M/s Raghava Square Private Limited vs M/s IVRCL Limited & Ors.

Per : Sanjay Puri, Member (Technical)

This Interlocutory Application has been filed by the Successful Bidder of the Corporate Debtor^{11.M/s IVRCL Limited (in liquidation): M/s IVRCL Ltd was admitted into CIRP on 23.02.2018 and later approved for Liquidation on 26.07.2019 read with the Corrigendum Order dated 31.07.2019.}(CD), sale of which as a going concern to the Applicant was approved^{22.In MA No. 2 of 2022 Page 6 of 22} by this Authority on 15.06.2022 for a consideration of Rs 1200 Crores. The Applicant had deposited Rs 50 crores as EMD and a timeline for payment of the remaining Rs 1150 crores was fixed in the order approving the sale of the CD as going concern.

The Applicant is also stated to have made part payment of Rs 100 Crores on 26.09.2022 towards the balance consideration of Rs 1150 crores. Remaining amount of Rs 1050 crores has not been paid till the passing of this order. Sale of the CD as a going concern, to the Applicant has remained inconclusive, and the CD continues to be under the control and management of the Liquidator.

The Application refers to a 'Business Plan' proposed by the Applicant as part of its bid to acquire the CD as going concern. According to the Applicant, the terms of the 'Business Plan' provided for "assets proposed to be taken over as part of the sale of the CD in liquidation as a going concern, and the bid offered, include the assets of Third-Party Guarantors/Securities and 100% subsidiaries/Joint Ventures/Associates of the CD, which have been exclusively charged to various lenders from whom the CD availed financial assistance, and are covered under the admitted claims of Financial Creditors."

It is asserted that the Applicant "framed the opinion to bid" based on the understanding that 'all assets disclosed in the Virtual Data Room (VDR)' would be included. They apparently opined that "all such assets as disclosed in VDR shall vest with the bidder and no additional consideration shall be paid for the same, regardless of whether they form part of the Assets/Liquidation Estate of the CD"^{33.The details of assets considered in bidding process by the Applicant were provided in Annexure-1.1, 1.2 & 1.3 (Pages No 63 to 88 of the Business Plan)}. (emphasis provided)

While the deliberations regarding the assets to be included in the sale of the CD in liquidation as a going concern were underway, the Applicant is stated to have learnt that the assets of third-party subsidiaries – believed by the Applicant to be part of the CD's assets 'regardless of whether they form part of the Assets/Liquidation Estate of the CD' – were being sold by lenders who held them as security interests for loans extended to the CD.

It is submitted that "the Applicant had come to knowledge from reliable sources, that, the Lenders are making attempts to proceed against the Third party securities/assets, under SARFAESI Act 2002, against the assets which are forming part of assets covered under the Business Plan which are the assets to be taken over by the Applicant as successful bidder for acquisition of CD as a going concern under Liquidation and for which the bid amount offered by the Applicant includes for such third party securities/assets as the sole consideration." Thus, according to the Applicant, "The assets of the subsidiaries/ associates/ joint ventures of the CD detailed under the Business Plan are given as security for the lending provided by the Lenders to the CD. While so, attempting to proceed against the assets of the said third parties, having approved the Business Plan, is clear violation of the terms of the Business Plan".

Consequently, the Applicant has filed this application seeking the following reliefs:

The Applicant has referred to following paragraphs of the 'Business Plan' to demonstrate its intention in this regard, which according to them also found favour with the Liquidator and the SCC.

According to the Applicant, based on these clauses of the Business Plan, it was “approved by the Stakeholders Consultation Committee that the rights, title, and interest in whole or every part of assets including Land & Building(s) of the Corporate Debtor and its subsidiaries/ associates/ Joint Ventures to vest back to the Corporate Debtor and also to Bidder, free from all security interest, encumbrance, claims and counter claims”.

In essence, the Applicant, as the successful bidder, is asserting a claim over the assets of the subsidiaries, joint venture partners, and associates of the CD, which were pledged as security for loans taken by the CD from its lenders, regardless of whether they form part of the ‘liquidation estate’ of the CD. According to the Applicant, these assets were included in the ‘Business Plan’, which outlined a payment of Rs 1200 crores for the acquisition of the CD as a going concern, along with these assets, minus the liabilities claimed by the secured financial creditors. The Applicant further asserts that this ‘Business Plan’ was submitted to the Liquidator, who then presented it to this Authority for approval.

