Bharat Bhagnani vs Vinod Kumar Kothari

Per Balraj Joshi, Member (Technical)

The Court convened through hybrid mode.

The I.A. has been filed Bharat Bhagnani against Vinod Kumar Kothari, the liquidator of Nicco Corporation Limited under section 60(5) of the Insolvency and Bankruptcy Code (“Code”) seeking the following reliefs:

Vide order dated 17 October 2017, this Adjudicating Authority directed the Corporate Debtor viz. Nicco Corporation Limited to undergo liquidation on the ground of non-availability of resolution plan under section 33(1)(a) of the Code. Mr. Vinod Kumar Kothari, having registration no. IBBI/IPA-002/IP-N00019/2016-17/10033 was appointed as the Liquidator of the Corporate Debtor.

It is submitted that one of the assets being held by the Corporate Debtor were equity shares comprising of around 25% in Nicco Park and Resorts Limited. Such shares were purchased pursuant to the execution of a Joint Sector Agreement (“JSA”) dated 23 February 1990, between West Bengal Tourism Development Corporation Limited, West Bengal Industrial Development Corporation Limited and the Corporate Debtor.

The learned Counsel referred to clause 4 of the said JSA, inter alia, states that the land would be made available by the Tourism Department to West Bengal Industrial Development Corporation Limited which would in turn transfer the said land to Nicco Park and Resorts Limited for a period of 33 years starting from 02 March 1990 which expires on 04 July 2023.

It is further submitted that the JSA provides that the renewal of the aforesaid lease would be subject to the agreement between the Tourism Department and West Bengal Tourism Development Corporation Limited, hence without renewal of the JSA the functioning of the park would not be possible.

It is submitted that in view of the above, the purchase of additional shares in Nicco Park and Resorts Limited by the Applicant pursuant to the offer of sale by the Liquidator would only seem to cohere if the purchaser could be a part of the functioning and operation of Nicco Park and Resorts Limited, if the Applicant is prevented from the same or if the lease is not renewed, then the purpose of purchase of the said shares would be otiose.

The learned Counsel submitted that in or around 13 April 2018, the Liquidator issued a public notice being an Invitation for Expression of Interest for sale of assets of Nicco Corporation Limited being investments in 1,17,0,000 nos. of Equity Shares comprising of 25% Nicco Park and Resorts Limited shares.

Upon making payment of Rs.2,50,000/- as the non-refundable fee, the Liquidator forwarded certain letters to the Applicant along with the JSA.

It is submitted that the Applicant was under the view that the Liquidator would provide all the necessary documents pursuant to the Liquidator carrying out his due diligence which was pertinent and relevant for the sale of the shares.

The Applicant was provided with two sets of FAQs by the Liquidator. On 24 April 2018, the Applicant submitted his response to the EoI enclosing necessary and requisite documents being declaration, undertaking and affidavit, in good faith and on representation of the Liquidator that all material disclosures have been made.

The Liquidator vide email dated 11 May 2018 informed the Applicant that the Applicant is eligible to participate in the bidding process for the sale of Nicco Park and Resorts Limited. The Liquidator kept postponing the schedule for submission of Earnest Money Deposit (“EMD”) and the sale process, vide an email dated 10 September 2018, the Liquidator informed that the last date of submission of EMD is the 15 September 2018 and the auction date is on 20 September 2018.

It is submitted that the Liquidator extended the time for submission of EMD till 22 September 2018 vide an email dated 15 September 2018. The date of the auction was also extended to 27 September 2018 and was notified to the Applicant vide an email dated 18 September 2018. The Applicant contested the said decision in its email dated 19 September 2018.

The Applicant submitted the EMD of Rs.2,00,00,000/- on 21 September 2018. On 27 September 2018, the Applicant was declared as the highest bidder by the Liquidator. On 28 September 2018 the Liquidator sent the Letter of Acceptance by an email. The Applicant proposed few changes in the letter of acceptance. Thereafter, it came to the knowledge of the Applicant that upon transfer of shares, the rights under the JSA shall not be transferred to the Applicant.

