NCLT Ahmedabad (02.11.2022) in M/s. Lucky Holding Pvt. Ltd. Vs. Nitin Jain (Liquidator of PSL Ltd.) [IA 240 of 2022 In CP(IB) 37 of 2017 ] held that;
The stark facts on record are that the liquidator is not in a position to give the custody of assets of the corporate debtor to the applicant or give possession of the corporate debtor as a going concern to the applicant in spite of him being declared as a successful bidder and the applicant being deposited a sum of Rs. 30 crores with the liquidator.
The Liquidator cannot withhold the amount for an indefinite period till proceeding under PMLA Act, 2002 is concluded before the Hon’ble Delhi High Court.
Excerpts of the order;
# 1. This application under section 60(5)(C) of the Insolvency and Bankruptcy Code, 2016 (“IBC, 2016) read with Rule 11 of the National Company Law Tribunal Rules, 2016 is filed by M/s. Lucky Holdings Private Limited – Successful Auction Bidder of M/s. PSL Limited – the corporate debtor for permission to withdraw from the e-auction process being held by the respondent – the liquidator.
# 2. The following facts need no elaboration as they are admitted by all parties to the proceeding of this application:
I. The corporate debtor was admitted in Corporate Insolvency Resolution Process (“CIRP”) vide order dated 15.02.2019. One Mr. Nilesh Sharma was appointed as Interim Resolution Professional (“IRP”). Later on, he was replaced by another Insolvency Professional - Mr. Nitin Jain and he was appointed as the Resolution Professional (“RP”).
II. On 11.09.2020, the order of liquidation of the corporate debtor was passed by this Adjudicating Authority because the RP and the CoC did not receive any resolution plan worth to be accepted. The RP was appointed as the liquidator.
III. The process of liquidation of the corporate debtor proceeded as per the rules. On 05.01.2021, the liquidator published the sale notice for the eauction of the corporate debtor.
IV. On 15.01.2021, the liquidator received the summons from the Enforcement Directorate (“ED”) informing him not to proceed with the sale of the assets of the corporate debtor as the ED was to attach the assets under the provisions of the Prevention of Money Laundering Act, 2002 (“PMLA Act, 2002”).
V. The liquidator challenged the action of the ED by filing the writ petition in the Hon'ble Delhi High Court, bearing Writ Petition (Civil) No. 3261/2021.
VI. The Hon'ble Delhi High Court allowed the writ petition vide its order dated 17.03.2021 and permitted the liquidator to proceed with the sale of the corporate debtor in accordance with the provisions of the IBC, 2016.
VII. On 19.03.2021, the Stakeholders Consultation Committee (“SCC”) suggested the liquidator to sell the corporate debtor as a going concern, and if such sale is not possible then to sell as a slump sale or on a piecemeal basis.
VIII. On 09.04.2021, the e-auction was held for selling the corporate debtor as a going concern. The applicant participated as one of the bidders. On 10.04.2021, the applicant was declared to be a successful bidder.
IX. On 16.04.2021, the liquidator issued in favour of the applicant a Letter of Intent.
X. On 23.04.2021, the applicant deposited with the liquidator amount of Rs. 30 crores as the first installment of the sale.
XI. On 08.09.2021, this Adjudicating Authority approved the sale of the corporate debtor as a going concern.
XII. On 05.10.2021, the applicant filed an application before this Adjudicating Authority for modification of the order confirming the sale, and it was allowed.
XIII. On 08.10.2021, the applicant informed the liquidator that it will deposit a balance consideration of Rs. 390.5 crores plus a sum of Rs. 25 lakhs towards operational liabilities within thirty days.
XIV. On 11.10.2021, the liquidator wrote a letter to the applicant informing it that the balance amount has to be paid within thirty days, and if it is not paid then the amount will carry interest at the rate of 12% per annum.
# 3. There is some dispute in between the applicant and the liquidator as to from which date thirty days to be reckoned i.e., whether from 08.09.2021 when the order of confirming the sale was passed by this Adjudicating Authority or from 05.10.2021 whereby this Adjudicating Authority modified the order of confirmation of sale relating to some concession and relief claimed by the applicant. But the fact that remains in the record to be undisputed is that the first installment was paid in time.
