TMI Blog2022 (3) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of Regulation 32 . It is manifestly clear, that the Stakeholders Consultation Committee unanimously and consciously, decided to sell the corporate debtor company as a whole as a going concern, despite being sensitized of the 90 days' time line for sale of the corporate debtor or the business of the corporate debtor as going concern, set under sub clause 4 of IBBI Regulation 32A, by the Liquidator as the minutes of the above meeting clearly disclose that the Liquidator informed the stakeholders about the timeline of 90 days which commences the date of commencement of liquidation, to sell the Corporate Debtor as a going concern - In this undeniable factual backdrop, having carefully examined the contentions of the Petitioner, mostly based on the ruling in re, Sundaresh Bhat, [ 2021 (9) TMI 927 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI ], that, the IBBI Regulation 32A, since held to be an open ended provision relating to procedural besides that the Power of IBBI, under Section 196(1) (p) or (t) to issue guidelines canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Shri S. Ravi, Senior Advocate for Liquidator ORDER PER: BENCH l. The Applicant, who is one of the Members of the Stakeholders Committee of M/s Servomax India (P) Ltd (Corporate Debtor under Liquidation), has assailed actions of the Liquidator Mr. Gonugunta Madhusuan Rao with respect to the e-auction proceedings dated 15.07.2021, inter-alia, contending that the same is not in conformity with mandatory provisions of Insolvency Bankruptcy Code, 2016 (herein after referred to as Code) and IBBI (Liquidation Process) Regulations, 2016 and sought indulgence of the Tribunal to pass the following reliefs, i) Directions to Respondent No. 1 herein to produce the record before this Tribunal as to how the realizable value arrayed and the same reduced in every auction. ii) Directions to Respondent No. 1 to place the records/registers maintained by him with respect to the e-auctions conducted by him. iii) Directions to Respondent No. 1 to file an affidavit with respect to the difference in realizable value of ongoing concern and realizable value of collective price of individual assets mentioned from item no.2 in all sale notice. iv) Restrain Respondent No. 1 in ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets of the Corporate Debtor. (iii) The Applicant states that, the Liquidator, instead of taking action to sell the assets as per provisions of Regulation 32 of the IBBI (Liquidation Process) Regulations, 2016 i.e. to sell the assets of the Company as standalone basis, slump sale, set of assets collective or in parcels, continued making efforts to sell it as an ongoing basis even beyond 90 days from liquidation commencement date, which is against the provisions of law, when in the instant case, the Corporate Debtor is not a going concern company at the time of issuance of notice for e-auction. The Applicant accused the Liquidator of doing so, with an ulterior motive to facilitate the Promoters of the Corporate Debtor or his associates to purchase the assets at a cheap rate. It is stated that the Liquidator instead of taking action to sell the Corporate Debtor or its assets for maximization of the value of CD, had decreased the value as per his whims and fancies and acted against the provisions of the Code. The Applicant has tabulated the e-auction notices issued by the Liquidator and the realization value quoted by him vis-a`-vis the value quoted for asset wise sale, which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce are not actually in possession of the Liquidator. v. It is stated that the recently the Applicant gained knowledge about granting permission to the promoter of the Corporate Debtor for using the Brand and Credentials of the Company illegally by the Liquidator and allowing him to incorporate the company using the similar name i,e, SERVOMAX INDUSTRIES PRIVATE LIMITED . It is also alleged that the website of the company is being used by the Promoter for doing business for the reasons best known to the Liquidator. vi. The Liquidator has been hiding the circular dated 26.08.2019 issued by Chief General Manager, IBBI which says the ongoing sale concern and statutory period of 90 days is not applicable in the current case. The Regulation 32 along with other regulations stand amended by IBBI on 25.07.2019 vide notification and publication in the Gazette of India Part III Section 4 vide no. IBBI/2019-20/GN/RE047. There was no appointed day nor did the notification explain whether it is retrospective of prospective regarding any of the amended regulations. vii. In the Statute the powers and duties of the Liquidator is under Section 35 of IBC, 2016, the same is placed