The National Company Law Appellate Tribunal (“NCLAT”) has in its judgment dated January 11, 2022 (“Judgement”), in the matter of Visisth Services Limited v. Mr. S. V. Ramani and Others [Company Appeal (AT) (Insolvency) No.896 of 2020], held that a ‘Successful Bidder’ cannot wriggle out of the contractual obligations and withdraw the bid after payment of earnest money deposit on the ground that the offer made was a ‘conditional offer’.

Facts

The present appeal had been filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), by M/s. Visisth Services Limited (“Appellant”) against an order dated August 07, 2020 (“Impugned Order”) passed by the National Company Law Tribunal, Kolkata Bench (“NCLT”). By the Impugned Order, the NCLT had dismissed the application of the Appellant and also disposed of the company application filed by Mr. S. V. Ramani, the liquidator (“Respondent 1” / “Liquidator”) of United Chloro Paraffins Private Limited (the “Corporate Debtor”) with directions to issue fresh invitation to bidder to provide balance sale consideration within such time as per Schedule I of Regulation 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“LPR 2016”). Further, the NCLT directed that, in case of payment of the full sale consideration, 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 and in case of failure to pay the balance sale consideration, the Liquidator was at liberty to cancel the sale in favour of the bidder by forfeiting the earnest money deposit (“EMD”) and the amount paid towards the price of bidding document and to proceed with sale as per Regulation 32-A of the LPR 2016.

Previously, on October 12, 2018, an application filed under Section 10 of the IBC by the Corporate Debtor was admitted by the NCLT. Subsequently, due to failure of corporate insolvency resolution process (“CIRP”), on July 19, 2019, an order of liquidation was passed and Mr. S. V. Ramani was appointed as the Liquidator. Consequently, on September 01, 2019, the Liquidator issued advertisements inviting ‘Bids’ from prospective buyers through e-auction process for sale of the Corporate Debtor under liquidation as a ‘Going Concern’. Pursuant to this, the Appellant purchased the e-Auction Process Information Document (“Bid Document”) from the Liquidator upon payment of Rs. 5 Lakhs. On September 04, 2019, the Appellant issued an e-mail to the Liquidator – (i) seeking clarifications on several issues with respect to ‘E-Auction process’ (the queries pertained to the claims and liabilities of the Corporate Debtor such as charges over the assets, outstanding statutory dues to the ‘Tax Authorities, Electricity Authorities’, etc.); (ii) proposed different payment terms; and (iii) specified in the e-mail that their offer of acceptance was conditional to extinguishment of claims of ‘Financial Creditors, Tax Department, Operational Creditors, Provident Fund Employees and other contingent liabilities’ (“Conditional Offer E-mail”).

On September 05, 2019, the Liquidator sent two e-mails to the Appellant informing that the terms and conditions of the Bid Document could not be changed or revised after publication. M/s. State Bank of India (“SBI” / “Respondent 2”) had also replied to the e-mail and clarified the conditions. The Appellant addressed a letter on September 06, 2019 reconfirming its understanding of acceptance of the terms and conditions for the bid (“Reconfirming E-mail”). The Appellant submitted an EMD of Rs. 37,10,000/- to the Liquidator. On September 08, 2019, the Appellant sent an e-mail to the Liquidator stating that if any litigation arises from any source, the EMD amount and the Bid Document purchase amount was to be refunded within three days.

The Liquidator issued a provisional sale letter dated September 25, 2019 in favor of the Appellant (“Provisional Letter of Sale”) upon receipt of communication from SBI confirming that it was the highest successful bidder in the e-auction process. On October 29, 2019, the Appellant addressed a letter to the Liquidator stating that the Provisional Letter of Sale was inconsistent with the terms of payment specified by the Appellant and sought for refund of the money paid with the interest. Subsequently, on January 9, 2020, an affidavit was filed by the Appellant in the application preferred by the Liquidator before the NCLT seeking direction for ‘Approval of the Sale’ as a ‘Going Concern’; wherein the Appellant sought for approval without transfer of any liabilities; and if there exists any impediment, it sought for withdrawing from the bid and the refund of the amount paid.

Issue

• Whether sale of Corporate Debtor as a ‘Going Concern’ in liquidation proceedings includes its liabilities.
• Whether the Appellant could withdraw from the bid after payment of the EMD and seek for refund of the EMD on the ground that the offer made was a ‘conditional offer’.

