility
of the resolution applicant under Section 29 A(c) of the Code is attached
to an applicant at the date of commencement of the corporate insolvency
resolution process or at the time when the resolution plan is submitted by the
resolution applicant. It was clarified that the opening words of Section 29(A)
stating “a person shall not be eligible to submit a resolution plan…..” clearly
indicates that the stage of ineligibility attaches when the resolution plan is
submitted by the resolution applicant; thus the disqualification applies in
praesenti. This Court referred to Section 21(2) of the Code, more particularly
to the second proviso thereto which deals with the Committee of Creditors
and the ineligibility of a related party in the consideration and voting on a
resolution plan by the said committee and held as follows:
     101. However, if such an interpretation is given to the first proviso of
     Section 21(2), all financial creditors would stand excluded if they were
     a “related party” of the corporate debtor at the time when the financial
     debt was created. This may arguably lead to absurd conclusions for
     entities which have legitimately taken over the debt of related parties,
     or where the related party entity had stopped being a “related party”
     long ago.



9 (2021) 3 SCC 475
10 (2019) 2 SCC 1
904            SUPREME COURT REPORTS                       [2023] 13 S.C.R.


      49. Arun Kumar Jagatramka Versus Jindal Steel and Power Limited
and Another11, also deals with Section 29A of the Code. In that case, this
Court observed that the fundamental postulate of the Code is that a corporate
debtor has to be protected from its management and corporate debt. Hence
it would be anomalous if a compromise or arrangement can be entertained
from a person who is responsible for the state of affairs of the corporate
debtor. Referring to Arcelor Mittal (India) (P) Ltd. (supra), this Court
observed that the said decision adverted to Section 29A of the Code as a
typical instance of a see-through provision so that one is able to arrive at
persons who are actually in ‘control’ whether jointly or in concert with other
persons. It was thereafter that this Court held that Section 29A is a crucial
link in ensuring that the objects of the Code are not defeated by allowing
‘ineligible persons’ responsible for running a company (corporate debtor)
aground, to return in the new avatar of a resolution applicant.
     50. From the above, it is clearly manifest that the disqualification
sought to be attached to the appellant is without any substance as the related
party had ceased to be in the helm of affairs of the corporate debtor more
than a decade ago. He was not in charge of the company or an influential
member of the company i.e., the corporate debtor when the appellant had
made its bid pursuant to the auction sale notice.
      51. Thus having regard to the aforesaid discussion, we have no
hesitation in coming to the conclusion that Appellate Tribunal was not
justified in setting aside the order of the Tribunal dated 12.08.2021.
Consequently, we set aside the order dated 30.11.2021 passed by the
Appellate Tribunal and restore the order dated 12.08.2021. The appeal is
accordingly allowed. However, there shall be no order as to costs.


Headnotes prepared by:                                          Appeal allowed.
Divya Pandey




11 (2021) 7 SCC 474