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TMI Blog2021 (1) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... it appears to me that the bidder could not place a conditional offer contrary to the terms of auction held in this case. The bidding document never permits the bidder to place a conditional offer. Even before the commencement of I B Code, the concept of transferring a company as a 'going concern' was entertained by various High Courts - The Supreme Court in Allahabad Bank v ARC Holding [ 2000 (9) TMI 931 - SUPREME COURT ] held that if the company is sold off as a going concern, then along with the assets of the company, if there are any liabilities relevant to the business or undertaking, the liabilities too are transferred . The above said position of law and the discussions lead to a legitimate conclusion that in a going concern sale all the assets and liabilities are to be taken by the successful bidder as per Regulation 32-A of IBBI (Liquidation Process) Regulations, 2016. This point is answered accordingly. Can a bidder raise unilateral terms and conditions in the form of conditional offer inconsistent with the terms in the bidding document published? - Can a successful bidder upon writing a letter to liquidator before the date of E-auction date, stating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to withdraw on his own as per the terms of bidding - whenever a bid is submitted it is done so only after knowing the terms of bidding. Even the amount of EMD is to be deposited in accordance with the terms of bidding. If there is any clarification on the terms of bidding including the EMD, it has to be made prior to submission of their bid. The clarification asked for was answered in the negative. Knowing fully well, by signing a declaration the bidder submitted their bid. In the declaration signed by the bidder he agreed unconditionally to abide by the terms of e auction inclusive of forfeiture of EMD in case he did not perform his part of obligation after acceptance of the bid in his favour. To sum up, the fact that the bidder/Visisth Services Limited was an unsuccessful resolution applicant, that the bidder cannot withdraw from the bid in contravention of the bidding terms as per the position of law discussed above, that the terms of e caution provide for forfeiture of EMD upon withdrawal, and that the bidder has signed a declaration agreeing to forfeit in case of default on his side and since it becomes a binding contract once his bid is accepted the bidder is disentitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its bid. CA(IB) No. 1313/KB/2019 was filed u/s. 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016. 2. Ld. Sr. Counsel Mr. Joy Saha appearing for the Visisth Services Limited (Successful Bidder) has drawn attention of the Adjudicating Authority (in short AA) that the Successful Bidder, Visisth Services Limited, has also filed an interlocutory application being I.A. (IB) No./KB/2020 in CA(IB) No. 1313/KB/2019 connected with CP(IB) No. 898/KB/2018 also praying for expeditious hearing of CA(IB) No. 1313/KB/2019 mainly praying for withdrawal from the bidding and buying process of the Corporate Debtor under liquidation. 3. Upon hearing the submissions of the Ld. Counsel Mr. Ajay Gaggar for the Liquidator as well as the Ld. Sr. Counsel for the Successful Bidder on 24/07/2020 and as requested, directions were given to list the IAs along with CA(IB) No. 1313/KB/2020 on 07/08/2020 as well as to submit e-copy of CA(IB) No. 1313/KB/2019 and written notes of defence and argument notes at the earliest preferably 3 days before the date of listing. 4. Both applications were heard at length through video conference since the work of the Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation to any third party unless the amount of ₹ 42,10,000 (Rupees Forty Two Lacs Ten Thousand only) is refunded to the Applicant. (d) Such further order and/or other orders, as this Learned Tribunal deems fit and proper; 7. Brief Facts. 8. M/s. United Chloro-Paraffins Pvt. Ltd. had filed an application u/s. 10 of the Insolvency and Bankruptcy Code, 2016 (in short, 'I B Code') which was admitted under Corporate Insolvency Resolution Process (in short, 'CIRP) vide an order dated 12/10/2018. During the course of CIRP, the Committee of Creditors did not approve the Resolution Plan as proposed by a Resolution Applicant, Visisth Services Limited, recommending liquidation of the Corporate Debtor. Accordingly, the RP had filed an application u/s. 33(1)(a)(i) of the 'I B Code' praying for liquidation of the Corporate Debtor. 9. Vide an order dated 19/07/2019 this Adjudicating Authority has passed an order directing the Corporate Applicant, United Chloro - Paraffins Private Ltd. to be liquidated and Mr. S. V. Ramani, having Registration No. IBBI/IPA-002/IP-N00530/2017-18/11692, was appointed as a Liquidator. Newspapers advertisement was published ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liabilities or in the alternative, if there is any impediment in selling the assets on going concern basis without any liabilities, this Adjudicating Authority may be pleased to permit the Successful Bidder,(in short bidder) Visisth Services Limited, to withdraw its bid in such circumstances and the Liquidator be directed to refund the EMD and the money paid by them for purchasing the bid document. 