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Payment of Transfer Fee: National Company Law Appellate Tribunal

The question as to whether payment of transfer fee is necessitated by the law as per the facts of the given case, was examined by the NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI, consisting of Justice Ashok Bhushan, Chairperson; Justice Jarat Kumar Jain, Member (Judicial); and Dr. Alok Srivastava, Member (Technical) in the matter of Cotton Casuals (India) Private Limited vs. Kanchan Dutta, Liquidator & Ors. [Company Appeal (AT) (Insolvency) No. 206 of 2021], on 17.12.21.

The facts of the case were that liquidation proceedings against Corporate Debtor, Enfield Apparels Limited, were initiated under the Insolvency and Bankruptcy Code, 2016. Invitation for Expression of Interest for acquisition of Corporate Debtor was published by the Corporate Debtor on 24.05.2019, subsequent to which an E-Auction was held on 11.06.2019 in which the appellant could not participate. A letter dated 26.06.2019 was written by the appellant to the Liquidator, requesting for purchase of one of the four modules at prevailing bid value. Further, an application was filed by the appellant before the Adjudicating Authority for cancelling the E-Auction held. The appellant made an offer to pay Rs.15.50 crores as compared to the auction price of Rs.14.37 crores. The Adjudicating Authority passed an order dated 24.02.2020 directing the Appellant to deposit 25% of the proposed bid amount. The Liquidator also filed an Application before the Adjudicating Authority praying that transfer fee demanded is not applicable in the transfer by the Liquidator. An application was filed by the appellant again seeking time for depositing the remaining amount, which was allowed, giving time. Subsequent applications for modification of the order were rejected. West Bengal Industrial Development Corporation Limited then wrote a letter dated 03.09.2020 asking for a deposit of Rs.2,96,69,215/- as transfer fee, challenging which the appellant filed a subsequent application, which was heard and rejected. The appellant was directed to pay the transfer fee. This appeal had been filed by the appellant challenging the order dated 02.02.2021.

The Learned Counsel for the appellants, contended that only issue to be considered in the present appeal is with regard to liability of transfer fee, and that sale by Liquidator is involuntary by operation of law, on which no transfer fee is payable. It was asserted that the Adjudicating Authority has wrongly assumed that appellant is claiming for any waiver of transfer fee, whereas this was not the case for any claim of waiver.

The Learned Counsel for the respondents, submitted that the appellant is liable to pay the transfer fee. The letter dated 26.06.2019 written by the appellant to the Liquidator, was referred to, where he prayed that he may be permitted to bid and he has undertaken to pay transfer fee. It was further contended that as per sub-lease Deed there is a clear mention of payment of 10% of transfer fee. It was also contended that the clauses upon which the appellants place reliance, must be read in a business efficacious manner and the expression “all other duties payable in connection with purchase of Sale Assets” is wide enough to include transfer fee. Additionally, it was submitted that sale by Liquidator is nothing but sale by Company and the sale cannot be said to be involuntary sale.

The National Company Law Appellate Tribunal, held that the main issue to be considered and answered in this Appeal is, as to whether the Appellant was liable to pay transfer fee as demanded by the West Bengal Industrial Development Corporation Limited. The tribunal, in light of several precedents, took cognizance of the fact that in a compulsory winding up, the company is put into liquidation against its will by force of law and the order of the court and the sale is made by the liquidator, acting under the control of the court and with its sanction. That is the dictate of law. The sale, therefore is really by the court, acting through the liquidator and the company has no hand in the matter. It is thus a sale against the company’s will or a sale in invitum. However, the Invitation for Expression of Interest and the clauses contained therein cannot be interpreted like a statute. The intendment of Invitation for Expression of Interest has to be looked into. Auction of the Sale Assets was already completed on 11.06.2019 and thereafter the Applicant made a request and submitted the higher bid. In the letter quoted above, there was specific submission “We promise to follow all the conditions of your Auction and we are also ready to pay the transfer charges to WBIDC”. The appellant was thus not allowed to go back from his statement that he will pay the transfer charges also. Thus, finding no merit in the case, the same was dismissed.

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Judgement reviewed by Bhargavi

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