TaxTMI 
TaxTMI 
2022 (3) TMI 93
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....ory provisions of Insolvency & Bankruptcy Code, 2016 (herein after referred to as Code) and IBBI (Liquidation Process) Regulations, 2016 and sought indulgence of the Tribunal to pass the following reliefs, i) Directions to Respondent No. 1 herein to produce the record before this Tribunal as to how the realizable value arrayed and the same reduced in every auction. ii) Directions to Respondent No. 1 to place the records/registers maintained by him with respect to the e-auctions conducted by him. iii) Directions to Respondent No. 1 to file an affidavit with respect to the difference in realizable value of ongoing concern and realizable value of collective price of individual assets mentioned from item no.2 in all sale notice. iv) Restrain Respondent No. 1 in taking any further actions to conclude the BID with respect to E-auction proceedings dated 15.07.2021 which is in violation of Regulation 32A of Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016 to sell the Company as "ongoing concern". v) Directions to Respondent No. 1 to place the records and documents submitted by all the bidders with respect to the abo....
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....ts to sell it as an ongoing basis even beyond 90 days from liquidation commencement date, which is against the provisions of law, when in the instant case, the Corporate Debtor is not a going concern company at the time of issuance of notice for e-auction. The Applicant accused the Liquidator of doing so, with an ulterior motive to facilitate the Promoters of the Corporate Debtor or his associates to purchase the assets at a cheap rate. It is stated that the Liquidator instead of taking action to sell the Corporate Debtor or its assets for maximization of the value of CD, had decreased the value as per his whims and fancies and acted against the provisions of the Code. The Applicant has tabulated the e-auction notices issued by the Liquidator and the realization value quoted by him vis-a`-vis the value quoted for asset wise sale, which is as under:- (in crores) S.No. Date of auction Reserve price fixed for ongoing Concern sale Collective reserve price of individual asset mentioned in sale notices Status l. 27.11.2019 72.00 Failed 2 16.12.2019 65.00 Failed 3. 06.01.2020 60.00 Failed 4. 17.02.20....
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....he ease and convenience of this Tribunal: 35. Powers and duties of liquidator. - (l) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely: - Sub Clause f of Sub Section l of Section 35 recites as follows: (f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified: [Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.] (n) to apply to the Adjudicating Authority for such orders or directions as may be necessary for the liquidation may be specified by the Board; and viii. The above provision is very clear that, the Ld. Liquidator need to take permission either in the form of direction or orders from this Tribunal before taking any action with respect to sale in any....
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....e Article 323B of Constitution of India. While IBBI as an institution only the creation of statute i.e., IBC, 2016. The Explanatory Circular date 26.08.2019 issued under Section 196 of the code is only applicable to the persons mentioned therein i.e., Insolvency Professional, Insolvency Professional Entities and all registered Insolvency Professional Agencies. IBBI has no supervisory or administrative powers vest with it to control any judicial or quasi-judicial body and hence the circular fails for any purpose to adjudicate the matter pending before this Hon'ble Tribunal. xii. Lastly, it is submitted that the Ld. Liquidator is fully aware that, he cannot conduct sale as "ongoing concern" which is one among the Agenda Item (No.5) in 1st Stakeholders Committee (Kindly refer page No.24 of the Application) conducted on 10.10.2019 whereas the circular was issued in 26.08.2019 (Attached as Annexure-II), a fact which was aware and available with the Ld. Liquidator that, fact was informed to the stake holders by him with respect to timelines for sale of the corporate debtor company as going concern. Bringing in the Circular is an afterthought by the Ld. Liquidator as he had e....
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....has published auction notice 16 times in leading newspapers. (iii) The Liquidator further submitted that Clause 4 of IBBI Liquidation Process Regulations, 2016 empowers the Liquidator to reduce the reserve price up to 25% {Or conducting the subsequent auctions. However, the Liquidator has reduced only 8% of the value in order to explore the possibilities of selling the Corporate Debtor at a maximum price. The Liquidator stated that as per the Liquidation Regulations, the reserve price will be the realizable/liquidation value only. But the Liquidator along with SBI and IOB fixed higher Reserve Price rather than minimum reserve price, enabling them to raise 183% of the minimum Liquidation value by selling three individual assets in two e-auctions and remaining CD as going concern basis in one of the auctions. (iv) The Liquidator further submits that, Regulation 32A (4) was inserted by Notification No. IBBI/2019-20/GN/REG047 dated 25.07.2019 but the Liquidation order in respect of the Corporate Debtor Company was passed by this Tribunal much prior to the amendment i.e. on 04.02.2019. Hence there is no time line fixed to sell the CD as a going concern before the said amendment. ....
