NCLT allows concessions to Sterling Biotech bidder
The adjudicating authorities have agreed to the request of Perfect Day Inc, the US-based animal-free dairy product manufacturer, for certain reliefs and concessions to enable it to acquire Sterling Biotech as a whole on a going concern basis under the liquidation process laid down by the Insolvency and Bankruptcy Code.
The liquidator in the case – Mamta Binani – had also backed the successful bidder’s concession plea due to the fact that Perfect day Inc is a company incorporated under the laws of United States of America, and that it needs to comply with certain regulatory requirements for undertaking foreign investment by a non-resident in an entity engaged in pharmaceutical sector, in a brownfield project and other compliances envisaged under Foreign Exchange Management Act,1999 or any other law for time being in force relating to the acquisition of the Sterling Biotech.
The NCLT, considering the matter being for approval of going concern sale of the Corporate Debtor, approved the concessions sought by the successful bidder.
Some of the clauses of Acquisition Plan, which are in deviation, have been explained and compared with the terms of Process Document
| Clauses under Acquisition Plan, which are in deviation to the terms | Terns of Process Document |
| ACQUISITION STRUCTURE | |
| Acquisition Plan envisages that the Successful Bidder will directly acquire 73.9% of the share capital of the Corporate Debtor and balance will be acquired by Perrya, LLC which entity has affirmed that it is compliant under Section 29A of the Code. | The Process Document prescribes four methods for bidders to participate in the e-auction process of the Corporate Debtor (i) Private/Public Limited Company, Limited etc.; (ii) Financial Institutions; (iii) Individual Investor and (iv) Consortium. The option for the special purpose vehicle (SPV) (incorporated by the Successful Bidder) acquiring the Corporate Debtor is also envisaged, which allows acquisition by a special vehicle company where the Successful Bidder has the control over the affairs of the special purpose vehicle through ownership by way of majority of the voting rights and management. |
| Manner and method of transfer of equity shares of the Corporate Debtor to the Successful Bidder and Perrya LLC | |
| RECEIPIENT OF SDALE CERTIFICATE | |
| Acquisition Plan envisages that upon the receipt of the Balance Consideration, certificate shall be issued by the Liquidator confirming that Successful Bidder and Perrya LLC have acquired the Corporate Debtor. | As per Clause 4.3(XI)(ii) of the Process Document, upon payment of Final Consideration, the Certificate of Sale or Sale deed will be issued in the name of the Successful Bidder or Special Purpose Vehicle intimated by the Successful Bidder only. |
| DATE OF COMING INTO EFFECT OF THE ACQUISITION PLAN AND LIABILITY ARISING PRIOR TO SUCH DATE | |
| Seeks enforcement of the Acquisition Plan with effect from the date of approval being granted by this Tribunal (referred to as the Effective Date) | Not applicable |
| Acquisition Plan envisages that Successful Bidder shall have no financial obligation or liability to any person or stakeholder apart from the payment | It can be easily adduced from the Clause 4.3(VII)(iii), Clause 4.3(XI)(i), Clause 4.3(XI)(v), Clause 6(1) and Clause 13.4, that additional charges like taxes, duties etc. are liability of Successful Bidder. |
| Successful Bidder would not be liable and free from all liabilities arising out of contracts entered between the Corporate Debtor and Third Party(ies) relating to the period prior to the Effective Date. | The Process Document does not envisage that the Successful Bidder would be free from liabilities arising out of contracts entered between the Corporate Debtor and Third Party(ies) |
| EXTINGUISHMENT OF ALL SECURITY INTEREST OF THE CORPORATE DEBTOR | |
| Acquisition Plan envisages that all Liabilities of the Company against the secured creditors who have not relinquished their security interest shall stand fully extinguished and cancelled in accordance with Section 52 of the IBC and the company shall not have any Liability against such non-relinquished secured creditors. | The security interest in respect of which rights have not been relinquished do not form part of the assets as described forming a part of the Corporate Debtor, proposed to be auctioned as a going concern. |
| Acquisition Plan envisages that any Security Interest created in connection with any liability of Corporate Debtor at any time prior to the Effective Date would fall away and all claims made under any Security Interest by the Corporate Debtor on behalf of any third party(ies) would stand extinguished by virtue of the order passed by this Tribunal. | |
| CONTINUING OF THE LIQUIDATOR TO ACT AS LIQUIDATOR FOR A PERIOD OF 6 MONTHS FROM THE DATE OF ORDER OF APPROVAL BEING PASSED BY THIS TRIBUNAL | |
| The Acquisition Plan envisages that the Liquidator shall cooperate with and provide all necessary support and assistance to the Successful Bidder and Perrya LLC for a period of 180 days from the Effective Date. | No such provision in the Process Document. |
Brief of the case
The Corporate Insolvency Resolution Process (CIRP) against Sterling Biotech was initiated through an Order dated 11 June 2018 by the Mumbai bench of the NCLT. During the CIRP Sundaresh Bhat had been appointed as the Interim Resolution Professional (IRP) and subsequently was confirmed as the Resolution Professional by the Committee of Creditors of the Corporate Debtor. As no resolution Plan was approved by the Committee of Creditors during the CIRP of the Corporate Debtor, the NCLT in October 2019 ordered liquidation of Sterling Biotech and appointed Mamta Binani as the liquidator of the Corporate Debtor.
The liquidator then undertook the process of selling the Corporate Debtor as a whole, on a going concern in terms of Regulation 32(3) of the Liquidation Regulations to maximize the value of the Corporate Debtor.
Subsequent to an invitation to bids, Perfect Day Inc submitted a binding bid of Rs 638 crore. Later Perfect Day Inc was declared as a ‘qualified bidder’. Thereafter, the bid was undertaken by way of an e-auction process on 04 April 022, whereby the US company was declared as the successful bidder.
As per the acquisition plan of Perfect Day Inc, in order to comply with theregulatory requirements for foreign investment by a non-resident in an entity engaged in pharmaceutical sector herein and undertaking a brownfield project, the Applicant will directly acquire 73.9% of the share capital of Sterling Biotech and the balance will be acquired by Delaware, US-based Perrya, LLC, which has been incorporated by some of the founders of Perfect Day Inc who are nonresident Indians/ overseas citizens of India. Perrya will acquire the shares of the Sterling Biotech on a non-repatriation basis.
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