12. The Liquidator was directed to file reply to the supplementary affidavit filed by the successful bidder in CA(IB) No. 1313/KB/2019 fixing the next date of hearing on 04/02/2020. Thereafter, the matter came up for consideration on 04/02/2020, 18/02/2020 and 13/03/2020. On 13/03/2020 the matter was directed to appear on 24/03/2020. However, due to pandemic COVID-19 situation, lockdown was declared and is still continuing, as a result of which the CA(IB) No. 1313/KB/2019 could not be taken up on 24/03/2020. 13. In view of the above, the applicant has filed the unnumbered IA for early hearing of CA(IB) No. 1313/KB/2019 which is pending consideration since 24/03/2020 due to lockdown declared on account of pandemic COVID-19 situation prevailing praying for expeditious disposal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there were ready-made and pre-prepared formats for such declarations and like formal documents which would have to be signed and executed by the Applicant to take the matter forward. On 6th September, 2019, believing that, the conditions stipulated by the Applicant as aforesaid had been accepted by the liquidator, the Applicant had submitted the Earnest Money Deposit ( EMD ) to the liquidator through a demand draft no. 509566 dated 05.09.2019 for a value of ₹ 37,10,000 (Rupees Thirty Seven Lacs Ten Thousand Only) and subsequently participated in the E-Auction/bidding Process. On the same day (i.e. 6th September, 2019) the Applicant wrote a letter to the Liquidator mentioning that the Company under liquidation shall be transferred without any liabilities and averred that the total sale consideration along with the Applicant's terms and conditions must be approved by the Hon'ble NCLT, being Annexure-D to the application. On 8th September, 2019 the Applicant has sent an email to Liquidator stating that, upon any litigation arising from any source the monies paid including EMD and bidding document purchase amount to be refunded immediately within 3 days being Annexure- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E-Auction Process Information Document from the Liquidator on 3rd September, 2019 on payment of ₹ 5,00,000/- (Rupees Five Lacs Only). Thereafter, the Applicant and the Liquidator exchanged various emails and letters and the bidder had stipulated certain conditions to participate in the bidding process and purchasing process. Believing that, the conditions stipulated by the bidder vide emails had been accepted by the liquidator, the bidder had submitted the Earnest Money Deposit ( EMD ) to the Liquidator through a demand draft no. 509566 dated 05.09.2019 for a value of ₹ 37,10,000 (Rupees Thirty Seven Lacs Ten Thousand Only) and participated in the E-Auction/bidding Process. 17. The Ld. Sr. Counsel further submits that about 10 months have passed since the date of payment of EMD, the Liquidator has not taken any progressive steps towards completion of the purchasing process of the Corporate Debtor under Liquidation, as such the Successful Bidder has incurred significant monetary loss/expenses towards bank interest on ₹ 42,10,000/- being the amount spent towards purchasing the E-Auction Process Information Document (₹ 5,00,000/-) plus Earnest Money Deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant Law in the Indian Insolvency regime after Independence. We cannot say that this code is exhaustive. It can be categorized as an evolving concept and a lot of amendments and precedents are emerging day by day even during this pandemic to fill the gap in the code and to make it an exhaustive code. Three years have elapsed after the enforcement of the code but still, there are some gray area yet to be resolved and settled. The concept of transferring a company as a 'going concern' was introduced by way of amendment to IBC w.e.f. 25.07.2019. Several challenges were brought up, in respect of selling corporate debtor as a going concern. One among the objections the Ld. Sr. Counsel for the bidder, raised is that the IBC Code, does not explain as to whether in a going concern all the assets and liabilities are to be taken by the successful bidder as well or not in a case of liquidation. So It is good to read and understood what Regulation 32-A say about sale of a going concern. It read as follows:- 32A. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he approval or decision of the committee under Section 30 or 33 as the case may be. 21. No where in the Code or in the Regulations defines what is meant by sale as a going concern. However, a reading of regulation 32-A (2) and (3) of IBBI (Liquidation Process) Regulations, 2016, with Regulation 39-C of IBBI (Insolvency Resolution process for corporate Person) regulations, 2016, I have no doubt that sale as a going concern means transfer of CD with its assets and liabilities. Since various challenges regarding the sale of going concern were gone to NCLT, the IBBI has published a Discussion Paper on Corporate Liquidation Process along with Draft Regulations dated: 27th April, 2019 observing that: (https://ibbi.gov.in/Discussion paper LIQUIDATION.pdf) 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, licenses, concessions, agreements, benefits, privileges, rights or interests to the acquirer. The consideration received from sale will be split into share capital and liabilities, based on a capital structure t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its assets as on date of transfer. The Liquidator does not take or assume any responsibility for any shortfall or defect or shortcoming in the moveable/immoveable assets of the Company. 