# 4. On 02.12.2021 when the dispute in between the liquidator and the applicant was pending as to from which date the period to be counted for purposes of the balance payment, the liquidator received the order passed by the ED whereby ED has passed an order of provisional attachment on the assets of the corporate debtor under section 5(1) of the PMLA Act, 2002 and the liquidator filed the second writ petition in Hon’ble Delhi High Court challenging the attachment order.
# 5. On 08.12.2021, the applicant made an application in that writ petition requesting the Hon’ble Delhi High Court to direct the liquidator not to forfeit the EMD till the writ petition is being heard and decided on merit. The matter was also mentioned before this Adjudicating Authority. This Adjudicating Authority directed the liquidator not to disburse the amount to the creditors of the corporate debtor till the writ petition is finally decided.
# 6. On 15.12.2021, the Hon’ble Single Judge of Hon'ble Delhi High Court allowed the writ petition directing for removal of the provisional attachment of the ED.
# 7. On 17.12.2021, the liquidator filed before this Adjudicating Authority IA/8(AHM)2022 for directions to the applicant to deposit the balance sale consideration forthwith.
# 8. On 21.12.2021, the ED challenged the order of the Hon’ble Single Judge of the Hon'ble Delhi High Court removing the attachment by filing an appeal before the Division Bench of the Hon’ble Delhi High Court. Hon’ble Division Bench passed the order directing parties to maintain the status quo. The appeal before the Hon’ble Division Bench is still pending.
# 9. On this background, the applicant has approached us with request to allow him to withdraw from the e-auction process and direct the liquidator to refund the EMD because the liquidator is not in a position to effect the sale and hand over possession of the assets of the corporate debtor in pursuant to the auction sale. It is also submitted that though the applicant has purchased the corporate debtor as a going concern, but, in fact, as on today the status of the corporate debtor has been changed from going concern as most of the plants of the corporate debtor are shut down.
# 10. We called upon the liquidator to file the say to this application. Accordingly, the liquidator filed an affidavit in reply and opposed both prayers.
# 11. The liquidator contended that the applicant has purchased the corporate debtor in e-auction as is where is basis. The applicant was well aware that proceedings under PMLA Act, 2002 were going on when the applicant took part in the bidding process. According to the liquidator, the applicant did not deposit the balance amount within the time framed and delayed the entire process. The applicant cannot be permitted to withdraw from the process on the above facts. There is no provision in the Insolvency and Bankruptcy Code, 2016 to allow such withdrawal by the successful bidder. In any event, the applicant cannot claim the EMD amount because the applicant has committed a breach of promises of the tender document by not paying the balance consideration in time. This application, being not maintainable, may be rejected.
# 12. We heard the learned senior counsel Mr. Sourabh Soparkar for the applicant and learned senior counsel Mr. Rashesh Sanjanwala for the liquidator. Learned counsel Mr. Zoheb Hossain for the ED appeared after the application was reserved for order and requested to allow to make submissions. In our considered opinion, the ED is in no way concerned with the dispute in between the applicant and the liquidator which is pending before us in this application. Nonetheless, we permitted the learned counsel to submit written notes of submission.
# 13. Learned senior counsel Mr. Sourabh Soparkar for the applicant submitted that the applicant participated in the bidding process in response to the sale notice dated 19.03.2021. By that time the ED has not issued provisional attachment order. The liquidator received the summons from ED on 15.01.2021. But by order dated 17.03.2021, the Hon’ble Delhi High Court allowed the liquidator to proceed with the e-auction of the corporate debtor which was completed on 10.04.2021. Learned senior counsel submitted that by that time there was no provisional attachment order passed by the ED. This fact shows that the applicant took part in the e-auction when there was no provisional attachment by the ED and the effect of summons issued by the ED to the liquidator had done away with by the order of Hon’ble Delhi High Court. Learned counsel also pointed out that the sale notice having terms and conditions is on record wherein the liquidator by reproducing the provisions of section 32A of the IBC, 2016, and by reproducing the ratio of Hon’ble Supreme Court judgment in the case of Manish Kumar vs. Union of India (Writ Petition (C) No. 26 of 2020) has given the impression to the applicant that applicant will get the custody of corporate debtor as a going concern. Learned senior counsel further submitted that as the applicant was given a clear understanding that the applicant’s rights as the purchaser would not get affected, he took part in the e-auction process. He deposited with the liquidator a sum of Rs. 30 crores. Meantime, the ED passed provisional attachment order on the assets of the corporate debtor. The liquidator filed a writ petition against the order of attachment. That writ petition was allowed. But the order of the Hon’ble Single Judge of Delhi High Court removing the attachment is a questioned in appeal before the Hon'ble Division Bench. The Hon'ble’ Division Bench passed the order to maintain the status quo. It is the say of the learned senior counsel that the applicant has purchased the corporate debtor as a going concern but during the last one year, the corporate debtor’s units and plants are closed down. Its status is now changed to a closed unit and not a unit as a going concern. The legal battle between the liquidator and ED may go on for a couple of years. In such a situation, the applicant is now not interested to proceed with the e-auction process. He may be permitted to withdraw from the e-auction and the liquidator may be directed to refund the EMD.
