Viswa Infrastructures Finance & Services Pvt Ltd Vs SREI Equipment Finance Ltd - Auction of CD as a Going Concern in Liquidation.

 NCLT Hyderabad (30.06.2021) in Viswa Infrastructures Finance & Services Pvt Ltd  Vs SREI Equipment Finance Ltd  [IA (IBC)/157/2021 in CP (IB) No. 329/7/HDB/2018 ] held that; 

• Corporate Debtor is being sold on an ongoing concern basis which is more or less in the nature of resolution of the Corporate Debtor as such he has no objection if the prayers sought for in the term sheet submitted by the successful bidder are allowed by the Tribunal. Already Successful Bidder has deposited Rs. 57 crores. In order for the Successful bidder to kick start the business and follow the law laid down under the Companies Act, 2013, it is imperative for the Tribunal to grant necessary reliefs. 

• The said assets are free from any financial implications arising out of any pending proceedings before relevant authorities, if any. Further non compliance of provisions of any laws, rules, regulations, directions, notifications, circulars etc on the Corporate Debtor under various Acts and Regulations stands extinguished, qua the successful bidder. 

• The erstwhile promoters or any member, associate of the Existing and Erstwhile promoter groups is hereby restrained from doing any business directly or indirectly in connection with the products and services presently offered by the Corporate Debtor

• Relief sought with regard to issuance/renewal of all kinds of licenses / permissions/ approvals required is allowed subject to payment of renewal fees, if any, from this date to the Licensing Authorities. 

 

Excerpts of the order;

# 1. The Applicant is the Liquidator appointed for M/s Vishfva Infrastructures and Services Private Limited. This Application is filed pursuant to the earlier order passed by this Tribunal in IA 995/2020 on 18.01.2021 wherein the Liquidator was permitted to sell the Corporate Deblor as a going concern in accordance with Regulation 32 (e) and 32A of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. In the instant Application, the Liquidator is seeking the  following reliefs: 

• (a) Sale of Corporate Debtor as a going concern in terms of the conditions put forth by Successful bidder. 

• (b) Directions for disbursement of the bid amount of Rs. $7 crores to the lenders in terms of Section 53 of the Insolvency & Bankruptcy Code, 2016 (herein referred to as Code)

 

# 2. It is averred by the Liquidator, after due deliberations with the stakeholders in the third meeting of lenders held on 05.02.2021, the Reserve Price was fixed at Rs. 76 crores, EMD at Rs. 3.8 crores (5% of the Reserve Price) and Bld incremental value at Rs. 10 lakhs. Further, it was decided In the said meeting that in case no bids are received from the potential bidders, action for publication of subsequent sale notices with reduced Reserve Price as per Regulations will be taken and the stakeholders will be informed about the same. Copy of the Minutes of the third meeting of lenders of the Corporate Debtor is annexed and marked as Annexure A-6. 

 

# 3. The Applicant further stated that he has appointed E-Auction Agency called Righ2Vote and Linkstar, an Agency for maintaining Virtual Data Room for accessing confidential document of Corporate Debtor. 

 

# 4. The Liquidator invited bids for the sale of the Corporate Debtor as a “going concern” by E-auction sale notice dated 08.02.2021. When no bids were received, a Second E-Auction sale notice was published on 25.02.2021 inviting bids on or before 06.03.2021 and E-auction was held on 07.03.202). The total bid amount is Rs. 57 crores. 

 

# 5. M/s Indus Projects Private Limited along with Indvis Holdings Private Limited (Special Purpose Vehicle) submitted its Bid Application Form supported with relevant and required documents including payment of Rs. 2.85 crores as Earnest Money Deposit on 06.03.2021 to the Liquidator. The Liquidator had confirmed the parties as successful bidder vide email dated 07.03.2021. At the request of the Successful Bidder, the Liquidator extended the time period for payment of 25% of the sale consideration from 13.03.2001 to 16.03.2021. Consequently, the successful bidder has submitted a Term Sheet to the Applicant seeking certain reliefs and concessions for taking over the Corporate Debtor as a going concern. The reliefs and concessions sought for by the Successful Bidder were deliberated upon in the fourth meeting of lenders held on 08.03.2021. 

• a). Section (3)(i) of the Term Sheet (terms of acquisition) which states that the Acquirer shall make the payment towards balance consideration within 90 days of the date of demand in the designated Escrow Account. However, the withdrawal and distribution of the proceeds shall be subject to the approval of the Term Sheet by this Tribunal. 

