Liquidator Is Authorised To Sell The Corporate Debtor As A Going Concern Under The Code

NCLAT held that a successful bidder cannot shun the contractual obligations and withdraw the bid after payment of Earnest Money Deposit and seek a refund of the amount on the ground that the offer made by the Bidder was a “conditional offer”.

In the instant case titled M/s. Visisth Services Limited v. S.V. Ramani two questions were before the tribunal:

Whether the sale of Corporate Debtor as a “Going Concern” in Liquidation proceedings includes its liabilities?
Whether the Appellant can withdraw from the Bid after payment of the EDM and seek a refund of the amount paid on the ground that the offer made by the Bidder was a “conditional offer”

With regard to the first issue, the tribunal relied on Regulation 32 A of the Insolvency and Bankruptcy Board of India Regulations 2016 and IBBI Discussion paper on Corporate Liquidation Process along with Draft Regulations to conclude that the sale of a Corporate Debtor as a "Going Concern" in liquidation proceedings, and such sale including assets and liabilities, means the sale of both assets and liabilities if it is stated on "as is where is" basis.

The regulation states that for the purpose of sale of the Corporate Debtor, the group of assets and liabilities shall be sold as a going concern.

The tribunal categorically held that:

“If the Bidder is allowed to withdraw from the bid at this stage and seek a refund on the ground that their conditional offer has not been accepted, then the liquidation process would be a never-ending one, defeating the scope and objective of the Code.”

With regard to the second issue, the tribunal dismissed the appeal, holding that the Bidder cannot avoid contractual duties deriving from the acceptance of his Bid. According to Regulation 32A of the Liquidation Regulations and the NCLAT's decision in Mohan Gems and Jewels Pvt Ltd v. Vijay Verma and Anr., the Appellant is not entitled to the EDM amount if he violates the contract's provisions.

Hence, The NCLAT held that when a corporation is sold as a 'Going Concern,' the NCLAT determined that the transaction includes both assets and liabilities if it is done on an 'as is, where is basis. Furthermore, the Appellant, as the 'Successful Bidder,' cannot avoid contractual obligations, and the NCLAT was of the opinion that, in light of Regulation 32-A of the LPR 2016 and the scope and objective of the IBC, the Appellant cannot be entitled to the EMD amount and the amount paid towards the Bid Document if he does not comply with the terms of the contract on the basis that the offer made was a conditional offer.' As a result, the NCLAT found no illegality or flaw in the order of the court.