The Applicant vide email dated 04 October 2018 enquired regarding the separate agreement between Tourism Department and West Bengal Tourism Development Corporation Limited as stated in clause 4 of the JSA.

The learned Counsel submitted that the Liquidator failed to clarify and inform the Applicant regarding the unavailability of the separate agreement between the Tourism Department and West Bengal Tourism Development Corporation Limited.

The Applicant vide email dated 08 October 2018 expressed to the Liquidator that Liquidator failed to provide all the requisite documents while being aware that the Applicant would face several impediments due to the suppressed facts.

On 09 October 2018, the Liquidator sent an email wherein it illegally forfeited the EMD of Rs.2,00,00,000/-.

Thereafter, the Liquidator filed an I.A. under section 19 read with section 34 of the Code being I.A. No. 669/KB/2019 before this Adjudicating Authority, seeking full disclosure and full details of any transactions or trades that have happened with Nicco Park and Resorts Limited shares since the commencement of liquidation proceedings. This Adjudicating Authority passed an order on 18 December 2019 wherein it was observed that the Directors have failed to co-operate with the Liquidator.

From the above, it is evident that the Liquidator has failed to provide documents to the applicant which led to failure of transaction between the parties. Therefore, it is evident that the Liquidator was not aware of the rights attached to the said shares and what are the rights which will travel to the successful auction purchaser upon sale.

In support of his contention, the learned Counsel placed reliance on the judgment of the Coordinate Bench, NCLT Hyderabad Bench in the matter of Abhishek Agarwal v. Yedavilli Sai Karunakar (I.A. No.152/HDB/2021 in C.P.(I.B.) No.278/HDB/2018 dated June 30, 2023), similar issue was raised which is akin to the present subject in issue, wherein, refund of EMD to the applicant was allowed on the ground that there was lack of due diligence on the part of the Liquidator in ascertaining, identifying and disclosing the right that will flow with such sale to the successful bidder.

The Liquidator also reduced the non-refundable fee and EMD for the auction sale conducted by the Liquidator in 2018 from Rs.2,50,000/- and Rs.2,00,00,000/- to Rs.1,00,000/- and Rs.1,00,00,000/- respectively for the auction sale to be conducted in 2020.

It is submitted that the reduction from Rs.40.25 per share in 2018 to Rs. 30 per share in 2020 is despite an increment in the value of shares from Rs.40/- to Rs.44/- in 2018 to Rs.45/- to Rs/ 48/- in October 2020. The Liquidator brought down the reserve price of the shares to Rs. 30/-. Hence the prior valuation was not done in a reasonable manner and without any basis and the previous sale process as a while was done in haste. The second EoI was published on 22 September 2021.

It is submitted that the documents provided y the Liquidator in conducting the sale of Nicco Park and Resorts Limited shares is much more comprehensive and exhaustive as compared to the previous bid process.

The learned Counsel gave us a comparative chart of the 1^st EoI and the 2^nd EoI which is given hereunder:

Accordingly, the Invitation seeks to invite Expression of Interest for acquisition of the following Sale Asset of the Company, the brief description of which is being provided hereinbelow:

On a comparison between the 1^st invitation and the 2^nd invitation, it is evident that the 1^st invitation dated April 13, 2018 (reframed) is rudimentary having not much details, whereas, the description of the subject shares under sale in the 2^nd invitation is minutely detailed and the complete scope, rights, interest attached thereto and/or appended therewith are delineated in clearest terms.

The contention of the Liquidator that the applicant is already a 17% shareholder in Nicco Park and Resorts Limited and is aware of the scope, rights attached to the subject shares under sale, i.e. 25% of the Nicco Park and Resorts Limited share is completely misconceived. A shareholder in a company is not expected to be aware of the other shareholders’ shares or as to whether there is any encumbrance created or third party right created in respect of the other shareholders holding in Nicco Park and Resorts Limited.

