90-days window in Liquidation Regulations to make payment by successful bidder applies retrospectively: NCLAT

Case Details: Sundaresh Bhat Liquidator of ABG Shipyard Ltd. In re - [2021] 131 taxmann.com 215 (NCLAT- New Delhi)

Judiciary and Counsel Details

• • Justice A.I.S. Cheema, Officiating Chairperson and Dr. Alok Srivastava, Technical Member
  • Krishnendu Datta, Sr. Adv., Ayush J. Rajani, Ms. Khusboo S. Rajani, Advs. for the Appellant. Sumant Batra, Adv. (Amicus Curiae) for the Respondent.

Facts of the Case

In the instant case, the financial creditor had filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the corporate debtor which was admitted. Since no resolution plan was approved by the Committee of Creditors, a liquidation order was passed.

The Appellant, who was appointed Liquidator, tried four times in a row to sell the assets of the corporate debtor at public auction but failed for various reasons. The appellant claimed that it tried to understand the local market and realized that the 15-days timeframe for payment of consideration after the conclusion of an e-auction after the highest bidder was too short, given the size of the sale considerations and the ongoing economic slowdown caused by the COVID-19 pandemic.

On the other hand, the amendment to the Schedule I clause 12 of the Regulations was made on 25-7-2019 which substituted a period of 15 days by introducing 90 days as a period to make the payment of balance consideration.

As a result, the appellant filed an application with the Adjudicating Authority, claiming that the benefit of the modification could only be claimed in cases where the liquidation process began on or after 25-7-2019, as stated in an IBBI Circular.

However, as per revised clause 12 of Schedule I of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, the Adjudicating Authority denied providing the benefit of the provision of 90 days to pay the outstanding selling consideration. The Adjudicating Authority based its decision on an IBBI circular, which said that because the liquidation order in the action was issued before the change dated 25-7-2019, the benefit under revised section 12 could not be provided. As a result, the appeal was filed.

NCLAT Held

The NCLAT, on the other hand, recognized that the replacement rule introduced as an amendment did not indicate that the regulation would only be implemented prospectively. It was an open-ended procedural law provision that made no claim that it would not apply to current liquidation proceedings on the date of replacement. The Circular dated 26-8-2019 could not interpret the Regulations in the manner it is done. Power of Board under section 196(1)(p) or (t) to issue guidelines could not be expanded to interpreting provisions made. That was the job of Courts to interpret and apply the law.

Thus, the circular issued by IBBI could not take away the benefit granted by amendment and therefore, amended clause 12 of Schedule I to would apply to the liquidation process even though initiated before 25-7-2019.

Case Review

• • Sundaresh Bhat Liquidator of ABG Shipyard Ltd., In re [2021] 131 taxmann.com 214 (NCLT-Ahd.) (para 17) reversed

List of Cases Referred to

• • Swiss Ribbons (P.) Ltd. v. Union of India [2019] 101 taxmann.com 389/152 SCL 365 (SC) (para 9)
  • Y. Shivram Prasad v. S. Dhanapal [2019] 104 taxmann.com 377/153 SCL 294 (NCL – AT) (para 9).