NCLT Mumbai : Liquidator's Attempt to Better Asset Title in 'As Is Where Is' Sale Not Force Majeure, Buyer Liable for Interest

Mumbai: The National Company Law Tribunal (NCLT), Mumbai Bench, in a significant ruling, has held that a liquidator's attempt to convert the classification of land to provide a better title to an auction purchaser, in a sale conducted on an "as is where is basis," is beyond the liquidator's duties and any consequent delay cannot be termed 'force majeure' to absolve the purchaser from paying interest on the balance consideration. The Bench, comprising Ms. Lakshmi Gurung (Member - Judicial) and Sh. Charanjeet Singh Gulati (Member - Technical), dismissed the plea of Dicksons Overseas Private Limited for waiver of interest and its subsequent request to convert the asset sale into a 'going concern' sale.

Case Background

The case arose from the liquidation of Jejani Pulp and Paper Mills Pvt Ltd. Dicksons Overseas Private Limited ("Dicksons") emerged as the successful bidder in an e-auction held on September 28, 2020, for the land and building of the Corporate Debtor for a consideration of Rs. 9.23 crores. A Letter of Intent (LoI) was issued, and Dicksons paid an Earnest Money Deposit (EMD) of Rs. 90.30 lakhs.

The completion of the sale was stalled because some parcels of the auctioned land were classified as 'Occupancy Class-II' under the Maharashtra Land Revenue Code, 1966, which imposes restrictions on transfer without prior sanction from the Collector. The Liquidator, Mr. Prasad Dharap , applied for conversion of this land to 'Occupancy Class-I' (which has no transfer restrictions) on November 3, 2020. However, this process was hampered by a subsequent Maharashtra government stay on the conversion rules (later reversed) and ultimately, the Sub-Divisional Officer rejected the conversion application on November 2, 2021.

Arguments Presented

Dicksons Overseas Private Limited (Applicant): Dicksons filed two applications. In IA/12/2021, it argued that the delay in paying the balance sale consideration was due to 'force majeure' circumstances arising from the inability to get the land converted. They contended that the 90-day payment period and interest liability should be deemed stopped. Dicksons stated they were ready with funds but could not proceed due to the land title issue.

Later, in IA/560/2022, after the conversion was officially rejected, Dicksons sought to withdraw some prayers from the first application and requested the Tribunal to permit them to acquire the Corporate Debtor as a 'going concern,' arguing this was the only viable way to effectuate the sale.

Mr. Prasad Dharap (Liquidator): The Liquidator submitted that the auction was conducted on an "as is where is basis," "as is what is basis," and "whatever there is basis." He stated that he had applied for the land conversion at Dicksons' request. He acknowledged bureaucratic hurdles and the impact of the government's stay on the conversion process, submitting that the delay was due to reasons beyond the parties' control. He sought directions from the Tribunal on how to proceed.

NCLT's Findings and Reasoning

The Tribunal meticulously analyzed the arguments and the legal framework governing liquidation sales.

No 'Force Majeure' for Delay in Payment

The NCLT rejected Dicksons' 'force majeure' argument, stating that the delay was primarily attributable to the conduct of the Liquidator and Dicksons itself. Key findings include:

Nature of "As Is Where Is" Sale: The auction was explicitly on an "as is where is basis." The E-Auction Process Information Document mandated bidders to conduct their own due diligence. The Tribunal cited the Supreme Court in U.T Chandigarh Administration and Anr vs. Amarjeet Singh and Ors [(2009) 4 SCC 660] , emphasizing that a bidder in such an auction, having inspected or had the opportunity to inspect, cannot later complain about the condition or status of the property.

Liquidator Exceeded Authority: The Tribunal found that the Corporate Debtor had acquired the land in 2000 with both Class-I and Class-II classifications. The Liquidator's attempt to convert the Class-II land to Class-I post-auction was deemed an effort to "transfer a better title of the land than which was received by the Corporate Debtor." The NCLT stated: > "The entire turn of events which has been made as ground for the present Application hinges on Non-Conversion of land in question from Occupancy Class-II to Occupancy Class-I, which according to us, is unnecessary and the Liquidator has gone beyond his call of duties to make such an application before the Land Revenue Authorities." (Para 32) The Tribunal further noted that Section 35(f) of the IBC and Regulation 33 of the Liquidation Regulations, 2016, do not empower the liquidator to change the nature or title of the asset, especially in an "as is where is" sale.

Purchaser's Responsibility: Dicksons, by participating in the auction, was presumed to have full knowledge of the land's status. The Tribunal observed: > "Thus, ideally, Dicksons was obliged to analyse the situation before bidding and not after the completion of the auction process." (Para 37) Concluding on this issue, the NCLT held: > "The events that had caused such substantial delay in the completion of sale is not due to any force majeure but entirely due to the conduct of the Liquidator and the Auction Purchaser." (Para 39)

Rejection of 'Going Concern' Sale Plea

The NCLT also dismissed Dicksons' request to retrospectively change the nature of the sale from an asset sale to a 'going concern' sale.

Circumvention of Bid Terms: The Tribunal viewed this as an attempt by Dicksons "to circumvent the mandatory provisions of the Bid Document and Schedule 1 of the Liquidation Regulations... on account of its desire to acquire the better title." (Para 50)

Original Auction Purpose: The e-auction was for the sale of assets, not the sale of the Corporate Debtor as a 'going concern'. The NCLT distinguished cases cited by Dicksons where auctions were initially for going concern sales.

Meaning of 'Going Concern': Citing M/s. Visisth Services Limited vs. SV. Ramani [CA (AT) (Ins No.896 of 2020] , the Tribunal reiterated that a "Sale as a ‘Going Concern’ means sale of assets as well as liabilities and not assets sans liabilities." In this case, other assets like plant and machinery had already been sold and proceeds distributed.

No Solution to Title Issue: The Tribunal opined that selling the land as part of a 'going concern' on an "as is where is basis" would not alter the land's classification or obviate the need for necessary permissions. The NCLT stated: > "Further, in no event the process of sale from sale of assets of the corporate debtor could be changed to sale of corporate debtor as going concern retrospectively." (Para 53)

Tribunal's Decision

Based on its findings, the NCLT pronounced its order on January 21, 2025:

IA/12/2021 (Force Majeure & Interest Waiver): Dismissed. Dicksons was directed to pay the balance sale consideration along with applicable interest within 30 days of the order. Certain prayers regarding exploration of sale as a going concern and transfer of debt, which Dicksons sought to withdraw, were dismissed as withdrawn.

IA/560/2022 (Sale as Going Concern): Partly allowed only to the extent of permitting withdrawal of certain prayers in IA/12/2021. The substantive prayer to convert the asset sale into a 'going concern' sale and for waiver of interest was rejected.

Implications of the Ruling

This judgment serves as a crucial reminder for auction purchasers in liquidation sales, particularly those conducted on an "as is where is basis," about the imperative of thorough due diligence prior to bidding. It also clarifies the scope of a liquidator's duties, underscoring that they are not expected to 'better' the title of assets beyond what the corporate debtor possessed, especially when the sale terms explicitly state otherwise. The decision reinforces that delays caused by attempts to alter asset characteristics post-auction will not typically qualify as 'force majeure' events to excuse contractual obligations like payment of interest.