NCLT Hyderabad (30.06.2021) in Viswa Infrastructures Finance & Services Pvt Ltd Vs SREI Equipment Finance Ltd [IA (IBC)/157/2021 in CP (IB) No. 329/7/HDB/2018 ] held that;
Corporate Debtor is being sold on an ongoing concern basis which is more or less in the nature of resolution of the Corporate Debtor as such he has no objection if the prayers sought for in the term sheet submitted by the successful bidder are allowed by the Tribunal. Already Successful Bidder has deposited Rs. 57 crores. In order for the Successful bidder to kick start the business and follow the law laid down under the Companies Act, 2013, it is imperative for the Tribunal to grant necessary reliefs.
The said assets are free from any financial implications arising out of any pending proceedings before relevant authorities, if any. Further non compliance of provisions of any laws, rules, regulations, directions, notifications, circulars etc on the Corporate Debtor under various Acts and Regulations stands extinguished, qua the successful bidder.
The erstwhile promoters or any member, associate of the Existing and Erstwhile promoter groups is hereby restrained from doing any business directly or indirectly in connection with the products and services presently offered by the Corporate Debtor
Relief sought with regard to issuance/renewal of all kinds of licenses / permissions/ approvals required is allowed subject to payment of renewal fees, if any, from this date to the Licensing Authorities.
Excerpts of the order;
# 1. The Applicant is the Liquidator appointed for M/s Vishfva Infrastructures and Services Private Limited. This Application is filed pursuant to the earlier order passed by this Tribunal in IA 995/2020 on 18.01.2021 wherein the Liquidator was permitted to sell the Corporate Deblor as a going concern in accordance with Regulation 32 (e) and 32A of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. In the instant Application, the Liquidator is seeking the following reliefs:
(a) Sale of Corporate Debtor as a going concern in terms of the conditions put forth by Successful bidder.
(b) Directions for disbursement of the bid amount of Rs. $7 crores to the lenders in terms of Section 53 of the Insolvency & Bankruptcy Code, 2016 (herein referred to as Code)
# 2. It is averred by the Liquidator, after due deliberations with the stakeholders in the third meeting of lenders held on 05.02.2021, the Reserve Price was fixed at Rs. 76 crores, EMD at Rs. 3.8 crores (5% of the Reserve Price) and Bld incremental value at Rs. 10 lakhs. Further, it was decided In the said meeting that in case no bids are received from the potential bidders, action for publication of subsequent sale notices with reduced Reserve Price as per Regulations will be taken and the stakeholders will be informed about the same. Copy of the Minutes of the third meeting of lenders of the Corporate Debtor is annexed and marked as Annexure A-6.
# 3. The Applicant further stated that he has appointed E-Auction Agency called Righ2Vote and Linkstar, an Agency for maintaining Virtual Data Room for accessing confidential document of Corporate Debtor.
# 4. The Liquidator invited bids for the sale of the Corporate Debtor as a “going concern” by E-auction sale notice dated 08.02.2021. When no bids were received, a Second E-Auction sale notice was published on 25.02.2021 inviting bids on or before 06.03.2021 and E-auction was held on 07.03.202). The total bid amount is Rs. 57 crores.
# 5. M/s Indus Projects Private Limited along with Indvis Holdings Private Limited (Special Purpose Vehicle) submitted its Bid Application Form supported with relevant and required documents including payment of Rs. 2.85 crores as Earnest Money Deposit on 06.03.2021 to the Liquidator. The Liquidator had confirmed the parties as successful bidder vide email dated 07.03.2021. At the request of the Successful Bidder, the Liquidator extended the time period for payment of 25% of the sale consideration from 13.03.2001 to 16.03.2021. Consequently, the successful bidder has submitted a Term Sheet to the Applicant seeking certain reliefs and concessions for taking over the Corporate Debtor as a going concern. The reliefs and concessions sought for by the Successful Bidder were deliberated upon in the fourth meeting of lenders held on 08.03.2021.
a). Section (3)(i) of the Term Sheet (terms of acquisition) which states that the Acquirer shall make the payment towards balance consideration within 90 days of the date of demand in the designated Escrow Account. However, the withdrawal and distribution of the proceeds shall be subject to the approval of the Term Sheet by this Tribunal.
b). Section (3) (v) of the Term Sheet (terms of acquisition) lays down that as on the date of issue of Letter of Intent, all the cash accruals of the Corporate Debtor shall vest with or accrue to and be available for the sole benefit of the Corporate Debtor and only upon payment of the entire sale consideration, the Acquirer shall be entitled to seek possession of all such assets including accretions thereto.
c). Section 3 of the Term Sheets (concessions & reliefs, waivers/directions, specific orders from this Tribunal) is detailed at page Nos. 171 to 183 of the Application.
