Imp. Rulings - Going Concern sale in Liquidation
Index;
Arrhum Tradelink Pvt. Ltd. Vs. Vineeta Maheshwari Liquidator of Kaneria Granito Ltd. [IA No. 238 of 2022 in CP(IB) 320 of 2018] [Preference in Equal Bidding]
Eastern Power Distribution Company of Andhra Pradesh Ltd. Vs. Maithan Alloys Ltd. [Company Appeal (AT) (Insolvency) No. 961 of 2021] [Doctrine of Clean Slate]
Sarda Mines Pvt. Ltd. Vs. Shailendra Ajmera Liquidator -Kwality Limited [I.A. 5208/ 2021 in Company Petition No. (IB)-1440 (ND)/2018 ] [Reliefs & Concessions]
Potens Transmissions & Power Pvt. Ltd Vs. Gian Chand Narang [Company Appeal (AT) (Insolvency) No. 532 of 2022 ] [Payment in 90 days]
Gaurav Agarwal Vs. CA Devang P Sampat, Liquidator [I.A. 1253/2021 IN C.P.(IB)-2521(MB)/2018 ] [Liabilities attached with the assets]
M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited [Company Appeal (AT) (Insolvency) No. 650 of 2020] [Doctrine of Clean Slate]
M.S. Viswanathan Vs. Pixtronic Global Technologies Pvt. Ltd. , In the matter of Gemini Communication Limited (IA/1215/CHE/2021 and IA/1280/CHE/2021 in CP/699/IB/2017) [Auction of Assets & Liabilities]
Visisth Services Ltd. Vs. S. V. Ramani, Liquidator of United Chloro-Paraffins Pvt. Ltd. [Company Appeal (AT) (Insolvency) No.896 of 2020 ] [Auction of Assets & Liabilities]
Nitin Jain Liquidator of PSL Ltd. Vs. Lucky Holdings Pvt. Ltd [IA 391 (AHM)/2021 in CP (IB) 37 (AHM) 2017 ] [Reliefs & Concessions & Section 32A]
Viswa Infrastructures Finance & Services Pvt Ltd Vs SREI Equipment Finance Ltd [IA (IBC)/157/2021 in CP (IB) No. 329/7/HDB/2018 ] [Reliefs & Concessions]
Janhavi Dixit VS. Rajat Mukherjee Liquidator of Enviiro Bulkk Handling Systems Pvt Ltd [I.A. No. 741 of 2021 in C.P. (IB) No. 1319/MB/2017] [Reliefs & Concessions]
Gaurav Jain Vs. Sanjay Gupta, [IA No. 2264 of 2020 in C.P. (IB) No. 1239/MB/2018] [Free from all Encumbrances]
Alchemist Asset Reconstruction Company Ltd. Vs. Abhijeet MADC Nagpur Energy Pvt. Ltd. [MA 1343/2018 IN CP (IB)-1315/MB/2017] [Free from all Encumbrances]
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i). NCLT Ahmedabad (20.06.2022) in Arrhum Tradelink Pvt. Ltd. Vs. Vineeta Maheshwari Liquidator of Kaneria Granito Ltd. [IA No. 238 of 2022 in CP(IB) 320 of 2018] held that;
In case of highest bidder under auction option no. 1 and 2 are equal, then, bidder who has given offer for sale of the Corporate Debtor as a going concern shall be declared as successful bidder”.
It is true that the Applicant ought to have raised the amount of Rs. 5 Lakh but in our considered opinion, the liquidator ought to have taken into consideration of the broad object of Insolvency and Bankruptcy Code, 2016 to sell the Corporate Debtor as a going concern and it was the pre-condition for e-auction set out by the liquidator herself.
It is the object of the Insolvency and Bankruptcy Code, 2016 i.e., to maximize the value of the assets of the corporate person and to promote entrepreneurship etc.
It is the duty of the liquidator to protect the existence of the Corporate Debtor as far as possible and avoid its death by ultimately pushing the Corporate Debtor to be dissolved.
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ii). NCLAT (26.05.2022) in Eastern Power Distribution Company of Andhra Pradesh Ltd. Vs. Maithan Alloys Ltd. [Company Appeal (AT) (Insolvency) No. 961 of 2021] held that;
That when the sale proceeds of a ‘Corporate Debtor’ are duly distributed in the Order of priority and in the manner prescribed under Section 53 of the Code, claims of any other Creditor cannot be entertained contrary to the provisions entailed under Section 53;
Subsequent to the distribution of sale proceeds under Section 53 no other entity including any Government entity can claim any past unpaid or outstanding dues against the Appellant who has purchased the ‘Corporate Debtor Company’ as a ‘going concern’
We are of the considered view that at this stage subsequent to the sale of the ‘Corporate Debtor Company’ as a ‘going concern’, these claims cannot be foisted upon the Appellant.
