2021 (1) TMI 341 - Tri - Insolvency and Bankruptcy

Successful bidder must honor terms in going concern sale. Unilateral changes invalid. No refund for rejected conditional offer.

The Tribunal held that in a going concern sale, the successful bidder must take over all assets and liabilities of the corporate debtor. Unilateral terms ... Direction to respondent to complete the sale transaction and/or make payment of the balance amount - Section 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016 - Whether 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? - HELD THAT:- It is an admitted fact that a bidder before bidding has to buy the said bidding document which is valued for 5 lakh. The bidder in the instant case had one copy by paying the said amount. It is also significant to note here that the bidder is not a stranger to the CD. From the records it is understood that the very same bidder was an unsuccessful resolution applicant who had submitted a resolution plan which was rejected by the then CoC during the CIRP. So the conduct of the bidder in this case clearly leads to a conclusion that knowing well the existing liabilities of the CD and the terms of e auction the bidder participated in the bidding and therefore, 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 that his bid is on the conditions that other liabilities will not be foisted upon the bidder amount to conditional offer and in case non acceptance of the said offer, the bidder is entitled to withdraw from the bid with refund of EMD as claimed? - HELD THAT:- It is significant to note here that the bidding document has not been permitted to make a conditional offer by a bidder. In view of that, I do not find any force in the argument advanced on the side of the bidder that a bidder can in any case of e auction sale make a conditional offer suitable to his choice. Even if the letter dated 4th September, 2019 is styled as a conditional offer, that offer was not accepted by the liquidator and liquidator's letter dated 5th September, 2019 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. A bidder cannot raise unilateral terms and conditions contrary to the terms of the bidding document published. The law is settled as to the power of a Tribunal/Court that the terms of tender are not open to judicial scrutiny and that the authority calling for the tender is the best judge to prescribe the terms and conditions of the tender, therefore, in the light of these, a bidder may also not raise unilateral terms and conditions in a case of this nature - it is clear that when the bidder had participated in the e auction and had deposited the EMD, then he cannot ask for waiver of tax liabilities and other relief which were not permissible as per the bidding documents. Whether the bidder is to be permitted to withdraw from the bid with a direction to the liquidator to refund the EMD as claimed by the bidder? - HELD THAT:- The conditional offer as alleged being found has no legal force he cannot as of right withdraw from the bid as per the terms of bid accepted by the bidder. It is significant to note here that the conditional offer raised by the bidder has been rejected by the liquidator and the letter dated 04.05.20 is superseded by the declaration dated 05.09.2020. Therefore, the bidder is disentitled 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 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 - there are no hesitation in holding that the bidder is disentitled to get any relief as prayed for and therefore the unnumbered IA filed by the bidder is liable to be dismissed. In regards to the application filed by the liquidator, it appears to me that filing an application like the one is unwarranted and untimely. As per Section 35 of the Code read with Regulation 32-A and 33, of Liquidation Process Regulations, a liquidator is at liberty to confirm the sale following the procedure as laid down under Schedule I of the Regulations. Upon completion of sale what is expected to be from the liquidator is to submit a final report for closure of the liquidation process of the CD as per Regulation 45(3) ( a). 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 - 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 - 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 bidding document and to proceed with sale as per Regulation 32-A Application dismissed. Issues Involved:1. Whether 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, 2016Rs.2. Can a bidder raise unilateral terms and conditions in the form of a conditional offer inconsistent with the terms in the bidding document publishedRs.3. Can a successful bidder, upon writing a letter to the liquidator before the date of E-auction, stating that his bid is on the condition that other liabilities will not be foisted upon the bidder, amount to a conditional offer, and in case of non-acceptance of the said offer, is the bidder entitled to withdraw from the bid with a refund of EMD as claimedRs.Detailed Analysis:Issue 1: Transfer of Assets and Liabilities in a Going Concern SaleThe Tribunal examined whether a going concern sale includes the transfer of all assets and liabilities to the successful bidder. Regulation 32-A of the IBBI (Liquidation Process) Regulations, 2016, and Regulation 39-C of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, were scrutinized. It was concluded that the sale as a going concern means the transfer of the corporate debtor with its assets and liabilities. This is supported by the IBBI Discussion Paper on Corporate Liquidation Process, which states that the corporate debtor will be transferred along with its business, assets, and liabilities, including all contracts and agreements. Therefore, the bidder must take over the corporate debtor with its existing liabilities.Issue 2: Unilateral Terms and Conditions by a BidderThe Tribunal addressed whether a bidder can impose unilateral terms inconsistent with the bidding document. The Tribunal found that the bidding document did not permit conditional offers. The bidder, Visisth Services Limited, had sought reliefs and waivers through a letter dated 04/09/2019, which were beyond the liquidator's powers to grant. The liquidator's reply on 05/09/2019 clarified that the terms of the bid could not be altered post-public notification. The Tribunal emphasized that a bidder cannot unilaterally alter the terms of a public auction, as supported by precedents like Air India Limited v. Cochin International Airport Limited and State of Punjab v. Devans Modern Breweries Ltd. Thus, the bidder's conditional offer was invalid.Issue 3: Entitlement to Withdraw from the Bid and Refund of EMDThe Tribunal considered whether the bidder could withdraw from the bid and claim a refund of the EMD due to the alleged conditional offer and force majeure (COVID-19). The Tribunal found that the bidder's conditional offer was rejected by the liquidator, and the bidder had accepted the bid by depositing the EMD, thus binding the bidder to the terms of the bid. The declaration signed by the bidder confirmed unconditional acceptance of the bid terms. The Tribunal also noted that force majeure was not applicable as there was no agreement covering such extraordinary events. Consequently, the bidder was not entitled to withdraw from the bid or claim a refund of the EMD.Orders:1. The liquidator shall issue a fresh invitation to the bidder to provide the balance sale consideration within the stipulated time.2. Upon payment of the full amount, the liquidator shall execute the certificate of sale or sale deed to transfer the assets as per the bidding document.3. In case of failure to pay the balance sale consideration, the liquidator is at liberty to cancel the sale, forfeit the EMD, and proceed with the sale as per Regulation 32-A.The unnumbered IA filed by Visisth Services Limited was dismissed, and the Interlocutory Application C.A. (IB) No. 1313/KB/2019 was disposed of accordingly.