# 14. Learned senior counsel further submitted that it is not the fault of the applicant for which the process of sale has been delayed. It is because the ED attached the assets, hence, the applicant is entitled to a refund EMD. Learned senior counsel to buttress his submissions, relied on the ruling reported in (2020) 19 SCC 241 in the case of Popatrao Vyankatrao Patil v. State of Maharashtra.
# 15. As against this, learned senior counsel Mr. Rashesh Sanjanwala for the liquidator submitted that admitted facts on record would show that the applicant wants to withdraw from the e-auction process only because the matter relating to the attachment of the assets by ED is pending before the Hon’ble Delhi High Court. According to learned senior counsel, this cannot be the ground to permit withdrawal. Moreover, when the entire e-auction process is completed and the applicant has taken part therein with the knowledge that ED may attach the assets. The facts on record would show that the liquidator is making all efforts to get that attachment removed. According to learned senior counsel that, in fact, the applicant delayed the entire process of confirmation of sale by filing some application or the other. This Adjudicating Authority has already approved the e-auction. Meantime, the order of provisional attachment came to be passed. Now, the applicant cannot turn around and contend that he does not wish to pay the balance sale price.
# 16. Learned senior counsel also submitted that in the proceeding before the Hon’ble Delhi High Court, the applicant had intervened and requested to permit the withdrawal from e-auction but the applicant failed and now the applicant is before this Adjudicating for the same relief. It is the submission of the learned senior counsel that this Adjudicating Authority by order dated 08.09.2021 confirmed the sale as a going concern. If this Adjudicating Authority allows the applicant to withdraw from the process then it will be amounting to review or recall its earlier order for which this Adjudicating Authority has no jurisdiction. According to learned senior counsel, the applicant now cannot be permitted to withdraw from the e-auction which is completed in all respect. This application is not maintainable.
# 17. As noted above, the learned counsel for the ED appeared online and submitted the matter is reserved without him being heard in the proceeding. We again make it clear that the dispute which we seize is basically in between the applicant and the liquidator and ED has no say therein. Still, we permitted learned counsel to file written submissions but they are not filed.
# 18. At the outset, we note the fact that as on today, the liquidator is not in a position to hand over the custody of the units of the corporate debtor for which the e-auction was held and the applicant has been declared as a successful bidder. The assets are under the attachment of the ED. The Hon’ble High Court vide order dated 24.12.2021 had directed parties to maintain the status quo relating to the assets till the second appeal is being disposed of. The applicant has already deposited a sum of Rs. 30 crores with the liquidator.
# 19. In the case of Popatrao Vyankatrao Patil v. State of Maharashtra (supra) the Hon’ble Supreme Court dealt with similar controversy. In that case, the successful highest bidder had approached the Court with the request to refund the consideration on the ground that the contract stood frustrated. It would be useful to reproduce the facts and decisions of the Hon’ble Apex Court. It is as follows:
“.…12. It is undisputed, that the appellant was the highest bidder for the sand block in question. The appellant has deposited an amount of Rs.62,26,085/. The Panchnama prepared by the Circle Officer, Kale respondent No.5, clearly exhibited that neither possession of the sand block in question was given to the appellant nor excavation of sand was done from the said sand block. The said position is reiterated by the Tehsildar, Karad – respondent No.4 in his report submitted to the Collector respondent No.2 dated 9.8.2012. The SubDivisional Officer, Karad – respondent No.3 in his report dated 4.9.2012, addressed to the Collector, Satara also confirmed the said position. A perusal of the letter dated 3.10.2012, addressed by the Collector, Satara to the Tehsildar and SubDivisional Officer also does not dispute the said position. However, he directed his subordinates to submit original file of the appellant’s sand block with his office for refund of the amount deposited by the appellant.