“The scope and objective of the Code is to extinguish all claims specifically the ones which were not even made during the CIRP or in the Liquidation stage, to aid the purchaser of the Company as a ‘going concern’ to start on a ‘clean slate’.
That the purchaser of the Company even in the Liquidation stage cannot be burdened with past liabilities when it is not mentioned in the ‘Sale Notice’.
The submission of the Appellant that they are entitled to recover the entire pre-CIRP and post-CIRP dues from the Successful Auction Purchaser i.e. Respondent No. 1 cannot be accepted.
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iii). NCLT New Delhi-III (20.05.2022) in Sarda Mines Pvt. Ltd. Vs. Shailendra Ajmera Liquidator -Kwality Limited [I.A. 5208/ 2021 in Company Petition No. (IB)-1440 (ND)/2018 ] held that;
“The mere purchase of the Unit as ongoing concern without granting certain other reliefs that would be essential and necessary to run the business as an ongoing concern is of no use."
"No doubt, liquidation process Regulations do not provide for granting specific type of reliefs to the Applicant. However, when Corporate Debtor is being sold as an ongoing concern, naturally the purchaser is entitled for consequential reliefs to achieve the object of running the unit as ongoing concern.
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iv). NCLAT (12.05.2021) in Potens Transmissions & Power Pvt. Ltd Vs. Gian Chand Narang [Company Appeal (AT) (Insolvency) No. 532 of 2022 ] held that;
When the Consequence of non-compliance of the provision is provided in the statute itself, the provision is necessary to be held to be mandatory.
Item 12 provides that payment is to be made within 90 days and with interest after 30 days at the rate of 12 percent. Non-compliance of 2nd Proviso, sale shall be cancelled if the payment is not received within 90 days.
In view of the Appellant having not made payment in 90 days, Adjudicating Authority has no option except to allow the Application filed by the Liquidator for cancellation of the sale.
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v). NCLT Mumbai (06.05.2022) in Gaurav Agarwal Vs. CA Devang P Sampat, Liquidator [I.A. 1253/2021 IN C.P.(IB)-2521(MB)/2018 ] held that;
In addition to this, the liquidator in this case clearly put the Applicant on notice that sale of the Corporate Debtor as going concern as is where is’ basis and the Applicant is duty bound to make due diligence with regard to the local taxes/maintenance fees /electricity expenses/water charges etc., outstanding as on date or yet to fall due in respect of the relevant asset should be ascertained by the E-Auction process applicant and would be borne by the successful bidder.
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vi). NCLAT (25.02.2022) in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited [Company Appeal (AT) (Insolvency) No. 650 of 2020] held that;
# 21. Adverting to the contention of the Learned Counsel for the Appellant that the Adjudicating Authority has erred in denying the sale of the ‘Corporate Debtor’ as a ‘going concern’ to the Appellant without including any contingent liabilities, we hold that it is a settled law that when the sale proceeds of a ‘Corporate Debtor’ are duly distributed in the Order of priority and in the manner prescribed under Section 53 of the Code, claims of any other Creditor cannot be entertained contrary to the provisions entailed under Section 53; subsequent to the distribution of sale proceeds under Section 53 no other entity including any Government entity can claim any past unpaid or outstanding dues against the Appellant who has purchased the ‘Corporate Debtor Company’ as a ‘going concern’. It is significant to mention that the second Respondent/Liquidator has specifically submitted that even these claims by the Uttar Haryana Bijili Vitran Nigam were not submitted in the prescribed form either during the CIRP Process or at the Liquidation stage. We are of the considered view that at this stage subsequent to the sale of the ‘Corporate Debtor Company’ as a ‘going concern’, these claims cannot be foisted upon the Appellant. The scope and objective of the Code is to extinguish all claims specifically the ones which were not even made during the CIRP or in the Liquidation stage, to aid the purchaser of the Company as a ‘going concern’ to start on a ‘clean slate’. The Hon’ble Supreme Court in ‘Ghanshyam Mishra & Sons Pvt. Ltd.’ Vs. ‘Edelweiss Asset Reconstruction Company Ltd. & Ors.’, Civil Appeal No. 8129 of 2019 and in ‘CoC of Essar Steel India Ltd.’ Vs. ‘Satish Gupta & Ors.’ (2020) 8 SCC 531 has laid down the proposition that the purchaser of the Company even in the Liquidation stage cannot be burdened with past liabilities when it is not mentioned in the ‘Sale Notice’.
