2021 (9) TMI 927 - AT - Insolvency and Bankruptcy

Benefit of provision of 90 days to pay balance sale consideration - amended clause 12 of Schedule I of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 - HELD THAT - Considering the material placed by them, it does appear to us that the laudable object with which Clause 12 was substituted is defeated by issuing such Circular dated 26.08.2019. When in an auction somebody has given a higher bid, if instead of 15 days, the person gets a breathing time of 90 days to make a payment, no other person gets affected - Para 3.2 of the Discussion Paper referred to Regulation 32 and the option to explore sale of Corporate Debtor as a going concern along with the other available sale options and the need to provide complete framework to enable the Liquidator to exercise the option. The Discussion Paper tries to balance need to be within timeframe for maximisation of the value and the need to have sufficient time for steps to be taken. In such backdrop, Para 5.2.2 was included in the Discussion Paper with regard to difficulties found by Liquidators when time is of mere 15 days. Power of Board under Section 196(1) (p) or (t) to issue guidelines cannot be expanded to interpreting provisions made. That is job of Courts to interpret and apply law. Reading the Regulation as amended we find it must be held to be applicable to liquidation process which are pending, and the provision can be applied considering stage of the process, irrespective of the date whether the liquidation process started before 25.07.2019 or on or after 25.07.2019 when Clause 12 Schedule I of the Regulations was substituted. This is not to say that sales already cancelled before 25.07.2019 for default of payment under earlier existing clause 12 can be reopened. Liquidators can rely on the amendment at the time of issue of Auction Notice being issued, irrespective of date of liquidation order of Adjudicating Authority. The Circular dated 26.08.2019, we hold is not legally enforceable to interpret applicability. Such Circular cannot be in the nature of substituting existing Regulation in the name of guidelines. The order passed by the Adjudicating Authority is modified and it is held that the Appellant- Liquidator would be at liberty to apply and enforce amended Clause 12 of Schedule I of the Liquidation Regulations to the liquidation process even though initiated before 25.07.2019 - appeal disposed off.

Summary

Issues Involved:
1. Applicability of amended Clause 12 of Schedule I of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
2. Validity and enforceability of the Circular issued by the Insolvency and Bankruptcy Board of India (IBBI) dated 26.08.2019.
3. Procedural fairness and practical difficulties in the liquidation process.

Issue-wise Detailed Analysis:

1. Applicability of Amended Clause 12 of Schedule I of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016:
The core issue revolves around whether the amended Clause 12, which extends the period for payment of balance sale consideration from 15 days to 90 days, applies to liquidation processes that commenced before the amendment date of 25.07.2019. The Appellant, acting as the Liquidator, argued that the previous 15 days period was too short given the economic slowdown due to the COVID-19 pandemic and the significant quantum of sale considerations involved. The amendment aimed to address these practical difficulties by extending the timeframe to 90 days.

The Tribunal noted that the amendment does not specify that it applies only prospectively. The regulation is procedural, and procedural amendments generally apply retrospectively unless explicitly stated otherwise. The Tribunal concluded that the amended Clause 12 should be applicable to pending liquidation processes, irrespective of whether they commenced before or after 25.07.2019. This interpretation aligns with the intent behind the amendment, which was to alleviate practical difficulties faced by Liquidators and bidders.

2. Validity and Enforceability of the Circular Issued by IBBI Dated 26.08.2019:
The Circular issued by IBBI stated that the amended regulations would apply only to liquidation processes that commenced on or after 25.07.2019. The Tribunal scrutinized the legal standing of this Circular, noting that while IBBI has the power to issue regulations under Section 196 of the Insolvency and Bankruptcy Code (IBC), a Circular does not hold the same legal weight as regulations laid before Parliament under Sections 240 and 241 of the IBC.

The Tribunal found that the Circular could not override or interpret the amended regulations in a manner that restricts their applicability. The power to interpret laws and regulations lies with the Courts, not with administrative Circulars. Therefore, the Tribunal held that the Circular dated 26.08.2019 is not legally enforceable to interpret the applicability of the amended Clause 12. The Circular cannot create a separate class of liquidation proceedings based on the commencement date, as this would be discriminatory and contrary to the purpose of the amendment.

3. Procedural Fairness and Practical Difficulties in the Liquidation Process:
The Tribunal acknowledged the practical difficulties highlighted by the Appellant and supported by the Amicus Curiae, related to the short 15-day period for payment of the balance sale consideration. The amendment to extend this period to 90 days was a response to feedback from stakeholders and aimed to make the liquidation process more practical and fair.

The Tribunal referred to the Discussion Paper issued by IBBI, which indicated that the 15-day period was considered too short by many Liquidators. The amendment was intended to provide a more reasonable timeframe, similar to the three months provided under the SARFAESI Act. The Tribunal emphasized that the amendment's purpose was to facilitate the liquidation process and maximize the value of the assets by providing bidders with sufficient time to arrange for the necessary funds.

Conclusion:
The Tribunal modified the order of the Adjudicating Authority, allowing the Liquidator to apply the amended Clause 12 of Schedule I to the liquidation process, even if it commenced before 25.07.2019. The Tribunal held that the Circular dated 26.08.2019 issued by IBBI is not legally enforceable to interpret the applicability of the amended regulations. The Tribunal's decision ensures procedural fairness and addresses the practical difficulties faced in the liquidation process, aligning with the objectives of the Insolvency and Bankruptcy Code.