Successful bidder in liquidation entitled to withdraw its bid? - Knowledge Series by Sumedha Management Solutions Pvt. Ltd

Judgement on IBC
Successful  bidder in liquidation entitled to withdraw its bid? - Knowledge Series by Sumedha Management Solutions Pvt. Ltd

Introduction:

In Visisth Services Limited vs. S. V. Ramani, the key issue that was considered by the Hon’ble NCLAT was whether the successful bidder can withdraw its bid after payment of the EMD and seek for refund of the amount paid on the ground that the offer was a ‘conditional offer’. Below we discuss the ruling:

Facts of the case:

  • Appellant purchased e-auction process information document from liquidator upon payment of Rs. 5 Lakhs.

  • On 04.09.2019, Appellant sent an email to liquidator seeking clarifications on several issues with respect to e-auction process and proposed different payment terms and specified in the email that their offer of acceptance was conditional to extinguish claims of financial creditors, tax department, operational creditors, provident fund employees and other contingent liabilities.

  • On 05.09.2019, liquidator issued two emails to the Appellant informing that the terms and conditions of the bid document could not be changed or revised after public notification.

  • Appellant submitted EMD of Rs. 37,10,000/- to liquidator.

  • On 08.09.2019, Appellant sent an email to liquidator stating that if any litigation arises from any source, EMD amount and the bidding document purchase amount was to be refunded within three days.

  • On 26.09.2019, liquidator issued provisional sale letter in favour of Appellant.

  • On 29.10.2019, Appellant addressed a letter to liquidator stating the provisional letter of sale was inconsistent with the terms of payment specified by the Appellant and sought for refund of the money paid with the interest.

  • The main case of the Appellant was that since liquidator did not assist the Appellant in clarifying the liabilities of Corporate Debtor, the Appellant informed the liquidator that if their bid is not accepted with its terms they would seek to withdraw from the Bid. Accordingly, Appellant filed an affidavit before the Adjudicating Authority seeking approval of sale without transfer of any liabilities, and if there exists any impediment, for withdrawal of Bid and refund of amount paid.

Precedents relied upon:

The Hon’ble Apex Court in Punjab Urban Planning and Development Authority and Ors. vs. Raghu Nath Gupta and Ors.1 observed as follows:

“After having accepted the offer of the commercial plots in a public auction with a superimposed condition i.e. on “as-is-where-is” basis and after having accepted the terms and conditions of the allotment letter, including instalment facility for payment, the respondents cannot say that they are not bound by the terms and conditions of the auction notice, as well as that of the allotment letter.”

Again, in UT Chandigarh Admn. vs. Amarjeet Singh2, the Hon’ble Supreme Court observed as follows:

“19. ….In a public auction of sites, the position is completely different. A person interested can inspect the sites offered and choose the site which he wants to acquire and participate in the auction only in regard to such site. Before bidding in the auction, he knows or is in a position to ascertain, the condition and situation of the site. He knows about the existence or lack of amenities. The auction is on `as-is-where-is-basis'. With such knowledge, he participates in the auction and offers a particular bid. There is no compulsion that he should offer a particular price…..

20. Where there is a public auction without assuring any specific or particular amenities, and the prospective purchaser/lessee participates in the auction after having an opportunity of examining the site, the bid in the auction is made keeping in view the existing situation, position and condition of the site. If all amenities are available, he would offer a higher amount. If there are no amenities, or if the site suffers from any disadvantages, he would offer a lesser amount, or may not participate in the auction. Once with open eyes, a person participates in an auction, he cannot thereafter be heard to say that he would not pay the balance of the price/premium or the stipulated interest on the delayed payment, or the ground rent, on the ground that the site suffers from certain disadvantages or on the ground that amenities are not provided.”

Judgment:

  1. In the declaration signed, bidder unconditionally agreed to abide by the terms of eauction, which is inclusive of forfeiture of EMD, in the event bidder did not perform their obligation after acceptance of their bid. Therefore, now, bidder cannot wriggle out of its contractual obligations arising out of acceptance of his bid, and cannot be entitled to EMD amount and amount paid towards bid purchase document, if he does not comply with the terms of contract.

  2. If the bidder is allowed to withdraw the bid and seek refund on the ground that their conditional offer has not been accepted, then liquidation process would be a never ending one, defeating the scope and objective of IBC.

  3. Bidder is bound by the terms and conditions of bid document and no communication to liquidator stating that it is a conditional offer is sustainable. If bidder had any apprehensions and conditions about liabilities, bidder could have exercised their choice of not participating in bid, and bidder cannot propose conditions subsequent to their participation in bid.

1 (2012) 8 SCC 197

2 (2012) 8 SCC 202

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