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.... filed by both sides reiterating the contentions raised in their respective pleadings. 5. In the light of contest put-forth by the parties, the Tribunal framed the following point for its consideration? Whether the sale of the Corporate Debtor as a going concern held on 11.02.2021, is contrary to 32A of IBBI (Liquidation Process) Regulations? If so, whether the impugned sale is liable to be set aside? 6. We have heard Shri V.K. Sajith, Learned Counsel for Applicant, Shri S. Ravi, Learned Senior Counsel for Liquidator Shri G. Madhusudan Rao, perused the written submissions and the case law. 7. Point Whether the sale of the Corporate Debtor as a going concern held on 11.02.2021 is contrary to 32A of IBBI (Liquidation Process) Regulations? If so, whether the impugned sale is liable to be set aside? (i) Before we advert to the discussion on the points above, we refer here in certain important and undeniable facts and events. (a) On 04.022019 this Tribunal ordered liquidation of the Corporate Debtor, and appointed the Liquidator. (b) On 06.08.2019 Hon'ble NCLAT in Company Appeal (AT) No. 252 of 2019, directed the Liquidator to first take ste....
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....ties and all registered Insolvency Professional Agencies. IBBI has no supervisory or administrative powers vest with it to control any judicial or quasi-judicial body and hence the circular fails for any purpose to adjudicate the matter pending before this Hon'ble Tribunal. (iv) In support of his submissions, Ld. Counsel, also placed reliance on the following rulings: - (a) Hon'ble NCLT, Principal Bench ruling in, Mr. Sundaresh Bhat Liquidator of ABG Shipyard Limited, wherein para 13 of the order it was held that; "13. Perusing the Liquidation Regulations and Clause 12 of Schedule I as was subsequently introduced on 25.07.2019, the substituted Regulation which has been brought by way of amendment does not show that the Regulation is to be applied only prospectively. It is open ended provision relating to procedural law which in no way states that it will not apply to pending liquidation processes on the date of substitution. In our view, the Circular dated 26.08.2019 could not interpret the Regulations in the manner it is done. Power of Board under Section 196(1) (p) or (t) to issue guidelines cannot be expanded to interpreting provisions made. That is ....
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....hose clarifications and circulars were communicated. It is doubtful whether such clarifications and circulars bind the quasi-judicial functioning of the authorities under the Act. While acting in quasi-judicial capacity, they are bound by law and not by any administrative instructions, opinions, clarifications or circulars. Law is what is declared by this Court and the High Court to wit, it is for this Court and the High Court to declare what does a particular provision of statute say, and not for the executive. Of course, the Parliament/Legislature never speaks or explains what does a provision enacted by it mean. (See Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd.4)" d) Madras Bar Association Vs Union of India & another in Writ Petition (Civil) No.502 of 2021, where in Hon'ble Supreme Court clarified the Legislation and its functions. (v) Per Contra, Shri S. Ravi Ld. Senior Counsel appearing for the liquidator would contend that, the intention of the legislature has to be understood in a broader perspective and the going concern sale is not barred by the legislature after completion of the prescribed period, rather it only intended in directing the liquidator to....
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....32, and 32A of IBBI (Liquidation Process) Regulations, besides the IBBI Circular dated 26/08/2021, which are as follows. i. 32 Sale of Assets, etc. (came in to force on 22/10/2018.) 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. ii. 32A. Sale as a going concern (amended came in to force w.e.f.27/7/2019). (l) 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 maximize the value of the corporate debtor, he shall endeavor to first sell under the said clauses. (2) For the purpose of sale under sub-regulation (l), t....
