Restoring Equity: Supreme Court on Liquidator Discretion in IBC Bidding Process

[Priyanshu Mishra is a III year BA, LLB (Hons) student at the National Law School of India University, Bengaluru]

Recently, in Eva Agro Feeds Pvt Ltd v Punjab National Bank (2023INSC809), the Supreme Court decisively clarified the extent of authority granted to a liquidator in rejecting the final bid within an online bidding process. This legal dispute revolved around the rights of the highest bidder and the liquidator’s discretion to reject the highest bid once the bidding process had concluded. A conflict arose between the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and the E-Auction Process Information Document (hereinafter “Document”) regarding the liquidator’s authority.

The Document delineates the procedural details of the bidding process for potential buyers. In this specific case, it conferred upon the liquidator the seemingly absolute power to either accept or reject any bid. However, it is essential to note that one of the clauses in the document required it to be interpreted in conjunction with the provisions of the IBC and associated regulations. The Court, in its deliberations, sought to harmonize and rectify the interpretation offered by the National Company Law Appellate Tribunal (NCLAT(, which had seemingly endorsed unbridled authority for the liquidator. This was accomplished by placing the discretion of the liquidator within the framework of principles of natural justice.

This post aims to expound upon the rationale employed by the Court while offering a critical assessment of the court’s decision to curtail the previously absolute and arbitrary powers vested in the liquidator. To achieve this objective, the post is structured into three distinct sections. First, it elucidates the Court’s reasoning behind its decision. Second, it outlines the existing legal position in this context. Third, it concludes by highlighting the far-reaching implications of the Court’s reasoning in this pivotal case.

Harmonisation of E-Auction Document and the IBC

In this case, it came to the Court’s attention that the bidding process had been conducted after the initiation of the corporate insolvency resolution process. The liquidator duly issued notices for the sale of the property, and the appellant emerged as the sole bidder in the e-auction process, which was conducted in accordance with the terms outlined in the Document. The Court, in its deliberation, referred to this Document and identified several key clauses that needed consideration.

Firstly, the Court noted that clause 2(m) of the Document must be interpreted in conjunction with the IBC. Additionally, it observed that clause 3(i) clarified that the Document did not constitute an agreement or an offer by the liquidator to the prospective buyer. Furthermore, clause 3(k) explicitly stated that the liquidator possessed absolute discretion to accept or reject any or all bids, to adjourn, postpone, or cancel the e-auction, or to withdraw any asset.

The Supreme Court expressed reservations about the extensive discretion vested in the liquidator. It referred to para 1(11A) of schedule I of the Insolvency Bankruptcy Board of India (Liquidation Process) Regulation, 2016 (hereinafter “Regulation”), which mandated that the liquidator provide a justifiable reason for rejecting the highest bidder. However, the respondent’s counsel argued that this provision had only come into effect on 30 September 2021 and that it applied prospectively. Also, he argued that Schedule I clause 1(11) allows the liquidator to conduct multiple rounds of auction to maximise the realisation from the sale. Consequently, in the present case, there was no requirement for the liquidator to furnish a reason for cancelling the highest bid.

The Court concurred with the argument concerning the prospective application of para 1(11A), but asserted that even then the arbitrary exercise of the liquidator’s discretion must be curtailed. It invoked the principle of natural justice to affirm that the act of “giving reasons” was an integral aspect of this principle, a point repeatedly upheld in various cases. The requirement to provide reasons implies the application of a reasoned judgment, which serves as a safeguard against arbitrary power. Furthermore, it argued that the “right to reason” was an inherent natural justice principle within the IBC, and para 1(11A) had merely conferred statutory recognition upon this well-established principle. Hence, the liquidator could not cancel the highest bid at their unfettered discretion and without offering any justification.

Regarding the absolute and unfettered discretion granted to the liquidator under clause 3(k) of the Document, the Court construed it in conjunction with clause 2(m), which requires the information provided in the Document to be read in conjunction with sections 35 and 36 of the IBC on the power and duties of the liquidator in the legislation. Consequently, through a combined reading of the relevant clauses of the document and the provisions of the IBC, the Court determined that the highest bidder did not possess an absolute entitlement to demand acceptance of their bid. Nonetheless, the liquidator was obliged to exercise their judgment before rejecting the highest bidder’s offer, and this exercise of judgment must be evident in the rejection order itself. The Court harmoniously reconciled the Document’s provisions with the liquidator’s responsibilities under the IBC.