Arguments

Contentions raised by the Appellant:

There was no valid contract between the parties. The Conditional Offer E-mail was sent wherein it was amply clarified that the Appellant would be willing to participate in the e-auction process only if the liabilities attached to the units of the Corporate Debtor, both statutory and non-statutory in nature, were extinguished. Further, different payment terms were proposed. These conditional terms formed part of the multiple subsequent correspondence issued by the Appellant to the Liquidator, including the Reconfirming E-mail.

The terms of the bid laid down in the Bid Document were not absolute, and only an intimation to offer. The intending purchaser was at liberty to negotiate and agree upon the terms subject to which the offer will be made, as formed part of the Conditional Offer E-mail and the Reconfirming E-mail. The Liquidator selectively chose to remain silent on the issues despite repeated clarifications sought by the Appellant and the clear intention that the offer of the Appellant would be conditional. The Liquidator informed the Appellant that SBI had accepted most of the conditions made by the Appellant and, therefore, the Appellant deposited the EMD of Rs. 37,10,000/- assuming that the conditions set out in the Conditional Offer E-mail had been accepted. The Liquidator proceeded to issue the Provisional Sale Letter despite the clear contents of the Appellant’s Conditional Offer E-mail.

Since the Liquidator did not assist the Appellant in clarifying the liabilities of the Corporate Debtor, the Appellant informed the Liquidator that if its bid is not accepted with its terms they would seek to withdraw from the bid. An affidavit to this extent was filed by the Appellant before the NCLT on January 09, 2020 seeking to withdraw its bid and sought for refund of the EMD and the amount paid towards purchasing the Bid Document. Subsequently, the sale remained unconfirmed till July, 2020, by which date the pandemic hit the country and on account of this unprecedented force majeure event, the Appellant addressed an e-mail dated July 10, 2020, informing the Liquidator about the poor financial health and seeking to withdraw from the bid.

The Appellant had participated in the bid with the bona fide intention to complete the sale conditional to the terms proposed by it. However, the Liquidator failed to clarify the terms of the sale and the Appellant cannot be subjected to the terms that it did not agree to abide by. Further, even in the case where a ‘Going Concern’ is on an ‘as is where is basis’, the pre-existing pecuniary liabilities cannot be transferred. The LPR 2016 provides that the Liquidator shall identify and group the assets and liabilities to be sold as a ‘Going Concern’ in consultation with the ‘Consultation Committee of Creditors’. In the present case, the Liquidator had failed to exercise his duty of assisting the Appellant with information and documents pertaining to the liabilities of the Corporate Debtor. If the EMD is forfeited, the Corporate Debtor will be permitted to make unlawful gains and unjustly enrich at the expense of the Appellant.

Contentions raised by the Respondent 1:

The Appellant after payment of the EMD, wrote a letter to the Liquidator on September 06, 2019, that the sale of the Corporate Debtor should be transferred without any liabilities. The Appellant was aware of the fact that the sale of the assets of the Corporate Debtor included its liabilities as the sale was on an ‘as is where is basis’. It was also submitted that the Appellant was involved in the CIRP where it was the unsuccessful resolution applicant and, thus, was aware of the liabilities attached to the assets of the Corporate Debtor.

The Liquidator in its response dated January 05, 2020 to the e-mail sent by the Appellant in September, 2019, had clarified that no changes could be made to the Bid Document, once it is published in the public domain. The Appellant was bound by its declaration submitted to the Liquidator on September 05, 2019, that upon failure to act on the terms of the sale, the EMD and all other amounts would be forfeited.

Contentions raised by the Respondent 2:

Subsequent to making its bid on September 06, 2019 and having been declared ‘Successful Bidder’, the Appellant cannot seek to impose conditions as it has attempted to do so by the Reconfirming E-mail and e-mails dated September 08, 2019 and October 29, 2019. The Appellant was bound by the terms and conditions of the Bid Document, wherein the payment of all statutory dues, taxes, fees, charges, was specified to be the sole responsibility of the Appellant. The Liquidator never either expressly or impliedly accepted the terms and conditions addressed to by the Appellant. The Appellant should have refrained from participating in the bid if it was desirous of sticking to the conditions put forth by it.