It is evident that prior to the 2^nd EoI, even the Liquidator was not aware of the nature of encumbrances, if any, or transferability or title of Corporate Debtor over the 25% Nicco Park and Resorts Limited shares. Rather being a 17% shareholder in Nicco Park and Resorts Limited, the Applicant was all the more interested to acquire further 25% shares in Nicco Park and Resorts Limited to raise its stake to 42% and, as such, the Liquidator was very keen to successfully complete the transaction.

However, due to lack of information, the transaction failed, for which, the Applicant is entitled to refund of the EMD amount which has been wrongfully and illegally forfeited by the Liquidator together with interest at the rate of 18% per annum.

The Liquidator has acted in contravention of the Liquidation Regulations by forfeiting the EMD amount. Under Schedule I, Rule 1 (11A) and (12) of the Liquidation Regulations, the Liquidator has no statutory authority and/or power to forfeit EMD. Law does not provide for forfeiture of the EMD amount.

In the event, the sale consideration is not made over, then only consequence is cancellation of sale. There is no provision for forfeiture of EMD. As such, the forfeiture is contrary to the statute.

The Liquidator has exceeded its authority by forfeiting the EMD. The Liquidator has illegally acted in forfeiting the EMD amount. The Corporate Debtor has not suffered any loss on account of sale of the Nicco Park and Resorts Limited shares. The shares were over-valued and hence, the price difference was on account of over-valuation of shares and not on account of any loss suffered by Corporate Debtor.

The learned Counsel submitted that the forfeiture of EMD made by the Applicant was done on 08 October 2018 and the Applicant has filed the said I.A. after expiry of three years. The Counsel placed reliance on the Clause 2 of the EoI which is titled as “DISCLAIMER”. It is submitted that paragraph 2 of Clause 2 states that the information contained in the Invitation is substantially based on the estimated information, opinions and information sourced from the Company, public domain and independent third parties. The Invitation does not amount to a recommendation, either expressly or by implication, with respect to the Company or other entities mentioned in the Invitation. Except where specifically mentioned otherwise, the Liquidator has not independently verified such information and the same is being provided by the Liquidator for information purpose only. The Liquidator does not make any verified such information and the same is being provided by the Liquidator for information purpose only. The Liquidator does not make any representation or warranty as to the accuracy, reliability or completeness of such information and does not assume any undertaking to supplement such information as further information becomes available or in light of the changing circumstances. The Liquidator shall not have any liability under any law, statute, rules or regulations for any representations or warranties (express or implied) contained in, or any omissions from this Invitation or any other written or oral communication transmitted to the recipient in the course of its evaluation of the proposed financing or otherwise.

It is further submitted that in order to provide clarification with respect to the position of the sale asset, the Liquidator had framed and provided FAQs to the bidders, thus clarifying all the probable concerns with respect to the sale of assets. The availability and non-availability of documents were clearly indicated to the Applicant vide email dated 04 October 2018^{11.Page 65 of reply}, wherein the Liquidator has clarified that the separate agreement between West Bengal Tourism Department Corporation and Tourism Department was not in possession of the Liquidator. The same was also communicated vide emails dated 21 April 2018, 26 April 2019 and 31 May 2018.

The learned Counsel thereafter referred to the affidavit filed by the Applicant dated 24 April 2018^{22.Page 90 of the I.A.} wherein the Applicant has declared that he has understood all the terms and conditions relating to the formulation of the EoI and expressed his interest in acquiring the sale assets of the Company in as is where is and whatever there is basis. The learned Counsel referred to another affidavit of the Applicant signed on 25 May 2018^{33.Page 101 of the I.A.} wherein the Applicant has given the declaration at paragraph 3 that the Applicant has been provided Information Sheet relating to NPRL Investment, along with relevant annexures, so as to take an informed decision for purchase of the said asset of the Company.