• b). Section (3) (v) of the Term Sheet (terms of acquisition) lays down that as on the date of issue of Letter of Intent, all the cash accruals of the Corporate Debtor shall vest with or accrue to and be available for the sole benefit of the Corporate Debtor and only upon payment of the entire sale consideration, the Acquirer shall be entitled to seek possession of all such assets including accretions thereto. 

• c). Section 3 of the Term Sheets (concessions & reliefs, waivers/directions, specific orders from this Tribunal) is detailed at page Nos. 171 to 183 of the Application. 

 

# 6. The lenders namely ICICI Bank and YES Bank vide their e-mails dated 08.03.2021 and 20.03.2021 respectively have raised certain objections / suggestions vis-à-vis the conditions of the Term Sheet. The observations of the Lenders and the response by the Successful Bidder are stated against each as under: 

 

Lender - ICICI Bank

Point No	Observations	Response by successful bidder
16	That  the Financial Creditors would be liable to pay to the Company any amount the Company may to third party due to subrogation of guarantees should not be agreed to.	The said clause deals with a contingent scenario and would arise only in the event of the Company after being acquired by the Acquirer, being compelled under law (by way of an order of a court or Tribunal) to pay up a security provider/ guarantor in lieu of their discharge of obligations under the said guaranteed/ security That the Acquirer having already paid the sale consideration for the Company as a going concern and such consideration having been appropriated in accordance with Section 53 of the Code, cannot be called upon to further forego its rights to recover the same from the financial creditor concerned.
19	Ineligibility for proposing term sheet under IBC in future matters will be decided as per relevant sections of IBC as per specific facts of the matter in future. NCLT cannot grant waiver for this	The clause speaks of disqualification not to be incurred merely because of the Acquirer proposing this Term Sheet. It has no bearing to other grounds of disqualification which may get attracted. In any which ways, the relief sought does not encroach on the rights of any creditor of the Corporate Debtor.
22(i)	Clarification is required on how re-vesting of investment in subsidiaries by the Company will affect the subsidiary and its claim against those subsidiaries which have given corporate guarantee	The clause seeks to ensure that all the assets of the Company as reflected in the financial statements and/or information memorandum stands vested with the Corporate Debtor and is available to the Acquirer post closing date. The Term Sheet does not anywhere deal with the liabilities assumed by the subsidiaries.
22(iv)	Land records can be modified once the NCLT approves the terms of the going concern and not before that since specific waivers are being sought from NCLT	Direction is being sought for the Liquidator to extend support for modification of land records within 15 days of the closing date.
	Clarification required from Liquidator as to how proceedings other such as willful defaulter fraud, PMLA proceedings against the Corporate Debtor shall be dealt with after sale of the Company as going concern.	The term sheet does not seek any waiver/relief from proceedings initiated against any stakeholder than the Corporate Debtor.
29	That proceedings against third party guarantors and security providers can. continue	The said clause is already qualified by restricting its applicability to the discharge of proceedings against the Company only and not against any third party guarantors and security providers. No change is therefore warranted
	Defined terms such as NCLTApproval Date, Closing Date etc have not been defined	The term NCLT Approval Date has not been used. All though the term sheet uses the term “date of NCLT approval” which is self-explanatory. While it does not find place in the Definitions header, “closing date’ has been defined/ explained in clause-9 where it has been first used within the document.

 

 

Lender - Yes Bank

6	That the Balance payment to be made within 90 days of demand by Liquidator be made immediately on necessary approval	The balance amount of Rs.42.75 crores will be paid as per the terms of E-Auction Process Information Document and the Letter of Intent dated 09.03.2021 issued by the Liquidator.
3(iii)3	Since the sale is on as is basis, the o/s BGs should be part of the liabilities assumed by the Acquirer. Both commission should be paid when the same is due and BG devolvement should be honored	The Acquirer intends to take over the Corporate Debtor on a going concern in a liquidation process whereby the entire consideration shall go to discharge the outstanding claims filed by various stakeholders (including contingent BG claims of Financial creditors)
3(iii)(16)	Encashment of existing BGs should be honored by Acquirer	Having received their due share of entitlements under Section 53, the Financial Creditors cannot call upon the Acquirer to further assume obligation of payment towards the outstanding BG's upon their invocation or otherwise.

 

# 7. No further clarification has been sought by the Lenders. In this backdrop, the Applicant preferred this instant application seeking appropriate directions to take forward the process of selling the Corporate Debtor as a going concern in terms of the conditions laid down by the successful bidder and further sought directions to disburse the bid amount of Rs. 57 crores to the lenders in accordance with Section 52 of IBC, 2016. 