# 6. The lenders namely ICICI Bank and YES Bank vide their e-mails dated 08.03.2021 and 20.03.2021 respectively have raised certain objections / suggestions vis-à-vis the conditions of the Term Sheet. The observations of the Lenders and the response by the Successful Bidder are stated against each as under:
Lender - ICICI Bank
Lender - Yes Bank
# 7. No further clarification has been sought by the Lenders. In this backdrop, the Applicant preferred this instant application seeking appropriate directions to take forward the process of selling the Corporate Debtor as a going concern in terms of the conditions laid down by the successful bidder and further sought directions to disburse the bid amount of Rs. 57 crores to the lenders in accordance with Section 52 of IBC, 2016.
# 8. We heard the Counsel for Applicant. He stated that the Corporate Debtor is being sold on an ongoing concern basis which is more or less in the nature of resolution of the Corporate Debtor as such he has no objection if the prayers sought for in the term sheet submitted by the successful bidder are allowed by the Tribunal. Already Successful Bidder has deposited Rs. 57 crores. In order for the Successful bidder to kick start the business and follow the law laid down under the Companies Act, 2013, it is imperative for the Tribunal to grant necessary reliefs.
# 9. Since the decision to sell the Corporate Debtor as a going concern is taken by the Liquidator in consultation with the creditors / stakeholders and the proceeds from the sale of assets are going to be utilized for distribution to the creditors in the manner specified under Section 53 of the Code, all the creditors of the Corporate Debtor get discharged and the assets are transferred free of any encumbrances. We are of the considered view that it is a fit case to grant certain reliefs in favour of the purchaser.
# 10. As a sequel to the above discussions and documents placed on record and submissions made by the Learned Counsel før the Liquidator, we pass the following orders:
# 11. ORDER Permission is accorded to the Liquidator to disburse the bid amount of Rs. 57 crores to the lenders in terms of Section 53 of the Code.
# 12. The Successful Bidder shall not be responsible for any other claims, liabilities or obligations, under any guarantees, etc. payable by the Corporate Debtor as on this date to the creditors or any stakeholders including the Government dues. All the liabilities of the Corporate Debtor as on date stands extinguished, qua the Successful Bidder.
# 13. Any proceedings pending against the Corporate Debtor (other than against the erstwhile promoters or former members of the management of the Corporate Debtor) as on date with respect to its liabilities / inquiries / investigations / assessment / claims / disputes/ litigations etc shall not have any bearing against the assets sold in the process. The said assets are free from any financial implications arising out of any pending proceedings before relevant authorities, if any. Further non compliance of provisions of any laws, rules, regulations, directions, notifications, circulars etc on the Corporate Debtor under various Acts and Regulations stands extinguished, qua the successful bidder.
# 14. The Successful Bidder/ Corporate Debtor shall have the right to review and terminate any contract that was entered into prior to the date of this order.
# 15. The Successful Bidder shall get all the rights, title and interest over whole and every part of the Corporate Debtor, including but not limited to contracts free from security interest, encumbrance, claim, counter claim or any demur.
# 16. The assets specified in the e-auction memorandum, on payment of the consideration shall vest with the Successful Bidder. The erstwhile promoters or any member, associate of the Existing and Erstwhile promoter groups is hereby restrained from doing any business directly or indirectly in connection with the products and services presently offered by the Corporate Debtor and transferring any such IPR to any other person whether related to them or not.
# 17. The Successful Bidder shall not be held responsible/liable for any of the past liabilities of the Corporate Debtor. The Liquidator and Successful Bidder shall take all the steps required to make accounting entries for the smooth transmission and clearing the balance sheet.
# 18. The Liquidator is directed to ensure completion of pending filings with the Registrar of Companies, Income Tax Authorities and any other Government/ Statutory Authorities.
# 19. The Corporate Debtor is entitled to get the benefits of brought forward losses, if any, subject to permission of the appropriate authority, if so entitled under the relevant provisions of the Income Tax Act, 1961. As far as the prayer for considering the bid submitted by the successful bidder as Resolution Plan under Section 79 of Income Tax Act, 1961 is concerned, the bidder may approach the authority concerned who would consider such request under the Income Tax Act.
# 20. Relief sought with regard to issuance/renewal of all kinds of licenses / permissions/ approvals required is allowed subject to payment of renewal fees, if any, from this date to the Licensing Authorities.
# 21. The Liquidator is directed to provide all support and assistance to the successful bidder for the smooth functioning of the Corporate Debtor to complete the acquisition.
# 22. With regard to relief sought directing various statutoły authorities to exempt income/gain/profits if any, arising pursuant to acquisition of Corporate Debtor and further with regard to exemption from stamp duty and tax liability, it is open to the Successful Bidder to approach the authorities concerned and it is for the authorities to consider the request of the bidder for exemption since the successful bidder purchased the Corporate Debtor Unit as ongoing concern during liquidation.
