Sale of a company as a Going Concern means Sale of Assets and Liabilities [FCS Deepak P. Singh]



M/S. VISISTH SERVICES LIMITED v. S. V. RAMANI

Decision dated: 11 January 2022

Citation: 2022 SCC Online NCLAT 24


HELD THAT : A 'going concern sale' on an 'as is  where basis' does not dissolve the corporate debtor, rather, it  forms a part of the  liquidation estate wherein the entire business,  including assets and liabilities, including all contracts, licenses, concessions, agreements, benefits, privileges, rights, or interests, is transferred to the purchaser. Therefore, it was  concluded that  the sale of a company as a 'going concern'  means sale of both its assets and liabilities if it is stated on  'as is where is basis'.

BRIEF FACTS:

1. On 12.10.2018, an Application under Section 10 of the Code filed by the Corporate Debtor was admitted by the Adjudicating Authority.

2. On 19.07.2019, an Order of Liquidation was passed, and Mr. S. V. Ramani/the first Respondent was appointed as Liquidator.

3. On 01.09.2019, the Liquidator issued advertisements inviting Bids from prospective buyers through e-Auction for sale of the Company under Liquidation as a ‘Going Concern’.

4. The Appellant purchased e-Auction Process Information Document from the Liquidator upon payment of Rs. 5 Lakhs.

5. On 04.09.2019, the Appellant issued an email to the Liquidator seeking clarifications on several issues with respect to e-Auction process and proposed different payment terms and specified in the email that their offer of acceptance was conditional to extinguish claims of Financial Creditors, Tax Department, Operational Creditors, Provident Fund Employees, and other contingent liabilities.

6. On 05.09.2019, the Liquidator issued two emails to the Appellant informing that the Terms and Conditions of the Bid Document could not be changed or revised after public notification. M/s. State Bank of India (SBI) had also replied to the email and clarified the conditions.

7. The Appellant submitted EMD of Rs. 37,10,000/- to the Liquidator. On 08.09.2019, the Appellant sent an email to the Liquidator stating that if any litigation arises from any source, the EMD amount and the bidding document purchase amount was to be refunded within three days.

8. On 26.09.2019, the Liquidator issued a provisional sale letter dated 25.09.2020 in favour of the Appellant upon receipt of communication from SBI confirming that it was the highest successful bidder in the eAuction.

9. On 29.10.2019, the Appellant addressed a letter to the Liquidator stating the Provisional Letter of Sale was inconsistent with the terms of payment specified by the Appellant and sought for refund of the money paid with the interest.

10. On 09.01.2020, an Affidavit was filed by the Appellant in the Application preferred by the Liquidator before the Adjudicating Authority seeking direction for ‘Approval of the Sale’ as a ‘Going Concern’ and sought for approval without transfer of any liabilities and if there exists any impediment, the Appellant sought for withdrawing from the Bid and the refund of the amount paid.

11. By the Impugned Order, the Adjudicating Authority has dismissed the Application preferred by the Appellant and also disposed of the Application CA (IB) No. 1313/KB/2019 filed by the Liquidator with the following directions:

“i). The Liquidator shall issue fresh invitation to the bidder to provide balance sale consideration within such time as per clause (12) of Schedule I of Regulation 33.

ii). In case of payment of the full amount the liquidator shall execute certificate of sale or sale deed to transfer the assets in the manner specified in the terms of sale as per bidding document following clause (13) of the Schedule I of Regulation 33; iii). In case of failure to pay the balance sale consideration he is at the liberty to cancel the sale in favour of the bidder by forfeiting the EMD and the amount paid towards the price of biding document and to proceed with sale as per Regulation 32-A; (Emphasis Supplied)

12. The NCLT denied the relief to the

13. The Present Appeal has been filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as ‘Code’), by M/s. Visisth Services Limited (Hereinafter referred as ‘Appellant’) against the Impugned Order dated 07th August 2020 passed by National Company Law Tribunal, Kolkata Bench, Kolkata, in CA (IB) No. 1313/KB/2019 connected with C.P.(IB) No.-898/KB/2018.

Section 61: Appeals and Appellate Authority.

(1) Notwithstanding anything to the contrary contained under the Companies Act 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal.

(2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal:

Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal, but such period shall not exceed fifteen days.

(3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:—

(i) the approved resolution plan is in contravention of the provisions of any law for the time being in force.

(ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period.

(iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board.

(iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or

(v) the resolution plan does not comply with any other criteria specified by the Board.

(4) An appeal against a liquidation order passed under section 33, or sub-section (4) of section 54L, or sub-section (4) of section 54N, may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.

(5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of section 54-O may be filed on grounds of material irregularity or fraud committed in relation to such an order.


ISSUES

  1. Whether the sale of corporate debtor as a 'going concern' in liquidation proceedings includes its liabilities?
  1. Whether the appellant herein can withdraw from the bid after payment of the EMD, and seek for refund of the amount paid on the  ground that the offer made by the bidder was a 'conditional offer'?

DECISION:

ISSUE NO. 1

For the primary issue, while relying  upon Regulation 32A of the IBBI (Liquidation Process)  Regulations,  2016 and the IBBI Discussion Paper dated 27.04.2019 on the  corporate liquidation process, the  NCLAT held that as per  Regulation 32(e) of the IBBI (Liquidation Process) Regulations,  2016, a 'going concern  sale' on an 'as is where  basis' does not dissolve the corporate debtor, rather, it forms  a part of the liquidation  estate wherein the entire business,  including assets and liabilities, including all contracts,  licences,  concessions, agreements, benefits, privileges, rights or  interests, is transferred to the purchaser.