Concerning the approval granted by this Authority, the Applicant's position is that, in response to the application MA No. 2 of 2022, filed by the Liquidator, this Authority approved the 'Business Plan' by order dated 15.06.2022. Subsequently, by order dated 25.07.2022 in IA No. 656 of 2022, this Authority directed the parties to follow the Business Plan of the Applicant scrupulously. Referring to an additional order dated 02.08.2024, the Applicant asserts that, since the business aspect of the Business Plan was approved by the Authority, the Business Plan "has been accepted by the Liquidator and the Lenders, and approved by this Hon'ble Tribunal."

In his reply, the Liquidator has emphasized that the 'sale of the Corporate Debtor was on an as-is-where-is basis' and "it was sold as a going concern for Rs 1200 crores, which was the price offered by the successful bidder". He has clarified that neither he nor the SCC approved, accepted, or adopted any Business Plan submitted by the Successful Bidders. The stakeholders, according to the Liquidator, only accepted the sale price offered by the Successful Bidders and did not deliberate or vote on the Business Plan.

The Liquidator further contended that the Applicant is wrongly equating its submitted Business Plan with a resolution plan under the Corporate Insolvency Resolution Process (CIRP). Unlike resolution plans, which require approval by the Committee of Creditors (CoC) and the Adjudicating Authority, and must be followed by all stakeholders, the sale of a corporate debtor as a going concern in liquidation involves only the approval of the sale price by the Stakeholders' Consultation Committee (SCC). In such cases, no 'Business Plan' is adopted or enforced. Additionally, it was emphasized that the Business Plan submitted by the Applicant, as the Successful Bidder, 'was not even a part of the Third E-Auction Process and therefore has no relevance.'

In response to the Applicant's repeated demands to 'hand over not only the Corporate Debtor and its assets but also the assets owned by the subsidiaries of the Corporate Debtor,' the Liquidator submitted that his authority is limited to the assets of the Corporate Debtor. This includes the shares held by the Corporate Debtor in its subsidiaries, but he has no authority to manage or transfer the assets owned by the subsidiaries themselves.

Countering the Applicant's claim that its decision to bid was based on the understanding that all assets disclosed in the Virtual Data Room (VDR) would be included, the Liquidator clarified that the details of the assets of the subsidiaries, joint ventures, and partnerships were disclosed in the VDR solely for completeness. The Applicant is entitled only to the Corporate Debtor's shareholding in these subsidiaries, joint ventures, and partnerships, and not their underlying assets.

Referring to the provisions of section 36 of the IBC, it was emphasized that assets not owned by the Corporate Debtor do not form part of the Liquidation Estate. Therefore, regardless of what the Business Plan may stipulate, the Applicant, as the Successful Bidder, is only entitled to the assets that form part of the Liquidation Estate of the Corporate Debtor, and no other assets or rights. The Applicant's claim over assets other than those owned by the Corporate Debtor was described as "absurd and devoid of any logic and common sense".

In their counter-reply, all lenders have broadly supported the Liquidator's position, affirming that the Applicant, as the Successful Bidder, has rights only to assets included in the Liquidation Estate, including the shares of the Corporate Debtor's subsidiary companies. Assets owned by the subsidiaries or joint venture partners etc, which are subject to security charges with the respective lenders and do not form part of the Liquidation Estate, are excluded from the liquidation process. Therefore, these assets cannot be claimed by the Applicant, as the Successful Bidder of the Corporate Debtor in liquidation.

Additionally, all lenders have uniformly denied the Applicant's assertion that its Business Plan was approved by the members of the SCC. Furthermore, they contended that the reliefs sought by the Applicant are vague, as no specific third-party asset has been identified that the lenders are allegedly selling, nor has any such asset been clearly linked to the specific subsidiaries, joint ventures, or associates of the Corporate Debtor referenced in the Applicant's Business Plan.

Respondent No.4 has drawn our attention to an order⁴ of the Hon'ble NCLAT, where the same issue was deliberated upon in the same context for the same Corporate Debtor (CD). In IA No. 335 of 2020, this Authority had restrained Union Bank of India (Respondent No.4) from taking any coercive steps, such as the sale of properties mortgaged by the subsidiaries of the CD in favour of

⁴ Union Bank of India Vs. Siripuram Developers Pvt. Ltd: Order Dated 25/02/2021 in CA(AT)(I)-890/2020-NCLAT (2021) ibclaw.in 90 NCLAT UBI, until the completion of the liquidation proceedings of the CD.

