2022 (1) TMI 460 - AT - Insolvency and Bankruptcy

Sale of Corporate Debtor as 'Going Concern' Includes Assets & Liabilities: Tribunal Upholds Bid Terms

The Tribunal held that the sale of a Corporate Debtor as a 'Going Concern' in Liquidation Proceedings includes both assets and liabilities. It emphasized ... Approval of the Sale as a ‘Going Concern’ - Whether sale of Corporate Debtor as a ‘Going Concern, in Liquidation Proceedings includes its liabilities - 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’ - HELD THAT:- Regulation 32 A of the IBBI (Liquidation Process) Regulations, 2016 states that Sale as a ‘Going Concern’ means sale of assets as well as liabilities and not assets sans liabilities. Paragraphs 3.2.1 and 4.2.1 of the afore-noted discussion paper amply specified that all assets and liabilities, which constitute an integral business of the Corporate Debtor Company would be transferred together and the consideration paid must be for the business of the Corporate Debtor. It is concluded that Sale of a Company as a ‘Going Concern’ means sale of both assets and liabilities, if it is stated on ‘as is where is basis’. It is the main case of the Appellant having communicated to the Liquidator prior to the e-Auction date; they had participated in the Bid process with the bona fide intention to comply the sale process as the second Respondent/SBI had accepted the payment terms. Since the liquidator did not assist the Appellant in clarifying the liabilities of the Corporate Debtor, the Appellant informed the Liquidator that if their Bid is not accepted with its terms they would seek to withdraw from the Bid. Applicant has accepted all the terms and conditions and cannot revise the same. The Bid Document also specifies under the heading ‘Costs, Expenses and Tax Implications’ that payment of all statutory and non-statutory dues, taxes, rates, assessments, charges, fees, owed by the Corporate Debtor to anybody in respect of the subject property shall be the sole responsibility of the Successful Bidder. It is also significant to note that an email dated 06.09.2019; the Liquidator has clearly mentioned that ‘legal issues pertaining to e-Auction cannot be changed after public notification’. By paying the EMD amount and accepting the Bid, the Successful Bidder cannot now say that it was not a concluded contract. 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. If the Appellant 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 subsequent to their participation and putting in their Bid. 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. The Liquidator shall endeavour to sell the Corporate Debtor Company as a ‘Going Concern’ only in accordance with the law. If the Bidder is allowed to withdraw from the Bid at this stage and seek 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 - The acceptance was conveyed to the Bidder on 25.09.2019. Clearly noting the terms and conditions that the Company was being sold as a ‘Going Concern in an as is very basis’, the Bidder cannot now be permitted to turn around and plead that their offer was conditional. Keeping in view the ratio laid down by Hon’ble Supreme Court of India in a catena of Judgments that the Bidder cannot wriggle out of the contractual obligations arising out of acceptance of his Bid and also having regard to Regulations 32A and the scope and objective of the Code together with the Principle laid down by this Tribunal in ‘Mohan Gems and Jewels’ [2021 (8) TMI 1000 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] it can be opined that the Appellant cannot be entitled to the EMD amount and the amount paid towards the Bid Purchase document, if he does not comply with the terms of the contract. There are no illegality or infirmity in the well-reasoned order of the Adjudicating Authority - appeal dismissed. Issues Involved:- Whether the sale of the Corporate Debtor as a 'Going Concern' in Liquidation Proceedings includes its liabilities.- Whether the Appellant can withdraw from the Bid after payment of the EMD and seek a refund on the grounds that the offer made was a 'conditional offer'.Detailed Analysis:1. Sale of Corporate Debtor as a 'Going Concern' and its Liabilities:The Tribunal examined Regulation 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, which elucidates the sale of a corporate debtor as a 'Going Concern'. The regulation specifies that both assets and liabilities are to be sold together. The Tribunal emphasized that 'Sale as a 'Going Concern' means sale of assets as well as liabilities and not assets sans liabilities.' This interpretation was supported by paragraphs from the IBBI Discussion Paper, which clarified that the entire business, including assets and liabilities, must be transferred together to ensure the business remains operational without disruption.2. Withdrawal from the Bid and Refund of EMD:The Tribunal addressed whether the Appellant could withdraw from the bid after paying the EMD and seek a refund. The Appellant argued that their participation was conditional and based on the assumption that the liabilities would be clarified and extinguished. However, the Tribunal found that the Appellant was bound by the terms and conditions of the Bid Document, which stated that the sale was on an 'as is where is basis' and included liabilities. The Tribunal noted that the Appellant had communicated conditions to the Liquidator before the e-Auction, but the Liquidator had clarified that no changes could be made to the Information Document after public notification. The Tribunal held that the Appellant, having participated in the bid and paid the EMD, could not later impose conditions or withdraw from the bid. The terms and conditions of the bid were clear, and the Appellant had accepted them by participating in the auction.Conclusion:The Tribunal concluded that the sale of a company as a 'Going Concern' includes both assets and liabilities if it is stated on an 'as is where is basis'. The Appellant could not withdraw from the bid or seek a refund of the EMD and the amount paid for the bid document, as they were bound by the terms of the contract. The Tribunal dismissed the appeal, finding no illegality or infirmity in the Adjudicating Authority's order.