Furthermore, the Court emphasized that the mere anticipation by the liquidator of obtaining a higher price was an insufficient basis for cancelling a legally valid auction. The logical outcome of this interpretation was that within an administrative framework like the IBC, the liquidator could not wield unrestricted or arbitrary discretionary authority. The IBC delineates clear duties and obligations for the liquidator, which must be executed objectively. The liquidator lacks the authority to arbitrarily nullify a legally valid auction.

Principle of Natural Justice in the IBC

To bolster its argument regarding the implicit nature of the “right to reason” in the liquidation process, the Court relied upon several precedents. In SN Mukherjee v Union of India, the Supreme Court established that the requirement to record reasons can be equated with the broader principle of natural justice. The overarching objective behind the principles of natural justice is to prevent miscarriages of justice and ensure the fair application of procedures.

In State of Orissa v Dhaniram Luhar, the Court reiterated the paramount importance of providing reasons in decision-making, whether it is in the realm of administrative, quasi-judicial, or judicial actions. This underscores the critical role that reasons play in fostering transparency and accountability in the decision-making process. A similar ruling was delivered in East Coast Railway v Mahadev Appa Rao, where the Court recognized that arbitrariness in the issuance of orders by an authority can manifest itself through various means. The most effective way to demonstrate the application of due consideration and thoughtful judgment is by formally recording the reasons that led the authority to issue the specific order in question.

In Kranti Association (P) Ltd v Masood Ahmed Khan, the Court emphasized that any order passed by a quasi-judicial or even an administrative authority must be articulate and well-reasoned. This requirement underscores the necessity for orders to be “speaking orders”, meaning they must convey the rationale and thought process behind the decision. Furthermore, the Court also contextualized the “right to hearing” within an administrative framework by referencing the AK Kraipak and Keshav Mills cases, where the distinction between quasi-judicial and administrative authorities became less distinct. These cases illuminate the evolving nature of administrative processes and the increasing importance of procedural fairness, including the right to be heard, in administrative decision-making.

Furthermore, in the past, appellate courts have consistently affirmed the implicit presence of the principle of natural justice in the adjudication of disputes under the IBC. An illustrative case in this regard is Sree Metaliks Ltd v The Union of India, where a challenge was raised concerning the absence of the principle of natural justice under section 7 of the IBC. In its ruling, the Court firmly established that the adjudicating authority is duty-bound to afford a “reasonable opportunity of hearing” to the corporate debtor. This ruling effectively construed the “right to a fair hearing” as an inherent administrative rule within the framework of the IBC.

Subsequently, in Starlog Enterprises Ltd. v. ICICI Bank Ltd., the Court further clarified that the “right to give notice” to the corporate debtor is a mandatory duty of the adjudicating authority to ensure a fair hearing. This interpretation solidified the importance of providing adequate notice in maintaining procedural fairness. In Era Infra Engineering Ltd. v. Prideco Commercial Pvt. Ltd., the Court once again emphasized the significance of the “right to notice”. This was particularly evident as the operational creditor failed to serve proper notice, thereby reaffirming the principle that notice is an integral component of due process. Likewise, in HS Oberoi Pvt Ltd v Inderjit Singh, the NCLAT upheld the principle of natural justice due to the adjudicating authority’s failure to offer an opportunity for a hearing, which constituted a violation of the fundamental principle of audi alterum partem. Therefore, these cases collectively underscore the consistent judicial recognition of the principle of natural justice in IBC disputes and highlight the critical importance of providing corporate debtors with a reasonable opportunity to be heard and duly informed.


In the instant case of Eva Agro Feeds, the Supreme Court addressed a critical issue concerning the discretionary powers of a liquidator in rejecting the highest bid within an online bidding process. This case not only clarified the boundaries of the liquidator’s authority but also underscored the fundamental principles of natural justice within the context of the IBC.

The Court’s decision in this case was grounded in a careful examination of both the E-Auction Process Information Document and the IBC. It highlighted the importance of transparency, fairness, and accountability in the liquidation process, asserting that the arbitrary exercise of discretion by the liquidator must be curtailed.

In Eva Agro Feeds, the Court strikes a balance between the interests of the highest bidder and the responsibilities of the liquidator, setting a precedent that prioritizes fairness and due process. This judgment serves as a significant milestone in the evolution of insolvency and bankruptcy law, emphasizing the enduring relevance of natural justice principles in safeguarding the rights of stakeholders in the IBC framework.

Priyanshu Mishra

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