here for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h IBBI to issue any such circulars under Section 196 of the code nor this Hon'ble Tribunal which is the Adjudicating Authority under IBC bound or directed by the IBBI to take note of such circulars or this Hon'ble Tribunal is not bound by any such circular by virtue of pronouncement of the Hon'ble Supreme Court. x. It is stated that the IBBI circular has been stuck down by National Company Law Appellate Tribunal, Delhi bench in the matter of Sunderesh Bhat vide its judgment dated 20.09.2021 in Company Appeal (Insolvency) No.398 of 2021. Hence the act of the liquidator conducting sale as ongoing concern after 600 days is bad in law as law mandates only 90 days for such sale. xi. It is stated that a mere circular cannot have a force of law or sub-legislation. Section 241 of the code emphasis that, every rule and regulation made hereunder has to be placed before parliament of India. Since circular is not a regulation or enactment it will not suffer parliamentary scrutiny nor such circulars are binding on any judicial or quasi-judicial body including this Tribunal a creation of the constitution of India, vide Article 323B of Constitution of India. While IBBI as an ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s u/s 230 of the Companies Act, read with IBC, to liquidate the CD. Despite efforts to comply with the aforesaid order, he was unable to arrive at any effective compromise or arrangement, and hence decided to proceed with the liquidation process following the decision taken in the 1st Stakeholders Consultation Committee which the Applicant was also a part of, without any objection at that point of time. (ii) According to the Liquidator he has issued prior notices and participated in all the Stakeholders Consultation Committee meetings, the reserve price at the auctions were fixed and reduced. The Liquidator further contends that though in response to the sale notice issued on 03.02.2021, the successful bidder agreed to purchase the Company as a going concern, the said successful bidder had subsequently backed out because of threats allegedly received from the Applicant. It is further stated the Applicant never raised any objection to the sale of the Corporate Debtor as a going concern nor about the reserve price in any of the stakeholders' meetings. The Liquidator, in all, has published auction notice 16 times in leading newspapers. (iii) The Liquidator further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reports, Asset Memorandum and further contends that has made all disclosures to the Insolvency Professional Agency well within the timeline. He further brought to the attention of the Bench that the successful bidder has paid the entire sale consideration along with applicable interest well within due date, pursuant to which the liquidator had issued sale certificate to the successful bidder. (ix) The Liquidator has relied on the following citations wherein the Liquidators were directed by to make efforts to sell the CD as a going concern: - 1. Hon'ble Supreme Court order in Swiss Ribbons Pvt Ltd vs. Union of India has observed at para 27, 2. Hon'ble Supreme Court order in Swiss Ribbons Pvt Ltd vs. Union of India. 3. Hon'ble Supreme Court order in M/s Innoventive Industries Ltd Vs ICICI Bank and Anr in civil appeal no. 8337-8338 of 2017. 4. Hon'ble Supreme Court order in 'ArcelorMittaI India Private Limited . 5. Ruling of NCLT Kolkata Bench in the matter of Gujarat NRE Coke Limited. 4. Written submissions are filed by both sides reiterating the contentions raised in their respective pleadings. 5. In the light of contest put-forth by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r binding on this Tribunal, consequently, the sale in the instant case since held beyond 90 days from the date of liquidation commencement date, is violative of the newly inserted Regulation 32A, as such, on this score alone, the sale is liable to be set aside. (iii) According to the Ld. Counsel, a mere circular cannot have a force of law or sub-legislation. Section 241 of the code emphasizes that, every rule and regulation made hereunder has to be placed before parliament of India. Since circular is not a regulation or enactment it will not suffer parliamentary scrutiny nor such circulars are binding on any judicial or quasi-judicial body including this Tribunal a creation of the constitution of India, vide Article 323B of Constitution of India. While IBBI as an institution only the creation of statute i.e., IBC, 2016. The Explanatory Circular date 26.08.2019 issued under Section 196 of the code is only applicable to the persons mentioned therein i.e., Insolvency Professionals, Insolvency Professional Entities and all registered Insolvency Professional