It was denied that SBI had ever accepted the conditions proposed by the Appellant. The sale of the Corporate Debtor was as a ‘Going Concern’ on ‘as is where is basis’, therefore the assets and liabilities could not be bifurcated. The Bid Document duly clarified that the assets in liquidation were being sold as a ‘Going Concern’. The Appellant had accepted condition of forfeiture of the EMD as mentioned in the Bid Document. The amount deposited by the successful bidder accounts for 10% for the ‘Reserve Price’ and if there is forfeiture, the loss is indeed enormous. The Appellant has no right to make any claim in as much as it has failed to pay the subsequent due towards the sale consideration within the time frame of 90 days as per Clause 12 of Schedule 1 of the LPR 2016.

Observations of the NCLAT

The NCLAT observed that, it could be seen from the paragraphs 3.2.1, 3.2.2 and 4.2.1 of the IBBI Discussion Paper on Corporate Liquidation Process (“Discussion Paper”) along with Draft Regulations dated April 27, 2019 as well as Regulation 32-A of the LPR 2016, that sale as a ‘Going Concern’ means sale of assets as well as liabilities and not assets sans liabilities. The NCLAT observed that, paragraphs 3.2.1 and 4.2.1 of the discussion paper amply specified that all assets and liabilities, which constitute an integral business of the Corporate Debtor would be transferred together, and the consideration paid must be for the business of the Corporate Debtor.

Thereafter, the NCLAT addressed the second issue, and noted that, it is the main case of the Appellant having communicated to the Liquidator prior to the ‘E-Auction process’ date; they had participated in the bid process with the bona fide intention to comply the sale process as the Respondent 2/SBI had accepted the payment terms. The NCLAT observed that perusal of the terms and conditions of the Bid Document for the proposed sale showed that clauses 12,13,14 and 15 showed that the Appellant had accepted all the terms and conditions and could not revise the same. The Bid Document also specified 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 Appellant being the ‘Successful Bidder’. The NCLAT also noted that by an e-mail dated September 06, 2019, the Liquidator had clearly mentioned that ‘legal issues pertaining to e-Auction cannot be changed after public notification’. The NCLAT noted that the fact that the Appellant was supposed to comply the auction purchase in 2019 itself and the pandemic erupted in the year 2020.

The NCLAT observed that, the Supreme Court in Pawan Kumar Agarwal v. Association of Management Studies and Another [2009 (6) SCC 171] had observed in paragraph 26 as follows, “26. A tender is an offer. It is something which invites and is communicated to notify acceptance. Broadly stated it must be unconditional; must be in the proper form, the person by whom tender is made must be able to and willing to perform his obligations. The terms of the invitation to tender cannot be open to 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 NCLAT observed that, the Liquidator will carry on the business of the Corporate Debtor for its beneficial Liquidation as prescribed under Section 35 of the IBC. The Liquidator will only act and cannot modify/revise the terms of the contract.

The Liquidator shall endeavor to sell the Corporate Debtor as a ‘Going Concern’ only in accordance with the law. In the declaration signed, the Appellant unconditionally agreed to abide by the terms of the ‘E-Auction process’ and the Bid Document, which is inclusive of forfeiture of the EMD, in the event the Appellant did not perform their part of obligation after the acceptance of the bid in their favor. The acceptance was conveyed to the Appellant on September 25, 2019. Clearly noting the terms and conditions that the Corporate Debtor was being sold as a ‘Going Concern’ in an ‘as is where is basis’, the Appellant cannot now be permitted to turn around and plead that their offer was conditional.

Decision of the NCLAT

The NCLAT concluded that the 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’. Further, the Appellant being the ‘Successful Bidder’ cannot wriggle out of the contractual obligations and having regard to Regulation 32-A of the LPR 2016 and the scope and objective of the IBC, the NCLAT was of the opinion that the Appellant cannot be entitled to the EMD amount and the amount paid towards the Bid Document, if he does not comply with the terms of the contract on the ground that the offer made was a ‘conditional offer’. As a result, the NCLAT did not find any illegality or infirmity in the order of the NCLT. Hence, the appeal was accordingly dismissed.

VA View:

The NCLAT in this Judgement has correctly observed that, the Appellant was bound by the terms and conditions of the Bid Document and no communication to the Liquidator stating that it was a conditional offer, was sustainable. If the Appellant had any apprehensions and conditions about the liabilities, the Appellant could have exercised its choice of not participating in the bid.

The NCLAT observed that, having participated, the Appellant cannot propose certain conditions subsequent to its participation and bid. It was analysed that, if the Appellant is allowed to withdraw from the bid at this stage and seek refund on the ground that its conditional offer has not been accepted, then the liquidation process would be a never ending one, defeating the scope and objective of the IBC.

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