Thus, the Applicant was well aware that the availability of information in the liquidation sale was limited and yet the Applicant took a conscious and informed decision to participate in the auction. Further, from the emails, it is clear that the Applicant was in a rush to participate in the e-auction and when the Liquidator extended the timeline for submission of EMD, the Applicant objected to the same and asked for refund of EMD submitted which was duly refunded.

It is submitted that there was no misrepresentation or suppression fo facts by the Liquidator.

The learned Counsel submitted that the Liquidator filed I.A. (IB) No. 669/KB/2019 after consultation with the Stakeholders Committee. Gien the subsequent developments in the litigation and judgments of the NCLT, Hon’ble NCLAT and Hon’ble Supreme Court, the Liquidator was bound to disclose full facts as were received at the time in the later invitations.

The learned Counsel submitted that the Code stresses on timely completion of processes, hence a person who fails to meet a commitment under an action is liable to face forfeiture of the amount paid. If a bidder is permitted to submit an unconditional bid in response to the auction notice with an EMD and thereafter permitted to withdraw the bid and seek refund of the EMD, it will lead to confusion and there will be no seriousness to the entire process. The learned Counsel placed reliance on the judgment of the Hon'ble Supreme Court judgement in State of Haryana v. Malik Traders, (2011) 13 SCC 200, wherein the Hon'ble Supreme Court held as "The right to withdraw an offer before its acceptance cannot nullify the agreement to suffer any penalty for the withdrawal of the offer against the terms of the agreement. A person may have a right to withdraw his offer, but if he has made his offer on a condition that the bid security amount can be forfeited in case he withdraws the offer during the period of bid validity, he has no right to claim that the bid security should not be forfeited and it should be returned to him.." [Emphasis added]

It is submitted that it was the Applicant's conscious decision to participate in the auction process and eagerness to complete the sale process. The learned Counsel referred to the Invitation document stated clearly that the interested bidder shall perform its own independent investigation and due diligence of the Sale Assets of the Corporate Debtor, based on such information as it deems relevant and without reliance on the Liquidator and this Invitation. The Liquidator shall endeavor to provide such cooperation as may be appropriate for carrying any due diligence at the cost and expense of the Applicant, and that no representations and warranties were given by the Liquidator as to availability of any information or any other aspect pertaining to the Sale Asset.

It was also stated that it shall be presumed that all the facts were taken into account by the Applicant while submitting its Bid. Even if the Applicant chooses not to inspect or conduct due diligence on the Sale Assets, it shall be presumed that the Applicant has made himself aware of the physical condition, market value of the Sale Assets and therefore, no complaint/claim against the same shall be entertained in this regard by the Liquidator after the submission of the Bid. The learned Counsel referred to Clause 12.12 and 12.13 wherein it was stated that the Applicant should thoroughly satisfy itself about the nature, conditions and quality of the Sale Assets and that the Liquidator gives no guarantee or warranty as to title of the Sale Assets or the conditions of the assets/material or/its quality for any specific purpose or use. It should be clearly understood that no claim/complaint about the quality/ conditions/ fitness for use will be entertained by the Liquidator. The submission of the Bid means and implies that the Applicant has read carefully and unconditionally and irrevocably agreed to and accepted all the terms and conditions laid herein.

It is submitted that it was only after being declared as the Successful Bidder at the e-auction convened on 27 September 2018, the Applicant raised the concerns. The learned Counsel further submitted that if at all the Applicant was dis-satisfied with the response / disclosure with respect to the Sale Asset, he could have chosen not to participate in the e-auction. Hence, the act of the Applicant is merely an after-thought to recover the EMD, which he rightfully cannot claim given his explicit confirmations to the terms and conditions of sale.

It is also pertinent to note that the Applicant herein is one of the shareholders of Nicco Park and Resorts Limited, holding 17% of the paid up share capital of Nicco Park and Resorts Limited, and therefore, cannot be said to be unaware of the position of the Sale Asset.