13. It appears, that subsequently after all the authorities including Circle Officer, Tehsildar, SubDivisional Officer and the Collector found that neither the possession of the sand block was handed over to the appellant nor the excavation of sand from the said sand block was done, at the instance of the Collector, the file for grant of refund was being processed. It further appears, that the file in transit was misplaced and on this ground the appellant was denied the refund. It could thus be seen, in these admitted facts, that the denial on the part of the respondents to refund the amount to the appellant can, by no stretch of imagination, be called as reasonable. The action of the respondents, in denying the refund of the amount of the appellant, when the respondents themselves had failed to give possession of the sand block and as a result of which the appellant could not excavate the sand, would smack of arbitrariness. In this premise, we find that the High Court was not justified in relegating the appellant to file a suit.
15. In view of the undisputed position, that in spite of the appellant being the highest bidder and in spite of him depositing the entire amount of auction, since the possession of the sand block was not given to him for reasons not attributable to him and he could not excavate the sand, he will be entitled to get refund of the amount deposited by him….”
In view of the above rulings, we have only to see whether the reasons for which the applicant approached us for withdrawal of e-auction and claiming refund of EMD are attributable to the applicant itself ?
# 20. The facts are admitted. The applicant had offered to purchase the corporate debtor as a going concern as per the sale notice dated 08.04.2021. In the sale notice, it has been mentioned that “Option/Block A (Corporate Debtor as a going Concern)- All assets of the Corporate Debtor ass on a going concern basis as per Regulation 32A of IBBI (Liquidation Process) Regulations, 2016. Option/Block B (Slump Sale Basis)- 4 operational plants located at Kanchipuram-TN, Viskahakapatnam-AP, Varsana-GJ, Jaipur-RJ, and select operational financial assets pertaining to the 4 plants.” So, the applicant’s bid was for four operational plants of the corporate debtor. As on today, those plants which were in operation are closed down. The situation is not at all attributable to the applicant because the assets/plants are still in possession of the liquidator.
# 21. Apart from the above, the liquidator was aware that proceeding under the PMLA Act, 2002 was initiated and the assets of the corporate debtor were likely to be attached, still, he held the e-auction. In para 4.2 (page 49) of the process document, the liquidator had mentioned that “The Liquidator received an email dated 25.01.2021 from the Directorate of Enforcement with respect to proceedings under Prevention of Money Laundering Act, 2002 requesting the Liquidator not to dispose of the assets of the Corporate Debtor. Thereafter, the Liquidator filed a Writ Petition (W.P. 3261/2020) before the Hon'ble High Court of Delhi, wherein the Court stated that “the impugned email and any other direction issued by the Respondent against the liquidator shall remain stayed. In order to maintain a balance and to ensure that there is no prejudice caused, the liquidator shall proceed in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter, ‘IBC’).” The liquidator has also quoted the provisions of section 32A of the IBC, 2016, and the explanation thereto. So, also the ratio of the ruling of the Hon’ble Supreme Court in the case of Manish Kumar vs. Union of India (Writ Petition (C) No. 26 of 2020) thereby gave the impression to all prospective bidders that the assets of the corporate debtor are immune to the proceeding that would be taken under the PMLA Act, 2002.
# 22. It is also admitted fact on record that when the sale notice was published and bids were called, ED had not attached any assets then eauction was held on 09.04.2021 whereas provisional attachment came to be passed thereafter on 02.12.2021. So, this situation is also not attributable to the applicant who is the successful bidder herein.
# 23. Learned senior counsel for the liquidator submitted that the applicant tried to withdraw from the process even before the Hon’ble Delhi High Court but having failed approached this Adjudicating Authority. However, it is clear from the record that, in fact, the Hon’ble High Court in its order dated 22.02.2022 permitted the applicant to take proper proceedings for withdrawal in the following words : “….Ms. Maneesha Dhir, learned counsel for the auction purchaser states that her client wishes to exit by withdrawing its bid from the e-auction process of the Corporate Debtor. The statement made by Ms. Dhir is taken on record and accepted by this Court. Further, the parties are given liberty to take action in accordance with law in pursuance thereto….”. In pursuance to that order of the Hon’ble Delhi High Court, this application is filed on 14.03.2022.
