Bid For Corporate Debtor As 'Going Concern' To Be Given Preference Over The Standalone Bid; NCLT Ahmedabad
The National Company Law Tribunal, Ahmedabad Bench, comprising of Madan B. Gosavi (Judicial Member) Kaushalendra Kumar Singh (Technical Member), while adjudicating an application filed in Arrhum Tradelink Private Limited v Vineeta Maheshwari & Ors., has held that when two equal bids are received in an auction, then Corporate Debtor must be sold to the bidder who purchases it as a...
The National Company Law Tribunal, Ahmedabad Bench, comprising of Madan B. Gosavi (Judicial Member) Kaushalendra Kumar Singh (Technical Member), while adjudicating an application filed in Arrhum Tradelink Private Limited v Vineeta Maheshwari & Ors., has held that when two equal bids are received in an auction, then Corporate Debtor must be sold to the bidder who purchases it as a 'going concern', rather than to a bidder who purchases the assets at a standalone basis. The object of the Insolvency and Bankruptcy Code, 2016 (IBC) is not only to clear the debts of the Corporate Debtor, therefore, the liquidator must protect the existence of the Corporate Debtor and avoid its death by ultimately pushing it into dissolution.
Background Facts
On 28.02.2020, the liquidator conducted the e-auction of the assets of Kaneria Granito Ltd. ("Corporate Debtor") in the liquidation process, by adopting two methods of sale simultaneously: (i) sale of Corporate Debtor's assets on a stand-alone basis, and (ii) sale of the Corporate Debtor as a going concern.
The two bidders in the e-auction were Arrhum Tradelink Pvt. Ltd. ("Applicant") and Torrecid India Pvt. Ltd. ("Declared Successful Bidder"), the latter was declared as the successful bidder.
It was apparent from the record that both the Applicant and Declared Successful Bidder had offered the same amount i.e., Rs. 38.40 Crores. However, the Applicant was ready to take the Corporate Debtor as a going concern, whereas, the successful bidder had placed bid to purchase the assets of the Corporate Debtor on stand-alone basis.
The Applicant filed an application under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking direction to the liquidator to declare the Applicant as the successful bidder and cancel the bid of M/s. Torrecid India Pvt. Ltd., as the Applicant is willing to purchase the Corporate Debtor as a going concern, which is the main objective of the IBC.
Decision Of The NCLT Bench
The Bench observed that M/s. Torrecid India Pvt. Ltd. was declared as the successful bidder despite same bid price because the system by which e-auction was conducted had accepted its bid at 03:21 pm and at that very moment, the Applicant had offered the amount of Rs. 38.25 Crores. Thereafter, at 03:23 pm the Applicant had also offered the same amount as Rs. 38.40 Crores but the system rejected the bid.
The Bench pointed out that under Regulation 33(12) of IBBI (Liquidation Process) Regulations, 2016, states that "the bidder having highest bid shall be the successful bidder. In case of highest bidder under auction option no. 1 and 2 are equal, then, bidder who has given offer for sale of the Corporate Debtor as a going concern shall be declared as successful bidder".
It was further observed that the liquidator ought to have taken into consideration of the broad object of IBC to sell the Corporate Debtor as a going concern and it was the pre-condition for e-auction set out by the liquidator herself. The liquidator had inserted a clause in the tender document stating that in case the highest amount is offered by all the bidders and the bid amount is same, then the bidder who wishes to purchase the Corporate Debtor as a going concern shall be declared to be the successful bidder.
"In our considered opinion since the liquidator allowed the system to run even after the successful bidder had offered the highest amount and exactly at that point of time within two minutes the Applicant offered the same price. The fact is that the Applicant had offered the same price to purchase the Corporate Debtor as a going concern, the liquidator ought to have considered this aspect. It is the object of the Insolvency and Bankruptcy Code, 2016 i.e., to maximize the value of the assets of the corporate person and to promote entrepreneurship etc. It is not the object of the Insolvency and Bankruptcy Code, 2016 only to clear the debts of the creditors of such a corporate person. It is the duty of the liquidator to protect the existence of the Corporate Debtor as far as possible and avoid its death by ultimately pushing the Corporate Debtor to be dissolved."
The Bench directed the liquidator to declare the Applicant as a successful bidder upon the Applicant's depositing with the liquidator a sum of Rs. 38.40 crores within seven days from the date of the order, failing which liquidator shall issue sell certificate in favor of Respondent No. 3 i.e., M/s. Torrecid India Pvt. Ltd.
Case Title: Arrhum Tradelink Private Limited v Vineeta Maheshwari & Ors., CP(IB) 320 of 2018
Counsel for the Applicant: Mr. Navin Pahwa, Sr. Advocate
Counsel for the Respondents: Mr. Saurabh Soparkar, Sr. Advocate along with Mr. Jaimin Dave; and Mr. Manish R. Bhatt, Sr. Advocate along with Mr. Karan Sanghani, Advocate.