21 Feb 2022 6:52 AM GMT
The NCLT Hyderabad Bench consisting of Dr. N. Venkata Ramakrishna Badarinath, Judicial Member and Veera Brahma Rao Arekapudi, Technical Member in Ekambareswara Rao Manne v. Mr. Gonugunta Madhusudhan Rao, dismissed the application filed by the Applicant, who was a Member of the Stakeholders Consultation Committee, filed u/s 60(5) of IBC r/w Rule 11, 13 & 32 of the NCLT Rules...
The NCLT Hyderabad Bench consisting of Dr. N. Venkata Ramakrishna Badarinath, Judicial Member and Veera Brahma Rao Arekapudi, Technical Member in Ekambareswara Rao Manne v. Mr. Gonugunta Madhusudhan Rao, dismissed the application filed by the Applicant, who was a Member of the Stakeholders Consultation Committee, filed u/s 60(5) of IBC r/w Rule 11, 13 & 32 of the NCLT Rules wherein he challenged the sale of the Corporate Debtor by the Liquidator on the ground that the same was done at a reduced reserve price and after the expiry of the 90 days period, as provided in Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016, holding the 90 days period to be 'directory' and not 'mandatory'.
The Corporate Debtor- Servomax India Private Ltd. was ordered to be liquidated by the NCLT on 04.02.2019, after which the Liquidator was appointed. The Stakeholders Consultation Committee, in its first meeting, unanimously agreed to sell the Corporate Debtor as a going concern, in which the Applicant also participated.
15 sale notices had been unsuccessful. Thus, the Liquidator took out a 16th notice at a reduced reserve price, which fructified on 15.07.2021.
On 27.07.2019, Regulation 32A came into effect, clause 4 of which provided that liquidation should be done within a period of 90 days from the liquidation commencement date.
On 26.08.2019, the IBBI issued circular no. IBBI/LIQ/024/2019 stating that Regulation 32A will only apply prospectively, and only to those liquidations which commenced on or after 25th July, 2019.
The issue that arose for consideration was- Whether the sale of the Corporate Debtor as a going concern in the present case was contrary to Regulation 32A of IBBI (Liquidation Process) Regulations? If so, whether the impugned sale is liable to be set aside?
The Applicant relied on the NCLAT judgment in Sunderesh Bhat and contended that IBBI Regulation 32A shall be treated as an open-ended provision relating to procedural law, which in no way states that it will not apply to pending liquidation. It was contended that since in the present case, the sale is being done after 90 days from the liquidation commencement date, it is violative of Regulation 32A of the Code and thus is liable to be set aside. In this regard, the Applicant relied on the cases of Mr. Sundaresh Bhat Liquidator of ABG Shipyard Limited, M/s Sandoor Micro Circutes Ltd. v. Commissioner of Central Excise Belagam, Bengal Iron Corporation v. CTO and Madras Bar Association v. Union of India.
The Applicant also contended that the Circular issued by the IBBI which provided for prospective application of Regulation 32A was bad in law on the ground that the power of the IBBI under Section 196(1)(p) or (t) cannot be expanded to interpret the provisions made and that being a mere circular, it cannot have the force of law or sub-legislation.
The Counsel for the Liquidator contended that the intention of the legislation reflects that the period of 90 days for sale of the Corporate Debtor as a going concern is only directory, and not mandatory. Reliance was placed on the case of Swiss Ribbons Pvt. Ltd. v. Union of India and it was contended that the timeline under Regulation 32A(4) of the IBBI does not meet the objectives of the IBC.
Decision Of The NCLT
The Tribunal observed that the Applicant was also a member of the Stakeholders Consultation Committee which unanimously accepted the sale of the Corporate Debtor as a going concern, despite being sensitized of the 90 days period by the Liquidator. Therefore, the Applicant is now estopped by his own conduct and acquiescence from invoking jurisdiction of this Tribunal. Thus, his very locus standi is at stake.
The Tribunal observed that the liquidation process commenced before the Regulation 32A was introduced, i.e. on 04.02.2019 and by way of the IBBI circular dated 26th August, 2019, the said Regulation was given only prospective effect. Thus, the present liquidation would be exempted from it. It also relied on the case of Swiss Ribbons and held that 'shall' under Regulation 32A(4) shall be read as 'may' in order to meet the object of the IBC- to keep the company as a going concern and protect it from liquidation.
Even in the case of Sundaresh, the NCLAT held that Regulation 32A is only directory and not mandatory.
Reduction Of Reserve Price
Schedule I, Clause 4 of the IBBI Liquidation Process Regulations 2016 entitles the Liquidator to reduce the reserve price up to 25% whenever the auction fails. In the present case, the Liquidator only reduced the reserve price by 8%.
The Tribunal observed that when an auction fails at a particular reserve price, the same has to be suitably altered, otherwise there will be no fresh bids.
Thus, in order to sell the Corporate Debtor as a going concern, it was necessary to reduce the reserve price. Moreover, since the Applicant was part of the committee that agreed to reduce the reserve price, he cannot challenge it now. An objection to this effect should have been raised by the Applicant before the Stakeholders Consultation Committee.
The Tribunal thus refused to set aside the sale and dismissed the application filed by the Applicant.
Counsel For Applicant: Mr. V.K. Sajith, Advocate