On April 21, 2023, the National Company Law Appellate Tribunal, New Delhi ("NCLAT") gave its decision in the case of ASJ Finsolutions Private Limited v. Best Foods Limited, whereby it held that as per the IBBI (Liquidation Process) Regulations, 2016 ("Liquidation Regulations"), it is mandatory that the entire sale consideration for an auctioned asset of the corporate debtor under liquidation, must be paid within 90 days of such demand being raised by the liquidator, post the closing of the auction. The NCLAT further held that failure of the successful bidder to deposit the entire sale consideration within the prescribed time-limit, would lead to cancellation of the sale.
Best Foods Limited ("Corporate Debtor") was admitted into corporate insolvency resolution process ("CIRP") on February 2, 2018, and an order for liquidation was passed on March 1, 2021. Pursuant to the liquidation order, several properties of the Corporate Debtor were put on auction. ASJ Finsolutions Private Limited ("Appellant") was declared as the highest bidder with respect to one of the said properties.
Subsequent to the auction, the Appellant made a deposit of Rs. 6.39 crores on November 16, 2021, against the total sale consideration. On the same date, the liquidator issued a letter of intent to demand the balance amount within 30 days, or with applicable interest within 90 days, as mandated under Schedule 1 of the Liquidation Regulations.
However, the balance amount was not deposited by the Appellant within the stipulated 90 days from the date of issuance of the letter of intent. The Appellant sought an extension, over and above the stipulated 90 days, for paying the balance amount, citing an ongoing dispute over the legal title of the sold property. The Appellant's request was rejected by the liquidator on the grounds that the Appellant was duly notified of the dispute in the e-auction notice and the sale was on "as is where is basis".
Proceedings before the Adjudicating Authority:
The Appellant filed an application before the Adjudicating Authority (NCLT, Chandigarh), seeking directions for the liquidator to make available the chain of documents for the property sold to the Appellant, for verification of the status of the property, before the balance sale consideration is paid.
The Appellant cited a writ petition filed in the Punjab and Haryana High Court regarding a dispute over the legal title of the property sold to the Appellant, and claimed that the Appellant was not aware of this dispute. The Appellant also stated that it would require an indemnity from the Corporate Debtor in order for it to pay the balance amount of the sale consideration.
The Adjudicating Authority referred to the bid documents and noted that full disclosure in regard to ongoing disputes over the sold property had been made in the said documents. Further, the bid documents also revealed that documents pertaining to the legal title over certain portions of the sold property are not available with the Corporate Debtor. The Adjudicating Authority also noted that the Appellant had acknowledged that the property is being auctioned on an "as is where is basis".
Furthermore, the Adjudicating Authority noted that the bid documents also mentions that all auction participants must make their independent inquiries regarding the property, and that the property is being sold on a "No recourse basis".
In light of the above, the Adjudicating Authority held that no further extension of time, over and above the 90 days period stipulated under Schedule 1 of Liquidation Regulations can be allowed in the present set of facts. It was held that since the balance amount was not paid within the stipulated 90 days, the sale stands cancelled, and the property must be re-auctioned.
The Adjudicating Authority's order was challenged in the present appeal by the Appellant.
Whether the 90 days time-limit for payment of the entire sale consideration, as per Schedule 1 of Liquidation Regulations, can be extended?
Decision of the NCLAT:
Firstly, the NCLAT noted that the Appellant was well aware of the dispute regarding the sold property. Further, the NCLAT referred to its decision in Potens Transmissions & Power Private Limited v. Gian Chand Narang, [CA (AT) (Ins) No. 532 of 2022], wherein it was held that the 90 days limit stipulated under Schedule 1 of the Liquidation Regulations, is statutory and thus, mandatory. Thus, the NCLAT held that failure to pay the entire sale consideration within the 90 days limit would mandatorily lead to cancellation of the sale.
With the above observations, the NCLAT found no reason to interfere with the impugned order of the Adjudicating Authority and dismissed the appeal.
It is pertinent to note that the Adjudicating Authority, in its order (challenged by the Appellant), had rejected an extension of the 90 days' time limit, on the ground that the Appellant was aware of the dispute regarding the legal title of the sold property. Thus, the Adjudicating Authority's order seemingly indicated that an argument for extension of the time limit can be allowed, where the facts of the case necessitate the same.
The NCLAT's decision, on the other hand, relied solely on the text of Schedule 1 of the Liquidation Regulations, to hold that any extension of the 90 days' time limit was impermissible. It was categorically held that an ongoing dispute regarding the legal title of the sold property "cannot be ground for the Successful Bidder of not making payment of balance amount" within the stipulated 90 days [Refer: Para 6].
Based on the above, in our view, any extension of the 90 days' time limit for payment of the entire sale consideration, irrespective of the ground taken, is wholly impermissible. Therefore, even where the Appellant had not been aware of the dispute regarding the legal title, or where the bid documents failed to make sufficient disclosures, the only remedy available to the Appellant would have been to seek cancellation of the auction. Neither the Adjudicating Authority, nor the NCLAT, can grant an extension on the mandatory 90 days' period, which is a strict time limit stipulated under Schedule 1 of the Liquidation Regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.