# 24. It was a submission of learned senior counsel for the liquidator that this Adjudicating Authority vide order dated 08.09.2021 confirmed the sale. If this Adjudicating Authority now allows the applicant to withdraw from the eauction process then it would be amounting to recall or review earlier order by which the sale was confirmed. Such jurisdiction is not with this Adjudicating Authority. To support his submission, learned senior counsel relied on the order of Hon’ble NCLAT in the case of Agarwal Coal Corporation Pvt. Ltd. vs. Sun Paper Mill Ltd., in IA No. 265/2019 and Company Appeal (AT) (Ins) No. 412/2019.
# 25. We have gone through that order. In that order, the applicant had filed the application before the Hon’ble NCLAT to recall its order dated 16.10.2019 invoking provisions under Rule 11 of the NCLAT Rules, 2016 on the ground that the earlier order was sought by fraud. That application was rejected by Hon’ble NCLAT holding that power to recall its own order is not with the Appellate Forum. The facts in this proceeding are altogether different. In this case, the applicant filed the application under section 60(5)(C) of the IBC, 2016 permitting him to withdraw from the e-auction process because the liquidator is not in a position to give possession of the corporate debtor as a going concern.
# 26. Learned senior counsel also relied on the ruling of Hon’ble Apex Court in the case of Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited and Another (reported in 2021 SCC OnLine SC 707). However, the Hon’ble Supreme Court held that Adjudicating Authority has no power to permit the withdrawal of the resolution plan which was approved by the CoC and is pending for approval of Adjudicating Authority. That situation is not here. We are dealing with this application under section 60(5)(C) of the IBC, 2016 because it is a question of fact and the law relating to the process of liquidation of the corporate debtor. The stark facts on record are that the liquidator is not in a position to give the custody of assets of the corporate debtor to the applicant or give possession of the corporate debtor as a going concern to the applicant in spite of him being declared as a successful bidder and the applicant being deposited a sum of Rs. 30 crores with the liquidator. The Liquidator cannot withhold the amount for an indefinite period till proceeding under PMLA Act, 2002 is concluded before the Hon’ble Delhi High Court. In such a situation, we allow this application. We proceed to pass the following order:
ORDER
1. The applicant is permitted to withdraw from E-auction process held on 09/04/2021.
2. The liquidator is directed to pay the applicant a sum of Rs. 30,00,00,000/- together with interest accrued thereon within two weeks from today. The liquidator is allowed to retain sum of Rs. 5,00,000/- towards process costs already incurred for E-auction on 09/04/2021.
3. With the above directions, the application stands disposed of.
4. Urgent certified copy of this order, if applied for, to be issued to all concerned parties upon compliance with all requisite formalities.
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Blogger’s Comments; In the present case reliefs & concessions, including that under Section 32A, were given by the same bench.
NCLT Ahmedabad (08.09.2021) In Nitin Jain Liquidator of PSL Ltd. Vs. Lucky Holdings Pvt. Ltd [IA 391 (AHM)/2021 in CP (IB) 37 (AHM) 2017 ] Adjudicating Authority using residuary powers of NCLT under section 60(5) granted relief to Successful Auction Bidder in liquidation process beyond the provisions of section 32A;
Thus, considering these findings of the Hon'ble Supreme Court, it is crystal clear that this Adjudicating Authority has got adequate jurisdiction as regard to most of the issues raised in this application, being issues arising out of or insolvency resolution as well as are in relation to liquidation proceedings of the Corporate Debtor.
Thus, in our considered view, the reliefs and concessions on the parallel line of an approved resolution plan can be granted subject to one condition that such reliefs/concessions must be central issues and also in relation to or arising out of liquidation proceedings of a Corporate Debtor so as to confer jurisdiction on Adjudicating Authority under Section 60(5)(c) of the IBC, 2016.
The Successful Auction Bidder shall not be liable for any action/responsibility of the Corporate Debtor or its erstwhile management as per provisions of Section 32A of IBC, 2016.
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