However, the Hon'ble NCLAT ruled otherwise, after taking note of section 36(4)(d) of the IBC and the Minutes of Meetings of the lenders of the CD (IVRCL) under liquidation. The NCLAT held that "the assets of the subsidiaries are outside the purview of liquidation estate, and as such cannot for part of the liquidation estate" of the CD under liquidation. Consequently, the NCLAT set aside this Authority's order restraining UBI from selling properties owned by the subsidiaries, which were mortgaged as collateral to secure the financial debts of the CD.

Respondent No. 4 contended that the Applicant is 'trying to mislead' this Tribunal regarding its 'opinion' on the assets disclosed in the Virtual Data Room (VDR). It is asserted that, during various SCC meetings, the Applicant was explicitly informed that Respondent No. 4 would not be relinquishing the assets of third-party guarantors or securities exclusively charged to them. Additionally, Respondent No. 4 submitted that, in accordance with the NCLAT order dated 25.02.2021, the non-relinquished assets were put up for auction on multiple occasions before the Applicant submitted the 'Business Plan' in December 2021.

After having gone through the pleadings of the parties, including the written submissions and after hearing them at length, we now proceed to decide on the reliefs sought for by the Applicant in the present application. Since all the reliefs seek adherence to the 'Business Plan' of the Applicant in the ongoing Liquidation proceedings, it is necessary to examine that aspect at the outset.

The Applicant has argued emphatically that the Business Plan they submitted for the acquisition of the Corporate Debtor (CD) as a going concern, for which they offered Rs 1,200 crores, was not only accepted by the Liquidator and the SCC members but also approved by this Authority through its order dated 15.06.2022, and further reiterated for following scrupulously in the order dated 25.07.2022. It is thus contended before us that, since the Applicant had framed the opinion to bid for the CD based on the understanding that all assets of the CD, as disclosed in the Virtual Data Room (VDR)—including those owned by subsidiaries, joint ventures, and associates, which were secured against the CD's debts—would be included, regardless of whether they formed part of the Assets/Liquidation Estate of the CD. These assets were incorporated into the 'Business Plan', which they assert was also approved by this Authority.

However, we are of the view that the Applicant's position—that their bid of Rs 1,200 crores was based on the understanding that the assets of subsidiaries, joint ventures, and associates secured against the CD's debts would be included in the sale, and that this understanding was reflected in their submitted 'Business Plan'—is not grounded in law but rather stems from a flawed 'opinion' they had 'framed'. Under Section 36(4)(d) of the IBC, it is clearly provided that the assets of any subsidiary of the Corporate Debtor shall not be included in the liquidation estate assets and cannot be utilized for recovery in the liquidation process. Therefore, the Applicant's opinion, as reflected in their submitted 'Business Plan,' was flawed and contrary to the provisions of the law.

During the arguments before us, reference was made to the proviso to Regulation 21A(1) of the Liquidation Regulations to argue that any security interest, if not communicated to the Liquidator within 30 days with a decision to either relinquish or otherwise deal with the same, shall be presumed to form part of the 'Liquidation Estate.' It was contended that, in the case in hand, for lenders who failed to provide such communication, the assets of subsidiaries etc charged as security interests would automatically become part of the Liquidation Estate and therefore be available to the Applicant under the 'Business Plan.' This argument also does not hold merit.

As per Regulation 1(3)7 of the Liquidation Regulations, these apply specifically to the liquidation process under Chapter III of Part II8 of IBC. This part pertains solely to the insolvency and liquidation of the Corporate Debtor, and not to its subsidiaries, joint ventures, or associates. As such, any presumption under Regulation 21A of the Liquidation Regulations must be limited exclusively to the Corporate Debtor.

