The offer for the corporate debtor as an “operating company” shall have preference over the stand-alone offer; NCLT Ahmedabad

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The National Company Law Court, Ahmedabad Bench, consisting of Madan B. Gosavi (Judicial Member) Kaushalendra Kumar Singh (Technical Member), while deciding on a claim filed in Arrhum Tradelink Private Limited v Vineeta Maheshwari & Ors., ruled that when two equal bids are received at an auction, the debtor company must be sold to the bidder who buys it as a “going concern”, rather than to a bidder who buys the independently active. The purpose of the Insolvency and Bankruptcy Code, 2016 (IBC) is not only to erase the debts of the debtor company, therefore, the liquidator must protect the existence of the debtor company and avoid its death by finally pushing it to dissolution.

Background Facts

On 28.02.2020, the liquidator proceeded to the electronic auction of the assets of Kaneria Granito Ltd. (“Corporate Debtor”) in the process of liquidation, by simultaneously adopting two methods of sale: (i) sale of the assets of the Corporate Debtor on a stand-alone basis, and (ii) the sale of the Corporate Debtor as a business in operation.

The two bidders in the online auction were Arrhum Tradelink Pvt. ltd. (“Applicant”) and Torrecid India Pvt. ltd. (“Successful Bidder”), the latter was declared the successful bidder.

It appeared from the record that the claimant and the declared successful bidder had tendered the same amount, i.e. Rs. 38.40 crores. However, the plaintiff was prepared to take the debtor company into operation, whereas the successful bidder had made a bid to purchase the debtor company’s assets on a stand-alone basis.

The claimant filed an application under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 (IBC), asking the liquidator to declare the claimant a successful bidder and to set aside the offer of M/s. Torrecid India Pvt. Ltd., as the plaintiff is willing to purchase the debtor company as a going concern, which is the main objective of the IBC.

NCLT bench decision

The Chamber observed that M/s. Torrecid India Pvt. ltd. was declared the successful bidder despite the same bid price because the system through which the electronic auction was conducted had accepted his bid at 3:21 p.m. dollars. Subsequently, at 3:23 p.m., the applicant had also offered the same amount as Rs. 38.40 Crores but the system rejected the offer.

The bench pointed out that under Regulation 33(12) of the IBBI (Winding Up Process) Regulations, 2016, states that “The highest bidder will be the winning bidder. In the event that the highest bidder under Bidding Option 1 and 2 is equal, then who has made an offer to sell the debtor company as a going concern will be declared the winning bidder”.

It was further observed that the liquidator should have considered IBC’s general purpose of selling the debtor company as a going concern and that this was the prerequisite for the electronic auction stated by the liquidator. herself. The liquidator had inserted a clause in the tender document stating that in the event that the highest amount is offered by all the bidders and the amount of the offer is the same, then the bidder who wishes to buy the debtor company as a going concern will be declared to be the successful bidder.

“In our opinion, since the liquidator allowed the system to operate even after the winning bidder had bid the highest amount and at exactly that time within two minutes, the plaintiff had bid the same price. The fact is that the plaintiff had offered the same purchase price of the debtor legal person as a going concern, the liquidator should have taken this aspect into account.This is the subject of the Insolvency Code and of Bankruptcy, 2016, i.e. to maximize the value of the assets of the body corporate and to promote entrepreneurship, etc. The Insolvency and Bankruptcy Code, 2016 has no not only for the purpose of clearing the debts of the creditors of such a legal person. It is the duty of the liquidator to protect the existence of the Debtor Company as far as possible and to avoid its death by finally pushing the Debtor Corporate to be dissolved.”

The bench ordered the liquidator to declare the plaintiff as successful bidder after the plaintiff deposited with the liquidator a sum of Rs. 38.40 crores within seven days from the date of the order, failing which the liquidator will issue a certificate of sale in favor of Respondent #3, ie 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, Senior Counsel

Counsel for Respondents: Mr. Saurabh Soparkar, Sr. Advocate with Mr. Jaimin Dave; and Mr. Manish R. Bhatt, Senior Counsel with Mr. Karan Sanghani, Counsel.

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