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....ection 196 of the Insolvency and Bankruptcy Code, 2016. Yours faithfully, Sd/- (l. Sreekara Rao) Chief General Manager Email: [email protected] 9. Admittedly, the order of liquidation of corporate debtor in this case has been passed on 04.02.2019. It is pertinent to note that by the date of commencement of liquidation in the case on hand, no time limit was set under IBBI Regulation No 32 for sale of the CD as going concern. The amended Regulation 32A, which has come in to force subsequent to passing of liquidation order in this case i.e., on 27/7/2019, states that, "If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (D 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". 10. (i). The 1st Stakeholders Consultation Committee Meeting was held on 10.10.2019, in which meeting the Applicant also took part. Under the agenda item No. 5, it stated as follows: - Item-5: Discussion on the reserve price for the company as a whole as a going concern or asset-wise Liquidator apprised the ....
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....e under this sale notification besides 15 subsequent sale notifications despite reduction in reserve price from time to time, did not fructify. However, the 16th sale notice published on 1/7/2021 notifying that the sale of the CD as going concern scheduled on 15th July 202, has fructified. Pursuant there to LOI was issued to Mrs. Raji Dinesh and Mr. Akash Agarwal, the successful bidders on 15/07/2021 whereby the successful bidders were mandated to depot 25% of the bid amount i.e., Rs. 7,89,75,000.00 on or before 21/07/2021 and the balance on or before 13/08/2021 and the balance can also be paid within 90 days with interest 12% if not paid within 30 days. Since the successful bidder has paid the entire sale consideration along with applicable interest well within due date and the Liquidator on 9/10/2021 issued sale certificate to the successful bidder. 12. In this undeniable factual backdrop, having carefully examined the contentions of the Petitioner, mostly based on the ruling in re, Sundaresh Bhat, supra, that, the IBBI Regulation 32A, since held to be an open ended provision relating to procedural besides that the Power of IBBI, under Section 196(1) (p) or (t) to issue guidel....
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.... the Liquidator. can sell the business of the Corporate Debtor as a going concern.... the primary focus of the legislation is to ensure revival and continuation of the Corporate Debtor by protecting the Corporate Debtor form its own management and from a corporate death by liquidation" (Emphasis is ours), the word 'shall" used in sub clause 4 of IBBI Regulation 32A, necessarily be construed or read as "may", lest the the purpose and object that the statute seeks to achieve gets defeated. (f) In Ashok Lanka & Anr vs Rishi Dixit & Ors, 2005, 5 SCC Page598, Hon'ble Supreme Court held that, "The question as to whether a statute is mandatory or directory would depend upon the statutory scheme. It is now well known that use of the expression "shall" or "may" by itself is not decisive. The court while construing a statute must consider all relevant factors including the purpose and object the statute seeks to achieve". (g) In Gvindlal Chhaggan Lal Patel vs The Agricultural Produce Market 1976 AIR 263, Hon'ble Justice Chandrachud, Y.V. has held that, "But the little complexity that there is in this matter arises out of a known phenomenon, jud....
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.... ascertained, not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other. 'I (Emphasis is ours). "Thus, the governing factor is the meaning and intent of the legislature, which should be gathered not merely from the words used by the legislature but from a variety of other circumstances and considerations. In other words, the use of the word 'shall' or 'may' is not conclusive on the question whether the particular requirement of law is mandatory or directory. But the circumstance that the legislature has used a language of compulsive force is always of great relevance and in the absence of anything contrary in the context indicating that a permissive interpretation is permissible, the statute ought to be construed as pre-emptory". (h) Even in the ruling in, Sunderesh Bhat, supra, relied on by the Petitioner herein, Hon'ble NCLAT, while holding that, "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....
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.... delays. Hence, delays cause value destructions. Thus, achieving a high recovery rate is primarily abut identifying and combating the sources of delay". (iii) Hon'ble NCLAT, Principal Bench, vide its order dated August 24, 2021 [13], has upheld the validity of a GCS during liquidation by dismissing the order given by the Hon'ble NCLT, Principal bench in Invest Asset Securitisations & Reconstruction Pvt. Ltd, which is relied on by the petitioner herein, and stated as follows: "The Supreme Court has in a catena of judgements observed that liquidation should be the last resort only if the Resolution Plan submitted is not up to the mark and even in liquidation, the liquidator can sell the business of the corporate debtor as a 'going concern'. "The Appellate Authority and the Adjudicating Authority, too, in many recent decisions, have directed the liquidators to make efforts to sell the corporate debtor as a going concern. It helps in realisation of higher value, value preservation, and rescuing a viable business." 13. As regards the reserve price, it may be stated that in terms of Clause 4 Schedule-I of IBBI Liquidation Process Regulations,....