JFC Finance (India) Ltd. Vs Arvind Garg (NCLAT Delhi)
The National Company Law Appellate Tribunal (NCLAT) considered an appeal filed against an order of the National Company Law Tribunal (NCLT), Principal Bench, which had dismissed an application challenging an e-auction conducted during the liquidation process of a corporate debtor and had also imposed costs of Rs. 1.5 lakh on the applicant. The appellant sought quashing of the e-auction proceedings, a direction for conducting a fresh auction, or alternatively, permission to participate in inter-se bidding with the successful auction purchaser.
The corporate debtor had entered liquidation on 30 May 2019. During the first round of the sale process, the appellant had participated by submitting offers for purchase of the assets and later for acquisition of the corporate debtor as a going concern. Subsequently, the NCLT permitted the liquidator to conduct fresh auction proceedings for sale of the corporate debtor as a going concern. Meanwhile, the Insolvency and Bankruptcy Board of India (IBBI) introduced the BAANKNET platform for conducting auctions under the Insolvency and Bankruptcy Code. As a result, the liquidator modified the auction process and directed prospective bidders to register on the BAANKNET platform, upload eligibility documents, and deposit earnest money through the platform.
The appellant participated in the second round of the sale process and submitted the required documents and earnest money deposit. It registered on the BAANKNET platform, created login credentials, uploaded documents to the document library, and deposited the required earnest money into the e-wallet. The appellant contended that despite complying with the requirements communicated by the liquidator, it did not receive access to the pre-qualification link required for participation in the auction. According to the appellant, this occurred due to a technical glitch in the BAANKNET platform. The appellant claimed that it repeatedly logged into the portal and contacted BAANKNET support before commencement of the auction, but remained unable to participate. After the auction concluded, it immediately communicated its grievance to both the liquidator and the platform administrators and requested postponement or cancellation of the auction or permission to participate through inter-se bidding.
The auction ultimately concluded with another bidder emerging as the highest bidder with a bid of Rs. 28.27 crore. The appellant challenged the auction before the Delhi High Court and subsequently before the NCLT, contending that procedural irregularities and technical issues had prevented its participation. During the proceedings, the appellant also offered Rs. 35 crore to acquire the corporate debtor and later deposited Rs. 54 crore with the liquidator pursuant to directions of the Delhi High Court, asserting that it was a genuine and financially capable bidder whose exclusion had adversely affected value maximisation.
The appellant argued that the liquidator had abruptly shifted the auction process from the earlier platform to BAANKNET and that the communications sent by the liquidator referred primarily to registration, uploading of documents, and deposit of earnest money. It was submitted that neither the emails nor the modified process information document clearly highlighted a separate pre-qualification process or the necessity of accessing a specific pre-qualification link. The appellant maintained that it had complied with all directions communicated by the liquidator and that the non-availability of the pre-qualification link was caused by a technical issue beyond its control. It further argued that the liquidator failed in his obligation to maximise participation and value for stakeholders by not facilitating its participation despite being aware of its difficulties.
The liquidator opposed the appeal and contended that the auction process was conducted strictly in accordance with the applicable IBBI circulars and auction guidelines. It was submitted that BAANKNET was a self-service automated platform and that bidders themselves were responsible for completing every stage of registration and qualification. According to the liquidator, the appellant had failed to complete the mandatory pre-qualification process and therefore could not participate in the auction. The liquidator argued that the alleged technical glitch was unsupported by evidence and that the appellant had failed to provide screenshots, error logs, or contemporaneous proof of any system failure. It was further submitted that a concluded auction could not be disturbed merely because a higher offer was subsequently made.
The successful auction purchaser similarly opposed reopening the auction, contending that the appellant had not completed the prescribed steps for participation. It argued that all other bidders had successfully navigated the platform and that the appellant’s inability to participate resulted from its own failure to complete the required process. It was also submitted that a concluded auction could not be disturbed in the absence of fraud, collusion, inadequate pricing, or serious procedural irregularity. The successful purchaser emphasised that the full sale consideration had already been paid and a sale certificate had been issued, thereby crystallising its rights.
An intervening financial creditor supported the appellant’s plea and argued that the liquidation framework was intended to maximise value for stakeholders. It pointed out that the appellant had deposited Rs. 54 crore, which was substantially higher than the successful bid, and submitted that a fair and competitive process should be conducted to secure the highest possible value for creditors and stakeholders.
The NCLAT examined the communications issued by the liquidator, including emails dated 3 April 2025 and 7 April 2025, as well as the BAANKNET user guide. The Tribunal observed that the emails primarily referred to registration on the platform, uploading of documents, and deposit of earnest money. It noted that the communications did not specifically highlight the separate requirement relating to the pre-qualification link or clearly communicate the associated timelines. The Tribunal found merit in the appellant’s contention that it believed compliance had been achieved once the required documents had been uploaded and the earnest money had been deposited.
The Tribunal further noted that the appellant had made multiple login attempts on the platform, had deposited the earnest money in the e-wallet, uploaded documents, and contacted BAANKNET support before commencement of the auction. It referred to contemporaneous communications showing that the appellant had informed the platform administrator that the pre-qualification submission link had not been available and had requested postponement of the auction. These actions, according to the Tribunal, demonstrated that the appellant was a genuine and serious participant rather than a bidder who had abandoned the process.
The NCLAT found that neither the liquidator nor the NCLT had adequately investigated whether a technical issue had in fact occurred. The Tribunal observed that the possibility of technical difficulties could not be ruled out merely because the platform was automated or because other participants had not experienced similar problems. It noted that the BAANKNET administrators, despite being issued notice during the appellate proceedings, neither appeared before the Tribunal nor provided any clarification regarding the alleged technical issue. In these circumstances, the Tribunal extended the benefit of doubt to the appellant and accepted that it had faced a technical problem relating to the pre-qualification link.
The Tribunal therefore disagreed with the findings of the NCLT that the appellant had abandoned the auction process or was not a serious bidder. It held that the appellant had actively participated in the process and had demonstrated a genuine intention to bid for the corporate debtor. The NCLAT also concluded that the plea of technical difficulty could not be dismissed as an afterthought.
While examining whether the auction should be reopened, the Tribunal considered the appellant’s enhanced offers and the deposit of Rs. 54 crore. It also analysed various judicial precedents dealing with concluded auctions, value maximisation, and interference with auction sales. The Tribunal observed that several decisions relied upon by the respondents concerned situations involving third parties who had not participated in the auction process, whereas the appellant had actively participated and had been prevented from bidding due to circumstances that warranted further consideration. The Tribunal also noted that the appellant’s substantially higher offer and actual deposit of funds demonstrated financial capability and seriousness.
After evaluating the facts, the Tribunal found that the appellant’s exclusion from the auction process could not be attributed to lack of diligence or absence of intent. It held that the findings of the NCLT on this aspect were unsustainable. The NCLAT accordingly concluded that the appellant had established sufficient grounds to challenge the manner in which the auction process had unfolded and that the issue of value maximisation required consideration in light of the substantially higher offer made by the appellant.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