Agencies. IBBI has no supervisory or administrative powers vest with it to control any judicial or quasi-judicial body and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orily issued has been examined by this Court in several cases. A Circular cannot take away the effect of Notifications statutorily issued. In fact in certain cases, it has been held that the Circular cannot whittle down the Exemption Notification and restrict the scope of the Exemption Notification or hit it down. In other words, it was held that by issuing a circular a new condition thereby restricting the scope of the exemption or restricting or whittling it down cannot be imposed. The principle is applicable to the instant cases also, though the controversy is of different nature. (c) Hon'ble Supreme Court of India, in Bengal Iron Corporation Vs CTO Civil Appeal No.44775 of 1992 wherein Para No.18 of the said Judgment it is stated So far as clarifications/circulars issued by the Central Government and/or State Government are concerned, they represent merely their understanding of the statutory provisions. They are not binding upon the courts. It is true that those clarifications and circulars were communicated. It is doubtful whether such clarifications and circulars bind the quasi-judicial functioning of the authorities under the Act. While acting in quasi-judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerally be obtained if the firm is sold as a going concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realization is lower when there are delays. Hence, delays cause value destructions. Thus, achieving a high recovery rate is primarily abut identifying and combating the sources of delay . (b) Hon'ble Supreme Court order in 'ArcelorMittal India Private Limited in para 86 has held that We must not forget that the Corporate Debtor consists of several employees and workmen whose daily bread is dependent on the outcome of the Corporate Insolvency Resolution Process. If there is a resolution applicant who can continue to run the Corporate Debtor as a going concern, every effort must be made to try and see that this is made possible . 8. Before we proceed further, for better appreciation of the submissions of the Ld. Counsels for both, we profitably rely on Regulations 32, and 32A of IBBI (Liquidation Process) Regulations, besides the IBBI Circular dated 26/08/2021, which are as follows. i. 32 Sale of Assets, etc. (came in to force on 22/10/2018.) The liquidator may sell- (a) an asset on a standalone ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vency and Bankruptcy Board of India notified the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019 (Amendment Regulations) on 25th July, 2019. They came into force on the date of their publication in the Official Gazette, that is, on 25th July, 2019. 2. The stakeholders have expressed a difficulty in applying the Amendment Regulations to a liquidation process, which commenced before 25th July, 2019. It is reiterated that the provisions of the Amendment Regulations are not applicable to the liquidation processes, which had commenced before coming into force of the said Amendment Regulations and that they are applicable only to liquidation processes, which commenced on or after 25th July, 2019. 3. This Circular is issued in exercise of the powers under section 196 of the Insolvency and Bankruptcy Code, 2016. Yours faithfully, Sd/- (l. Sreekara Rao) Chief General Manager Email: sreekararao@ibbi.gov.in 9. Admittedly, the order of liquidation of corporate debtor in this case has been passed on 04.02.2019. It is pertinent to note that by the date of commencement of liquidation in the case on hand, no time limit was set under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liquidation Process Regulations. Liquidator noted the same. (ii). Thus, it is manifestly clear, that the Stakeholders Consultation Committee unanimously and consciously, decided to sell the corporate debtor company as a whole as a going concern, despite being sensitized of the 90 days' time line for sale of the corporate debtor or the business of the corporate debtor as going concern, set under sub clause 4 of IBBI Regulation 32A, by the Liquidator as the minutes of the above meeting clearly disclose that the Liquidator informed the stakeholders about the timeline of 90 days which commences the date of commencement of liquidation, to sell the Corporate Debtor as a going concern. 