# 23. This IA is accordingly disposed of.
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Excerpt from the order;
ReplyDelete"We heard the Counsel for Applicant. He stated that the Corporate Debtor is being sold on an ongoing concern basis which is more or less in the nature of resolution of the Corporate Debtor as such he has no objection if the prayers sought for in the term sheet submitted by the successful bidder are allowed by the Tribunal. Already Successful Bidder has deposited Rs. 57 crores. In order for the Successful bidder to kick start the business and follow the law laid down under the Companies Act, 2013, it is imperative for the Tribunal to grant necessary reliefs."
Does it mean that provisions of CIRP will apply mutatis mutandis to auction of CD as a going concern in liquidation?
In the present case the liquidator has accepted the bid much below the reserve price, probably below the liquidation value. What about maximisation of value ?
In the Sale as a going concern the auction purchaser gets added benefits of nil GST and carry forward losses ( section 79 of Income tax Act.).
Grand loot of public resources. Abhi to party suru hui hai. . . .
Excerpt from the order;
ReplyDelete# 20. Relief sought with regard to issuance/renewal of all kinds of licenses / permissions/ approvals required is allowed subject to payment of renewal fees, if any, from this date to the Licensing Authorities.
Reliefs provided, for issuance/renewal of all kinds of licenses / permissions/ approvals, are beyond the jurisdiction of NCLT, as per law laid down by the Hon’ble Supreme Court.
SCI (03.12.2019) in M/s Embassy Property Developments Pvt. Ltd. Vs State of Karnataka & Ors. [Civil Appeal No. 9170 of 2019] held that;
# 44. . . . We do not think that the moratorium provided for in Section 14 could have any impact upon the right of the Government to refuse the extension of lease. The purpose of moratorium is only to preserve the status quo and not to create a new right. . . .
# 45. Therefore, in fine, our answer to the first question would be that NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute Supplemental Lease Deeds for the extension of the mining lease. . . .
Excerpt from the order;
ReplyDelete# 16. The assets specified in the e-auction memorandum, on payment of the consideration shall vest with the Successful Bidder. The erstwhile promoters or any member, associate of the Existing and Erstwhile promoter groups is hereby restrained from doing any business directly or indirectly in connection with the products and services presently offered by the Corporate Debtor and transferring any such IPR to any other person whether related to them or not.
Restrictions placed, beyond patents & IPR of the CD, on the erstwhile promoters etc. contravenes the fundamental rights enshrined in the Constitution.
Article 19(1)(g) in The Constitution Of India 1949
(g) to practise any profession, or to carry on any occupation, trade or business
All said & done, sale of CD as a going concern, in the liquidation process, is nothing but backdoor resolution of CD. As such the same should be treated similarly to the resolution process, with the approval of CoC, which could/may (if permitted in the Code) be revived by rescinding the liquidation order.
ReplyDeleteIn my opinion, subsisting liquidation order, sale of CD as a going concern is not permissible, as compliance of section 54 (dissolution of CD) will not be possible. Sale of business along with its tangible / intangible assets is permissible under the provisions of the Code.
Dissolution of the CD (section 54) is must for completing the liquidation process as per the Code.
During the liquidation process assets of the CD are to be sold on AIWI (as is where is) basis. The question here is whether AA is competent to grant any relief to auction purchasers during the liquidation process.
Secondly, whether the sale of CD as a going concern shall be binding on creditors and others in terms of section 31.
Thirdly, whether protection against criminal proceedings against CD will be available to auction purchasers in terms of section 32A(1).
Thus the only option available is to rescind the liquidation order and restore CIRP, if the same is permitted under the provisions of the Code.
Good analysis..
ReplyDelete1- CIRP and Liquidation is entirely different process, on failure of cirp liquidation process triggered. Sale of CD as a going concern is only a business transfer like acquisition of any corporate by mother corporate by paying BID amount which will be used by liquidator to settle the claims as per section 53 mechanism. It’s can not be termed sale of CD as mutates mutandis. Phrasing in order lost The implication of legal interpretation.
2- NCLT has no jurisdiction to waive or grant any relief for which any government department has given right to do as per law. NCLT can only direct bidder to obtain necessary approvals or directions from concern department or authority. As far as concern about GST - Business Transfer is exempted from gst and for this NCLT can grant relief as the CGST notification already allowed the exemption, in similar manner section 79 of IT specifically grant carry forward of losses for IBC proceeding so NCLT can grant. But NCLT should order and direct the applicant to approach concern departments for adequate compliance and formalities.
3- in business transfer/ acquisition/ Takeover matters, a limited period Banned for similar activities allowed as per competition laws. However erstwhile promoter are free to do any business. But in this case the tenure of ban must be clarified. NCLT has no jurisdiction to debar any person for doing any business and may direct applicant to obtain approval and direction from CCI and Directorate of parent and copyright/ trademark.
32 A applicable in liquidation case as well.
ReplyDeleteIf any penalty or fine etc is claimed than it should be settled as per section 53 and prosecution shall be carried against erstwhile directors.