It is submitted that the Applicant's real concern in the present matter is an afterthought to step out of the sale arrangement which is very much evident from mail dated 1 October 2018 that the Applicant's real issue was not the details about the asset. It was after the Applicant was served the letter of acceptance by the Liquidator, the Applicant wanted the Liquidator to assure amendment of the Joint Sector Agreement with the Government of West Bengal and to have the Applicant's name inserted therein in the place of the Corporate Debtor, which as was quite clear from the terms of the auction, was not at all what was promised by the Liquidator.

It is submitted that the terms of the auction were quite clear that all what the Liquidator was selling was the 25% shareholding in Nicco Park and Resorts Limited, and not the right to have the Joint Sector Agreement amended.

The learned Counsel referred to the EoI which clearly specified that the Liquidator made no representations as to rights associated or not associated with the said assets.

It is submitted that the Applicant was refunded the first EMD on 15 September 2018 and thereafter the Applicant submitted the EMD on 21 September 2018 to participate in the bid process and started to chase up the Respondent for issuance of the Acceptance Letter after he was announced as the highest bidder.

It is further submitted that the Applicant stepping out of the sale process in the present matter on account non-receipt of the agreement referred to in clause 4 of the JSA which is completely significant to understand the position of the Sale Asset is completely baseless given that the Applicant is one of the shareholders of NPRL, holding 17% of the paid up share capital of NPRL. Therefore, it is improbable that the Applicant was not aware of the position of the Sale Asset.

The learned Counsel submitted that with regard to the order of the Learned NCLT Hyderabad Bench in Mr.Yedavilli Sai Karunakar (supra), that the said judgment is not applicable to the facts of the case and distinguishable, on the following grounds:

a. Mr.Yedavilli Sai Karunakar (supra),matter was a case of deliberate misrepresentation of facts, as is evident from the facts of the case, however, in the given case the Liquidator never made any misrepresentation or non-disclosure regarding availability/non-availability of any document. In fact, much prior to e-auction date, the Liquidator vide e-mail dated 21 April 2018, has clarified that the agreement in question was not in possession of to Liquidator. The Applicant in the undertaking dated 25 May 2018 had affirmed that- "The Applicant has been provided with the Information Sheet relating to NPRL Investment along with relevant annexures, so as to take informed decision for purchase of the said asset of the Company." Inasmuch, the Applicant, at several stages, gave several declarations to say that he has understood the terms and conditions of the sale

b. In the matter of Mr.Yedavilli Sai Karunakar (supra), the property was under prohibited list and the title of the property was not in the name of BS Limited. Whereas, in the given case, the sale asset, i.e 25% shares of Nicco Parks and Resorts Limited, was well within the domain of the Corporate Debtor, and was not prohibited to transfer. This is clear from the rulings of Hon'ble Bench dated 18 December 2019, which went to the Hon’ble NCLAT and later upheld by the Hon'ble Supreme Court vide order dated 21 July, 2020.

c. Para 8 of Mr.Yedavilli Sai Karunakar (supra) states, "It is a case where the bidder failed to deposit the balance amount on account of there being a bonafide litigation regarding the title of the property. In the said case also, e-auction notice did not contain details of litigation. The mode was "as is what is basis and whatever is where is basis". As in this case. Considering that the factum of litigation and suit by certain parties cannot be ground for successful bidder for not making payment of the balance amount, the court ordered the bidder to pay the rest of the amount. But it can been seen that in the said case, the litigation was nevertheless mentioned in the sale notice which would imply that the party has paid for the property knowing very well about the existence of litigation over the property. But in this case, it is not within the knowledge of the applicant and is well within the knowledge of the liquidator that the property was in prohibited list which was not disclosed in the sale notice. Given the short time, the petitioner could not conduct due diligence and he had to deposit the Earnest Money. It is only after the deposit of Earnest Money that he came to know about the property being under prohibited list"

The learned Counsel submitted that it is an established fact that liquidation sales are different from normal sales which are undertaken by the owners of the property. The liquidator relies on records of the corporate debtor to prepare the information memorandum, and a potential buyer is expected to undertake all necessary due diligence before buying the property. Further, there could be a possibility of non-cooperation from the former management, and therefore, the liquidator may have access to limited facts. Therefore, there has to be a disclaimer in an auction document that the liquidator can only supply whatever is reasonably within his control. Unless there is a case of concealment, a clause containing "as is where is and whatever there is" is present in all liquidation sales.