Moreover, conditions under Regulation 21A, which might bring a security interest into the liquidation estate, are primarily based on certain timelines. But, as endorsed by the Hon'ble Supreme Court in Surendra Trading Co. v. Juggilal Kamlapat Jute Mills Co. Ltd9

Consequently, a procedural regulation that is directory in nature and not mandatory cannot override the substantive law enshrined

Thus, the ambulatory procedural requirements under liquidation regulations, cannot be construed to extend the scope of the liquidation estate to include assets of a subsidiary of the Corporate Debtor. These assets are explicitly excluded by the substantive provisions of the statute and cannot be brought within the liquidation estate through procedural interpretations.

The Applicant further argues that, since their 'Business Plan' was purportedly approved by this Authority, all assets of the subsidiaries, joint venture partners, and associates disclosed in the Virtual Data Room (VDR) should vest with the bidder, "regardless of whether the assets form part of the Assets/Liquidation Estate of the CD." This argument is seriously flawed.

As already stated, the assets that do not belong to the CD, or which are explicitly excluded from the liquidation estate under Section 36(4)(d) of IBC because they are assets of its subsidiaries, cannot be transferred to the Applicant under the guise of the 'Business Plan.' Therefore, the Applicant's claim to such assets lacks legal foundation.

Additionally, contrary to the Applicant's claim, this Authority did not approve the 'Business Plan' in its orders dated 15.06.2022 or 25.07.2022. These orders were focused on approving the sale of the CD as a going concern and the associated payment schedule, rather than endorsing the specific terms outlined in the Business Plan including those related to the assets of subsidiaries, joint ventures, and associates.

The order of this Authority dated 15.06.2022 was for the approval of the sale of the CD as a going concern for a consideration of Rs 1200 Crores, and not for the approval of the 'Business Plan' proposed by the Successful Bidder, i.e., the Applicant. We addressed this aspect of the order dated 15.06.2022 in our order dated 02.08.2024 in IA No. 947 of 2023. In that order, after reviewing the stipulations made in the Applicant's 'Business Plan' in relation to the order dated 15.06.2022, we determined that the said order of 15.06.2022 "made no reference to the Business Plan or its terms while recording directions to the Applicant and the Liquidator. The sole focus of this order was on establishing the payment schedule for the balance consideration of Rs 1150 Crores by the Applicant." It was clear to us that the order dated 15.06.2022 did not approve the so-called 'Business Plan' presented by the Successful Bidder as part of their bid to acquire the CD as a going concern for Rs 1200 Crores."

Another order dated 25.07.2022 has been repeatedly proffered to claim approval by this Authority of the said 'Business Plan'. This issue was addressed in our order of 02.08.2024 in IA No.947, and it was held that none of the 59 reliefs and concessions claimed in the purported 'Business Plan' were deliberated upon, let alone approved, in the order dated July 25, 2022.

Therefore, neither the order of 15.06.2022, nor the order dated 25.07.2022 approved the so called 'Business Plan' of the Applicant. Contrary to the Applicant's claim, there was no direction in the order dated 25.07.2022 to hand over the assets of the subsidiaries, joint venture partners, or associates of the CD, as stipulated in the 'Business Plan'.

Turning now to the specific reliefs sought by the Applicant, the first two are:

In the absence of any specific instance being cited regarding the actions taken by Respondents 3 to 29, these vague prayers cannot be addressed.

In any case, the answer to such prayers has already been provided by the Hon'ble NCLT in their order^{1111.Union Bank of India Vs. Siripuram Developers Pvt. Ltd (Supra)} dated 25.02.2021 (where specific instances were cited), and which has been mentioned in the earlier part of this order. In an appeal against the order in IA No. 335/2020, where this Authority had restrained a lender of the CD from taking any coercive steps, such as the sale of properties mortgaged by the subsidiary companies in favour of the said lender, until the completion of the liquidation proceedings of the CD, the Hon'ble NCLT, holding the securities as not forming part of the liquidation estate, set aside the order of this Authority.

Following the Hon'ble NCLT order, and having also held that assets not owned by the CD and those belonging to its subsidiaries are not part of the liquidation estate of the CD, we too answer the above prayers in the negative.

The next prayer seeking directions to the Liquidator “to take steps for the protection of assets covered under the Business Plan” is also to be answered in negative, to the extent it pertains to the assets that are not part of the liquidation estate of the CD. The other prayer to direct the Liquidator “to take steps for handover of peaceful possession of all the assets/properties covered under the Business Plan” is also declined, with respect to any asset that is not part of the liquidation estate of the CD.

The present IA is therefore dismissed.