13. This E-Auction Process Information Document is neither an agreement nor an offer by the Liquidator to the Prospective Bidders or any other person. The objective of this E- Auction Process Information Document is to provide interested parties with information that may be useful to them in making their bids. It may be noted that the assumptions, assessments, statements and information contained in the E-Auction Process Information Document may not be complete, accurate, adequate or correct. Each Bidder should, therefore, conduct its own due-diligence, investigations and analysis and should also check the accuracy, adequacy, correctness, reliability and completeness of the assumptions, assessments, statements and information contained in this E-Auction Process Information Document and may get independent advice from appropriate sources. 14. Information provided in this E-Auction Process Information Document to the Bidder(s) has been collected and collated from several sources. The infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the business or undertaking, the liabilities too are transferred . The above said position of law and the discussions lead to a legitimate conclusion that in a going concern sale all the assets and liabilities are to be taken by the successful bidder as per Regulation 32-A of IBBI (Liquidation Process) Regulations, 2016. This point is answered accordingly. POINT NO (ii) (iii): 25. Both these points are taken together for convenience and for avoiding repetition of facts. The ld. Sr. Counsel for the bidder attempted to convince me that the offer accepted by him is conditional one and referred to the letter dated 04.09.2019. According to him before the bidder bid raised a conditional offer and that offer being not rejected by the liquidator before acceptance and therefore there is no acceptance of his offer by the liquidator and hence he is entitled to withdraw from the bid with all the money he paid inclusive of EMD and the 5 lakh paid as the cost of the copy of the bid documents with interest for delayed refund. He further argued that in a tender process or in any other form of public auction, a bidder can make his offer as per his suitability. The Liquidator has to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dder are detailed at sub para nos. (a) to (k) are omitted for convenience. Note: Dispensation and concession as detailed above and mentioned elsewhere is sought from the Adjudicating Authority while approving the successful bidder. Prayer is also being hereby made to the Adjudicating Authority that under no circumstance the successful bidder would be made liable to pay any amount in addition to the total price as envisaged after being the successful bidder. Dispensation is also sought from all the cases whether listed or not in the Information Memorandum and not proposed to be settled. Dispensation is further sought from fresh initiation of any case or proceedings against the corporate debtor or the resolution applicant relating to any period prior to the Insolvency Commencement date, no amount would be paid to any creditor or authority under any circumstance relating to the period prior to the insolvency commencement date except as specifically provided under this Liquidation Process and that any such would consequently qualify as operational debt (as defined under the IBC) and therefore the full amount of such Liabilities shall be deemed to be owed and due as of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated period mentioned above it would carry interest @15% per annum till the date of repayment. Regard Nathmal Bangani Director Visisth services Ltd. A reading of the above said letter makes it clear that what is intended is to seek certain clarification and waiver of certain tax liability which are inconsistent with the terms and conditions in the bidding document and hence the liquidator in the nature of this case appears to me can ignore it. Moreover, the said letter was timely replied by the liquidator before the alleged acceptance of the bid. The reply is copied below: Letter dated 5 Sep 2019 From: Sv Ramani [email protected] Sent: Thu, 5 Sep 2019 18:59:18 GMT+0530 To: Nathmal Bangani [email protected] Subject: Re: Clarifications Dear Mr. Bengani Looks this mail is prior to our talk. As explained over phone, the time schedule was already known to you as categorically mentioned in Information Document. The legal issues pertaining to e-auction cannot be changed after public notification You have consistently made averments that DD is ready. You were aware of the time schedule from 1st September Moreo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes it clear that he could not make any changes to the terms. Therefore, even if it is a conditional offer it was rejected by the liquidator before the bidder accepted the bid offered by the liquidator as per the terms of the bidding document. At this juncture the declaration given by the bidder makes it more clear that the bidder accepted the bid as per the terms and conditions stipulated in the bidding documents. The declaration