DATE OF JUDGEMENT:
11th January 2022
Justice Anant Bijay Singh
Ms. Shreesha Merla
Appellants (s): M/s. Visisth Services Limited (Bidder)
1. S. V. Ramani (Liquidator)
2. United Chloro – Paraffins Private Ltd.
3. State Bank of India
In the present case, an appeal was filed in the National Company Law Appellate Tribunal, Principal Bench, New Delhi against the order of the Adjudicating Authority that upheld the terms and conditions of the Bid issued by the Liquidator.
Insolvency and Bankruptcy Code
Section 10: Initiation of corporate insolvency resolution process by corporate applicant.
1. To explain the first issue, the Court referred to multiple sources to identify the true meaning of the phrase “a going concern”:
a) Section 32A Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
Sale as a going concern:
2. For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern.
b) Paragraph 3.2.1 of IBBI Discussion Paper on Corporate Liquidation Process along with Draft Regulations
3.2.1 Sale under regulation 32(e):
In this form of GCS, the CD will not be dissolved. It will form part of the liquidation estate. It will be transferred along with the business, assets and liabilities, including all contracts, licences, concessions, agreements, benefits, privileges, rights or interests to the acquirer.
c) Paragraph 4.2 of IBBI Discussion Paper on Corporate Liquidation Process along with Draft Regulations
4.2 Should ‘Going Concern Sale’ be defined?:
All such assets and the liabilities, which constitute an integral business or the CD, that must be transferred together and the consideration must be for the business or the CD. The buyer of the assets and liabilities should be able to run business without any disruption.
2. The court concluded that the aforementioned sources make it clear that the term “A Going Concern” includes the sale of assets as well as liabilities.
3. Explaining the issue no. 2, the Court first referred to certain excerpts from the mail by the appellant to the Liquidator on 4th September where the appellant demanded that,
Any Liabilities, claims, demands, capital contributions, or any other form of financial commitment; including but not limited to pledge of shares or any security interest created or provided, whether guaranteed or contractually agreed in writing or otherwise by the Company on behalf of or for its subsidiary companies, associate companies, Group companies and/or their respective Affiliates, shareholders/associates; as the case may be, which are in existence before the Closing Date and which may be invoked before the Closing date or at any time thereafter, shall stand irrevocably and unconditionally waived and extinguished.
The appellant in the same mail also stated that in case of non-compliance with the terms mentioned in the mail, the bid money shall be refunded.
4. In reply to the mail dated 4th September, the Liquidator on 5th September unequivocally communicated that the legal issues about the e-auction can’t be changed after public notification. Replying to this, in another mail dated 6th September, the appellant once again reiterated the same stance as the previous mail. The Court identified that it is the main case of the Appellant that before the bid he informed the Liquidator that if their Bid is not accepted with its terms they would seek to withdraw from the Bid.
5. To resolve the issue, the Court referred to the “Terms and Conditions of the Proposed Sale” which state that the submission of the bid means that the Applicant has read carefully and unconditionally and once Bids are submitted, they cannot be withdrawn or revised.
6. Relying on the multiple clauses that clarify the conditions of the bid, the Court concluded that the Applicant has accepted all the terms and conditions of the bid and cannot revise the same. The Bidder-Appellant is bound by the terms and conditions of the Bid document and no communication to the Liquidator stating that it is a conditional offer, is sustainable. The Court further stated that if the Appellant had any apprehensions and conditions about the liabilities the Appellant could have exercised their choice of not participating in the Bid.
7. Explaining the duties of the Liquidator the Court stated that, the Liquidator will carry on the business of the Corporate Debtor for its beneficial Liquidation as prescribed under Section 35 of the Code. The Liquidator will only act and cannot modify/revise the terms of the contract.
8. The Court further stated that if the Bidder is allowed to withdraw from the Bid at this stage and seek a refund on the ground that their conditional offer has not been accepted, then the liquidation process would be a never-ending one, defeating the scope and objective of the Code. To buttress this position, the Court relied on the judgment in the case of Punjab Urban Planning and Development Authority and Ors. Vs. Raghu Nath Gupta and Ors and UT Chandigarh Admn. Vs. Amarjeet Singh.
9. The Court concluded that the decision of the adjudicating authority requires no interference and dismissed the appeal.
National Company Law Appellate Tribunal in the present case clarified that the Bidder cannot wriggle out of the contractual obligations arising out of acceptance of his Bid. If the bidder is allowed to make a conditional offer to every bid, it would very well defeat the whole purpose of the Auction Process and Dilute the Corporate provisions of Insolvency.
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