REGULATION 32 of IBBI( Liquidation Process ) Regulations, 2016

Sale of Assets, etc. 

The liquidator may sell-

(a) an asset on a standalone basis.

(b) the assets in a slump sale.

(c) a set of assets collectively.

(d) the assets in parcels.

(e) the corporate debtor as a going concern; or

(f) the business(s) of the corporate debtor as a going concern:

Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate

REGULATION 32A PROVIDES THAT

 Sale as a going concern.

(1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximise the value of the corporate debtor, he shall endeavour to first sell under the said clauses.

(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.

(3) Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee.

(4) If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation 32 within ninety days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of regulation 32.


Therefore, it was  concluded that the sale of a company as a 'going concern'  means sale of both its assets and liabilities if it  is stated on  'as is where is basis'.

ISSUE NO. 2

As for the second issue, the NCLAT held that the appellant  accepted all the conditions, and that it was a case  of concluded  contract where no refund of EMD amount is possible. The NCLAT  particularly noted the terms  and conditions and observed that  after paying the EMD amount and accepting the bid, the appellant  cannot  now say that it was not a concluded contract. If the   appellant had had any apprehensions and conditions  about the liabilities, the appellant could have exercised their choice of not participating in the bid.

Having  participated, the appellant cannot propose certain conditions after their participation and putting in their bid. In essence, the appellant/ bidder cannot wriggle out of the contractual obligations arising out of  acceptance of his bid, and thereby, the appellant cannot be  entitled to the EMD amount, or the amount paid towards the bid purchase document, if he does not comply with the terms of the contract.

Thus, the appeal failed and was dismissed.

The Apex Court referred below mentioned judgements:

1. The Hon’ble Supreme Court of India in ‘Pawan Kumar Agarwal Vs. Association of Management Studies and Anr.; Meerut Development Authority 2009(6) SCC 171 has observed in Paragraph 26 as follows:

“26. A tender is an offer. It is something which invites and is communicated to notify acceptance. Broadly stated it must be unconditional; must be in the proper form, the person by whom tender is made must be able to and willing to perform his obligations. The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. However, a limited judicial review may be available in cases where it is established that the terms of the invitation to tender were so tailor made to suit the convenience of any particular person with a view to eliminate all others from participating in the bidding process.

2. The Hon’ble Apex Court in ‘Punjab Urban Planning and Development Authority and Ors. Vs. Raghu Nath Gupta and Ors’ (2012) 8 SCC 197 has referred to another Judgement of the Hon’ble Supreme Court in ‘UT Chandigarh Admn. Vs. Amarjeet Singh’, (2012) 8 SCC 202 and observed as follows:

“The Apex Court after having referred to the Judgement of this Court in Shantikunj Investment Case, this Court held as follows:

“19. ….In a public auction of sites, the position is completely different. A person interested can inspect the sites offered and choose the site which he wants to acquire and participate in the auction only in regard to such site. Before bidding in the auction, he knows or is in a position to ascertain, the condition and situation of the site. He knows about the existence or lack of amenities. The auction is on `as-is-where-is-basis'. With such knowledge, he participates in the auction and offers a particular bid. There is no compulsion that he should offer a particular price…..

20. Where there is a public auction without assuring any specific or amenities, and the prospective purchaser/lessee participates in the auction after having an opportunity of examining the site, the bid in the auction is made keeping in view the existing situation, position, and condition of the site. If all amenities are available, he would offer a higher amount. If there are no amenities, or if the site suffers from any disadvantages, he will offer a lesser amount, or may not participate in the auction. Once with open eyes, a person participates in an auction, he cannot thereafter be heard to say that he would not pay the balance of the price/premium or the stipulated interest on the delayed payment, or the ground rent, on the ground that the site suffers from certain disadvantages or on the ground that amenities are not provided.”

17. We are of the view that the judgment in Amarjeet Singh is a complete answer to the various contentions raised by the respondents. We may reiterate that after having accepted the offer of the commercial plots in a public auction with a superimposed condition i.e. on “asis-where-is” basis and after having accepted the terms and conditions of the allotment letter, including instalment facility for payment, the respondents cannot say that they are not bound by the terms and conditions of the auction notice, as well as that of the allotment letter. On facts, we have found that there was no inordinate delay on the part of PUDA in providing those facilities.

18. We are of the view that the High Court was not justified in holding that the respondents are not liable to pay the interest, penal interest and penalty for the period commencing from 1-6-2001 to 31-12-2002 for the belated payment of instalments. Consequently, the judgments of the High Court are set aside, and the writ petitions would stand dismissed and the appeals would stand allowed as above. There will be no order as to costs.” (Emphasis Supplied)


CONCLUSION: from above discussion and decision of Apex Court it is clear that a Bidder cannot wriggle out of the contractual obligations arising out of acceptance of his Bid and not entitled to refund of EMD amount and the amount paid towards Bid-purchase documents if does not comply with the terms and conditions of the Bid. The court further approve the decision of NCLAT that in case of sale of a company as a 'going concern'  means sale of both its assets and liabilities if it  is stated on  'as is where is basis'.

DISCLAIMER  the case law produced here is only for sharing information among readers. The views expressed here are personal views of the author and same should not be considered as professional advice. In case of necessity do consult with professionals.

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