read as follows: Visisth Services Limited Shivam Chambers, 53, Syed Amir Ali Avenue, 4th floor, Unit-4F, Kolkata 700019 Annexure - III Declaration by Bidders 05.09.2019 To Mr. S.V. Ramani, Liquidator ....... Kolkata 700020 Dear Sir, I/We, the Bidder(s) aforesaid do hereby state that I/We have read the entire terms and conditions for the sale of assets as specified in the Information Sheet and have understood them fully. I/We, hereby unconditionally agree to confirm with and to be bound by the said terms and conditions and agree to take part in the e-auction process. I/We declare that the Earnest Money Deposit (EMD) and the deposit towards purchase-price have been made by me/us as against my/our bid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the additional conditions if announced during the e-auction including any announcement(s) on correction of and/or additions or deletions to the time of auction portal and property(ies) being offered for sale. (h) I/We confirm that the Seller and his employees, shall not be liable and responsible in any manner whatsoever for my/our failure to access and bid on the e-auction portal due to any unforeseen circumstances etc. before or during the auction event. (i) I/We hereby confirm that I/we are eligible to purchase the assets of the Company under Section 29A of the Insolvency and Bankruptcy Code, 2016. For VISISTH SERVICES LTD. Sd/-Nathmal Bangani Director Seal Name: Visisth Services Ltd. Shivam Chambers, 53, Syed Amir Ali Avenue, 4th floor, Unit-4F, Kolkata 700019 The above said declaration read with the letters dated 4th September, 2019 and 5th September, 2019, demonstrate that the bid was unconditional and complete and the bidder who is bound to abide by the offer and the terms and conditions of the bid had accepted the bidder unconditionally. In the above said background of facts regarding bid offer and conditional offer, proved in this case, the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 . The above said view is more specified in the case of State of Punjab Vs. Devans Modern Breweries Ltd., reported in (2004) 11 SCC 26 the Hon'ble Supreme Court has held as under: [para 139 140] 139. In the case of State of Haryana v. Lal Chand this Court held that after making a bid for grant of exclusive privilege of liquor vendor with full knowledge of terms and conditions of auction, the bidder cannot wriggle out of the contractual obligations arising out of acceptance of his bid by filing writ petition. 140. In the case of State of Punjab v. Dial Chand Gian Chand and Co. this Court held that a licensee who participates in the auction voluntarily and with full knowledge is bound by the bargain and the writ petition filed under Article 226 by such licensee in an attempt to dictate terms of the licence without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the bidder further submitted that if offer and acceptance happens and the contract is not complete there is no question of forfeiture of money of the successful bidder. It happens only when the contract is completed. In this case the contract is not completed. Breach of contract has not taken place and hence EMD cannot be forfeited. He also submitted referring to Section 74 of the Contract Act that the prerequisite for imposition of penalty or forfeiture or damages or loss if there is estimation of the reasonable damages. Because of single bidder no damage has been caused since the contract was conditional. Both these submissions appear to me not worthy for consideration in the peculiar nature and circumstances in detail discussed as above. In the given factual situation section 74 of the Contract Act, has no application. The forfeiture of EMD claimed by the liquidator is not on the basis of damages but as per terms of bidding document. 32. As per the position of law discussed above, whenever a bid is submitted it is done so only after knowing the terms of bidding. Even the amount of EMD is to be deposited in accordance with the terms of bidding. If there is any clari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners to seek clarification from APHB before submission of their bid. Knowing fully well they submitted bid and therefore they cannot go back and contravene condition (2) of TCAN, for default of which, impugned order was issued. In a case of doubt about the defective title the petitioners had a right to withdraw from the bid. Even in such a case the right of APHB to forfeit EMD as well as 25% of the bid amount as per condition (2) of TCAN is not taken away. 33. To sum up, the fact that the bidder/Visisth Services Limited was an unsuccessful resolution applicant, that the bidder cannot withdraw from the bid in contravention of the bidding terms as per the position of law discussed above, that the terms of e caution provide for forfeiture of EMD upon withdrawal, and that the bidder has signed a declaration agreeing to forfeit in case of default on his side and since it becomes a binding contract once his bid is accepted the bidder is disentitled to claim back the EMD. He does not have a right to withdraw his offer at any time after the acceptance is conveyed to him. The acceptance was conveyed to him on 25.09.2019. It is as per an affidavit filed on 09.01.2020 in the CA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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