Bombay HC Voids NSEL Auction Sale, Orders Fresh Bidding Under MPID Act

The appeals before the Bombay High Court arose out of attached properties in the NSEL scam, sold under the Maharashtra Protection of Interest of Depositors Act through the Competent Authority. A Sale Certificate dated 31 August 2020 was issued in favour of Rudraveerya Developers Limited, the auction purchaser. Primezone Developers Private Limited and several individual depositors challenged the auction, alleging that it was conducted without adequate publicity and at an inadequate price.

Issue

The core question was whether the auction process leading to the Sale Certificate dated 31 August 2020 satisfied the standards required under the MPID framework, particularly the obligation to secure the highest realizable value for the benefit of the defrauded depositors.

Holding

A Division Bench of Justice A.S. Gadkari and Justice Kamal Khata set aside the Sale Certificate dated 31 August 2020. The attachment over the properties will continue pending fresh auction.

Reasoning

The Bench observed that in an MPID auction, the Court must remain alive to the possibility of fraud, inadequate pricing, and underbidding. Wide publicity and a fair opportunity to intending bidders are essential to fetch the highest realizable value. Where that path is cut down or closed, the risk of underbidding looms large. The Court held that judicial discretion in such cases must be exercised wisely and with circumspection, keeping in view the facts and circumstances of each case. On the facts before it, the Bench was not satisfied with the earlier process, including the role of the valuer Quiker Realty Ltd., and concluded that the auction could not be sustained.

Directions

The Court directed the State to appoint a new Competent Authority within four weeks. The new Competent Authority will appoint a fresh valuer for valuation and sale of the attached NSEL properties, and conduct a fresh auction with wide publicity in local newspapers and on electronic media. Amounts received from Rudraveerya Developers Ltd. are to be refunded within four weeks of the order being uploaded. The State has been directed to investigate and take appropriate action against the members of the earlier Competent Authority and the valuer Quiker Realty Ltd., and file a compliance affidavit after six months. Appeal No. 932 of 2022 was allowed and the other connected appeals were disposed of in the same terms.

Takeaway

For practitioners handling MPID and economic offence matters, the order reinforces that auction sales of attached properties must be backed by demonstrable publicity and credible valuation, failing which the sale is liable to be set aside even after a Sale Certificate has been issued.