V.S. Palanivel Vs. P. Shriram, CS, Liquidator, Etc. - Unless there are some serious flaws in the conduct of the auction as for example perpetration of a fraud/collusion, grave irregularities that go to the root of such an auction, courts must ordinarily refrain from setting them aside keeping in mind the domino effect such an order would have.

  SCI (2024.08.28) in V.S. Palanivel Vs. P. Shriram, CS, Liquidator, Etc. [Civil Appeal Nos. 9059-9061 Of 2022] held that; 

• Unless there are some serious flaws in the conduct of the auction as for example perpetration of a fraud/collusion, grave irregularities that go to the root of such an auction, courts must ordinarily refrain from setting them aside keeping in mind the domino effect such an order would have.

Excerpts of the Order;

# 36.10 In any event, the Liquidator had taken timely steps to move the Adjudicating Authority for appropriate permission which was obtained as long back as on 10th February, 2020, i.e. about a month and a half before the nationwide lockdown was declared. Moreover, the Auction Purchaser was well aware of the fact that the entire tax arrears amounted to ₹2,44,01,603/- (Rupees Two crore forty four lakh one thousand six hundred and three only), which could have easily been paid out of the earnest money of ₹2,95,59,638/- (Rupees Two crore ninety five lakh fifty nine thousand six hundred and thirty eight only) deposited by it, still leaving some surplus funds. The Liquidator had also taken steps to apprise the Auction Purchaser of the said position and the order of priority that was to be given to the claim of the Income Tax Department. Yet the Auction Purchaser did not deposit the balance sale consideration. In view of the above, the plea taken by the Auction Purchaser that the income tax attachment order was a serious and an insurmountable impediment in completion of the sale and the subject property could not have been validly transferred in its favour by the Liquidator, is rather tenuous and not persuasive.

# 36.11 The anxiety of the Auction Purchaser was adequately addressed on the Adjudicating Authority passing an order on 10th February, 2020, lifting the attachment order. This order was communicated by the Liquidator to the Auction Purchaser well in time. Mere not receipt of a copy of the said order cannot be a ground for the Auction Purchaser to have delayed deposit of the entire balance sale consideration. The spectre of Covid-19 was nowhere on the horizon at that time. It spiralled only in the last week of March, 2020. If the Auction Purchaser was serious, it could have easily deposited at least some amount out of the balance sale consideration of ₹26,60,36,677/- (Rupees Twenty six crore sixty lakh thirty six thousand six hundred and seventy seven only) much earlier, but it elected not to deposit a penny till the end of August, 2020. When the first proviso to Rule 12, Schedule I of the IBBI Regulations, 2016 permits payment of sale consideration after expiry of 30 days from the date of demand subject to payment of interest @ 12% p.a., there was no question of the Auction Purchaser going scot free, when its conduct has not been blemishless.

# 36.12 On an overall conspectus of the facts of the present case which brings out the glaring default on the part of the Auction Purchaser in making deposit of the balance sale consideration even after permission was granted by the Adjudicating Authority on 10th February, 2020 to lift the attachment order, the only question that needs to be answered is as to whether this Court should proceed to set aside the auction and as a sequence thereto, declare as null and void, the sale certificate issued by the Liquidator in favour of the Auction Purchaser, as has been pleaded by the appellant. 

# 36.13 In our opinion, such an order would be too harsh. Much water has flown under the bridge by now. The subject land has been utilized by the Auction Purchaser to build a 200-bed Mother and Child hospital which is operational. Huge amounts have been pumped into the project by the Auction Purchaser. The hospital is fully functional providing medical facilities to seven surrounding districts. In contrast, the appellant has not been a vigilant litigant. His conduct shows that he has dragged his feet at every stage. Records reveal that belated applications have been filed by him for seeking recall of the orders passed by the Adjudicating Authority granting extension of time to the Auction Purchaser. For reasons best known to him, it took 19 months for the appellant to prefer an appeal before the Tribunal against the order passed by the Adjudicating Authority, as provided for in the IBC. Furthermore, the appellant resisted handing over possession of the subject property to the respondents thereby causing more delay.

# 36.14 This Court must underscore the well settled legal position that once an auction is confirmed, it ought to be interfered with on fairly limited grounds. (Refer: Valji Khimji and Co. v. Hindustan Nitro Product (Gujarat) Ltd. (Official Liquidator) and Celir LLP v. Bafna Motors (Mumbai) Private Limited and others). Repeated interferences in public auction also results in causing uncertainty and frustrates the very purpose of holding auctions. (Refer : K. Kumara Gupta v. Sri Markendaya and Sri Omkareswara Swamy Temple and others). Unless there are some serious flaws in the conduct of the auction as for example perpetration of a fraud/collusion, grave irregularities that go to the root of such an auction, courts must ordinarily refrain from setting them aside keeping in mind the domino effect such an order would have. Given the facts noted above, we shall refrain from cancelling the sale or declaring the Sale Deed as void. Instead, it is deemed appropriate to balance the equities by directing the Auction Purchaser to pay an additional amount in respect of the subject property.

CONCLUSION

# 36.15 For arriving at a just and fair figure, we propose to take into consideration the estimated value of the subject property in terms of the Reports submitted by the Registered Valuers appointed by the Liquidator. Based on their Reports, the Liquidator had fixed ₹39,41,28,800/- (Rupees Thirty nine crore forty one lakh twenty eight thousand and eight  hundred only) as the average liquidation value of the subject property for the purpose of e-auction. This figure was brought down by 25% in the second round of auction which came to ₹29,55,96,375/- (Rupees Twenty nine crore fifty five lakh ninety six thousand three hundred and seventy five only). The difference in the two figures mentioned above comes to ₹10,00,00,000/- (Rupees Ten crore only) approximately. Keeping in mind the fact that the Auction Purchaser managed to retain the balance sale consideration for over six months reckoned from 10th February, 2020 and about five months reckoned from 25th March, 2020, we deem it appropriate to direct it to deposit 50% of the differential figure, i.e., an additional sum of ₹5,00,00,000/- (Rupees Five crore only) with the Liquidator along interest @ 9 % p.a. reckoned from 26th March, 2020 till date of actual payment. The said amount shall be deposited by the Auction Purchaser with the Liquidator within eight weeks from today. Thereafter, the Liquidator shall disburse the amount received in terms of the orders passed/may be passed by the Adjudicating Authority, as contemplated under the IBC.

# 36.16 The appeals are partly allowed on the above terms. Parties shall bear their own expenses.

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