 

# 8. We heard the Counsel for Applicant. He stated that the Corporate Debtor is being sold on an ongoing concern basis which is more or less in the nature of resolution of the Corporate Debtor as such he has no objection if the prayers sought for in the term sheet submitted by the successful bidder are allowed by the Tribunal. Already Successful Bidder has deposited Rs. 57 crores. In order for the Successful bidder to kick start the business and follow the law laid down under the Companies Act, 2013, it is imperative for the Tribunal to grant necessary reliefs. 

 

# 9. Since the decision to sell the Corporate Debtor as a going concern is taken by the Liquidator in consultation with the creditors / stakeholders and the proceeds from the sale of assets are going to be utilized for distribution to the creditors in the manner specified under Section 53 of the Code, all the creditors of the Corporate Debtor get discharged and the assets are transferred free of any encumbrances. We are of the considered view that it is a fit case to grant certain reliefs in favour of the purchaser. 

 

# 10.  As a sequel to the above discussions and documents placed on record and submissions made by the Learned Counsel før the Liquidator, we pass the following orders: 

 

# 11. ORDER Permission is accorded to the Liquidator to disburse the bid amount of Rs. 57 crores to the lenders in terms of Section 53 of the Code. 

 

# 12. The Successful Bidder shall not be responsible for any other claims, liabilities or obligations, under any guarantees, etc. payable by the Corporate Debtor as on this date to the creditors or any stakeholders including the Government dues. All the liabilities of the Corporate Debtor as on date stands extinguished, qua the Successful Bidder. 

 

# 13. Any proceedings pending against the Corporate Debtor (other than against the erstwhile promoters or former members of the management of the Corporate Debtor) as on date with respect to its liabilities / inquiries / investigations / assessment / claims / disputes/ litigations etc shall not have any bearing against the assets sold in the process. The said assets are free from any financial implications arising out of any pending proceedings before relevant authorities, if any. Further non compliance of provisions of any laws, rules, regulations, directions, notifications, circulars etc on the Corporate Debtor under various Acts and Regulations stands extinguished, qua the successful bidder. 

 

# 14. The Successful Bidder/ Corporate Debtor shall have the right to review and terminate any contract that was entered into prior to the date of this order. 

 

# 15. The Successful Bidder shall get all the rights, title and interest over whole and every part of the Corporate Debtor, including but not limited to contracts free from security interest, encumbrance, claim, counter claim or any demur. 

 

# 16. The assets specified in the e-auction memorandum, on payment of the consideration shall vest with the Successful Bidder. The erstwhile promoters or any member, associate of the Existing and Erstwhile promoter groups is hereby restrained from doing any business directly or indirectly in connection with the products and services presently offered by the Corporate Debtor and transferring any such IPR to any other person whether related to them or not. 

 

# 17. The Successful Bidder shall not be held responsible/liable for any of the past liabilities of the Corporate Debtor. The Liquidator and Successful Bidder shall take all the steps required to make accounting entries for the smooth transmission and clearing the balance sheet. 

 

# 18. The Liquidator is directed to ensure completion of pending filings with the Registrar of Companies, Income Tax Authorities and any other Government/ Statutory Authorities. 

 

# 19. The Corporate Debtor is entitled to get the benefits of brought forward losses, if any, subject to permission of the appropriate authority, if so entitled under the relevant provisions of the Income Tax Act, 1961. As far as the prayer for considering the bid submitted by the successful bidder as Resolution Plan under Section 79 of Income Tax Act, 1961 is concerned, the bidder may approach the authority concerned who would consider such request under the Income Tax Act. 

 

# 20. Relief sought with regard to issuance/renewal of all kinds of licenses / permissions/ approvals required is allowed subject to payment of renewal fees, if any, from this date to the Licensing Authorities. 

 

# 21. The Liquidator is directed to provide all support and assistance to the successful bidder for the smooth functioning of the Corporate Debtor to complete the acquisition. 

 

# 22. With regard to relief sought directing various statutoły authorities to exempt income/gain/profits if any, arising pursuant to acquisition of Corporate Debtor and further with regard to exemption from stamp duty and tax liability, it is open to the Successful Bidder to approach the authorities concerned and it is for the authorities to consider the request of the bidder for exemption since the successful bidder purchased the Corporate Debtor Unit as ongoing concern during liquidation. 

 

# 23. This IA is accordingly disposed of. 

 

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