11. The first E Auction sale publication was made on 13/11/2019. However, the sale under this sale notification besides 15 subsequent sale notifications despite reduction in reserve price from time to time, did not fructify. However, the 16th sale notice published on 1/7/2021 notifying that the sale of the CD as going concern scheduled on 15th July 202, has fructified. Pursuant there to LOI was issued to Mrs. Raji Dinesh and Mr. Akash Agarwal, the successful bidders on 15/07/2021 whereby the succe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng concern, was not in existence when the liquidation process commenced on 04.02.2019 against the corporate debtor, as the said amendment came in to force w.e.f.27/7/2019. (d) The IBBI on 26th August, 2019 has issued circular clarifying that the Regulation 32A, is not applicable to the liquidation if commenced by 26th August, 2019. (e) That apart, in the light of the ruling of Hon'ble Supreme Court, in Swiss Ribbons Pvt Ltd vs. Union of India, wherein it was observed at para 27 that what is interesting to note is that the Preamble does not, in any manner, refer to liquidation. which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the Liquidator. can sell the business of the Corporate Debtor as a going concern.... the primary focus of the legislation is to ensure revival and continuation of the Corporate Debtor by protecting the Corporate Debtor form its own management and from a corporate death by liquidation (Emphasis is ours), the word 'shall used in sub clause 4 of IBBI Regulation 32A, necessarily be construed or read as may , lest the the purpose and obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of mind, there is little or no chance that one who intends to leave a lee-way will use the language of command in the performance of an act. But since, even lesser directions are occasionally clothed in words of authority, it becomes necessary to delve deeper and ascertain the true meaning lying behind mere words. Crawford on 'Statutory Construction' (Ed. 1940, Art. 261, p. 516) sets out the following passage from an American case approvingly: The question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed. The meaning and intention of the legislature must govern, and these are to be ascertained, not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other. 'I (Emphasis is ours). Thus, the governing factor is the meaning and intent of the legislature, which should be gathered not merely from the words used by the legislature but from a variety of other circumstances and considerations. In other words, the use of the word 'shall' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... several employees and workmen whose daily bread is dependent on the outcome of the Corporate Insolvency Resolution Process. If there is a resolution applicant who can continue to run the Corporate Debtor as a going concern. every effort must be made to try and see that this is made possible . (ii) M/s Innoventive Industries Ltd Vs ICICI Bank and Anr in civil appeal no. 8337-8338 of 2017, From the viewpoint of creditors, a good realization can generally be obtained if the firm is sold as a going concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realization is lower when there are delays. Hence, delays cause value destructions. Thus, achieving a high recovery rate is primarily abut identifying and combating the sources of delay . (iii) Hon'ble NCLAT, Principal Bench, vide its order dated August 24, 2021 [13], has upheld the validity of a GCS during liquidation by dismissing the order given by the Hon'ble NCLT, Principal bench in Invest Asset Securitisations Reconstruction Pvt. Ltd, which is relied on by the petitioner herein, and stated as follows: The Supreme Court has in a catena of judgements obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greed, it was always open for the Applicant to place the same before the Stakeholders Consultation Committee meeting enabling the members to consider the same while fixing the reserve price. Mere oral contention that too after the sale fructified ultimately, that the reserve price is low, we hold that the same is devoid of any substance. 16. Last but not the least, nowhere the petitioner has pleaded as to how cancellation of this sale and a going for a fresh sale of the corporate debtor other than as a going concern, will benefit the Petitioner or the corporate debtor, when the subject sale itself, did not even receive bids until the 16th sale notice. 17. Therefore, in the light of our discussion above mentioned, upon careful consideration of the submissions made by the Ld. Counsels for both sides and on perusal of the written submissions and the case laws, we are of the firm conclusion that the pleas raised in the application are neither tenable nor substantiated and the same are devoid of any merit or substance. Hence, the application deserves to be dismissed. 18. We accordingly, dismiss the application. No order as to costs. - - TaxTMI - TMITax - Insolvency & Bankr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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