Further, it is pertinent to note the order of this Adjudicating Authority dated 23 February 2022 wherein it was ordered,

The learned Counsel placed reliance on the judgment of the Hon’ble Supreme Court in United Bank of India v. Official Liquidator, 1994 SCC (1) 575, wherein the Hon'ble Supreme Court held that-

It is thus submitted that the I.A. should be dismissed.

We have heard the learned Counsel appearing on behalf of the Applicant and the Liquidator and perused the record.

The issues to be considered are the following:

a. Whether the e-auction was done in accordance with law?

b. Whether the EMD should be forfeited or returned?

Before delving into the allegations made by the Applicant, let us consider the first issue. The Liquidator issued the invitation for expression of interest for acquisition of sale assets of the Corporate Debtor in accordance with section 35 of the Code read with Chapter VI and Schedule I of the Liquidation Regulations. Thereafter, the EMD was submitted and the E-auction process was held. Before the E-auction, there were several communications between the Applicant and the Liquidator. The Applicant was well aware that the Liquidator was not in possession of the agreements or contracts between Nicco Parks and Resorts with the Government of West Bengal as the Corporate Debtor was not a party to the same which is clear from email dated 21 April 2018^{44.Page 40 of reply.}. Further the FAQs provided by the Liquidator to the bidders has clearly stated in query 2 that the bidders “are advised to take independent professional advice in relation to various terms and conditions of the agreement and their specific rights/obligations vis-à-vis that of NPRL and WBIDC/WBTDC. The Liquidator makes no declaration and undertaking in this connection.”

Hence, after being fully aware of the same, the Applicant submitted its EMD. The Liquidator held the E-auction and the highest bidder was declared. This makes it clear that the entire procedure was done in accordance with law.

The Applicant has filed a declaration on 21 September 2018^{55.Page 49 of reply} wherein at paragraph 4 the said declaration has been given:

On perusal of paragraph 4 of the above declaration it is clear that the Applicant was aware that the EMD would be forfeited in the event the Applicant fails to fulfil ant of the terms and conditions.

Further, the Liquidator was not wrong to fix the terms and conditions of the Bid document. We would like to rely of the judgment of the Hon’ble NCLAT in Westcoast Infraprojects Pvt. Ltd. v. Mr. Ram Chandra Dallaram Choudhary, (2023) ibclaw.in 278 NCLAT, wherein the Hon’ble NCLAT held that

The Applicant was given ample opportunity and time to participate in the e-Auction process after conducting due diligence on the Sale Assets. The Applicant wilfully participated in the bid process and thereafter raised its concerns after receipt of the letter of acceptance. To summarise the same, Applicant participated in the e-auction process. After being declared the highest bidder, the Applicant received the letter of acceptance but did not fulfil the obligations, hence, the Liquidator forfeited the EMD. We are therefore of the view that the Liquidator has correctly forfeited the EMD.

The EMD was forfeited on 08 October 2018, the Applicant has not filed any communication made thereafter, and has filed the present I.A. only after subsequent events took place.

The actions of the Applicant show that the Applicant is trying to delay the entire process of Liquidation and is thus advised not to do so.

In view of the above observations and circumstances, we are of the view that the Liquidator has rightly conducted the e-auction process and thereafter has rightly forfeited the EMD in consonance with the bid document and declaration.

The prayers of the Applicant cannot be granted, hence, I.A. (IB) No. 04/KB/2022 is hereby rejected.

The Registry is directed to send e-mail copies of the order forthwith to all the parties and their Ld. Counsel for information and for taking necessary steps.

Certified copy of this order may be issued, if applied for, upon compliance of all requisite formalities.

File be consigned to the records.