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vii). NCLT Chennai-1 (15.02.2022) in M.S. Viswanathan Vs. Pixtronic Global Technologies Pvt. Ltd. , In the matter of Gemini Communication Limited (IA/1215/CHE/2021 and IA/1280/CHE/2021 in CP/699/IB/2017) held that;
The term 'going concern' means all such assets and the liabilities, which constitute an integral business or the Corporate Debtor, that must be transferred together, and the consideration must be for the business or the Corporate Debtor.
In the sale of "Corporate Debtor as a going concern" under Regulation 32(e) of IBBI (Liquidation Process) Regulations, 2016 the Corporate Debtor will not be dissolved. In this part of sale, the entire business, assets and liabilities, including all contracts, licenses, concessions, agreements, benefits, privileges, rights or interests of the Corporate Debtor will be transferred to the acquirer. The existing shares of the Corporate Debtor will not be transferred and shall be extinguished.
In the sale of "Business of Corporate Debtor as a going concern" under Regulation 32(f) of IBBI (Liquidation Process) Regulations, 2016, the entire business(s) along with assets and liabilities, including intangibles, will be transferred as a going concern to the acquirer, without transfer of the Corporate Debtor, and therefore, the Corporate Debtor will be dissolved. The existing shares will be extinguished. The remaining assets, other than those sold as part of business will be sold and the proceeds thereof will be used to meet the claims under Section 53 of IBC, 2016
The Sale as a 'Going Concern' means sale of assets as well as liabilities and not assets sans liabilities.
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viii). NCLAT (11.01.2022) In Visisth Services Ltd. Vs. S. V. Ramani, Liquidator of United Chloro-Paraffins Pvt. Ltd. [Company Appeal (AT) (Insolvency) No.896 of 2020 ] held that;
It can be seen from the afore-noted discussion as well as Regulation 32 A of the IBBI (Liquidation Process) Regulations, 2016 that Sale as a ‘Going Concern’ means sale of assets as well as liabilities and not assets sans liabilities.
Paragraphs 3.2.1 and 4.2.1 of the afore-noted discussion paper amply specified that all assets and liabilities, which constitute an integral business of the Corporate Debtor Company would be transferred together and the consideration paid must be for the business of the Corporate Debtor.
We conclude that Sale of a Company as a ‘Going Concern’ means sale of both assets and liabilities, if it is stated on ‘as is where is basis’.
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ix). NCLT Ahmedabad (08.09.2021) In Nitin Jain Liquidator of PSL Ltd. Vs. Lucky Holdings Pvt. Ltd [IA 391 (AHM)/2021 in CP (IB) 37 (AHM) 2017 ] Adjudicating Authority using residuary powers of NCLT under section 60(5) granted relief to Successful Auction Bidder in liquidation process beyond the provisions of section 32A;
Thus, considering these findings of the Hon'ble Supreme Court, it is crystal clear that this Adjudicating Authority has got adequate jurisdiction as regard to most of the issues raised in this application, being issues arising out of or insolvency resolution as well as are in relation to liquidation proceedings of the Corporate Debtor.
Thus, in our considered view, the reliefs and concessions on the parallel line of an approved resolution plan can be granted subject to one condition that such reliefs/concessions must be central issues and also in relation to or arising out of liquidation proceedings of a Corporate Debtor so as to confer jurisdiction on Adjudicating Authority under Section 60(5)(c) of the IBC, 2016.
The Successful Auction Bidder shall not be liable for any action/responsibility of the Corporate Debtor or its erstwhile management as per provisions of Section 32A of IBC, 2016.
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x). NCLT Hyderabad (30.06.2021) in Viswa Infrastructures Finance & Services Pvt Ltd Vs SREI Equipment Finance Ltd [IA (IBC)/157/2021 in CP (IB) No. 329/7/HDB/2018 ] held that;
Corporate Debtor is being sold on an ongoing concern basis which is more or less in the nature of resolution of the Corporate Debtor as such he has no objection if the prayers sought for in the term sheet submitted by the successful bidder are allowed by the Tribunal. Already Successful Bidder has deposited Rs. 57 crores. In order for the Successful bidder to kick start the business and follow the law laid down under the Companies Act, 2013, it is imperative for the Tribunal to grant necessary reliefs.
The said assets are free from any financial implications arising out of any pending proceedings before relevant authorities, if any. Further non compliance of provisions of any laws, rules, regulations, directions, notifications, circulars etc on the Corporate Debtor under various Acts and Regulations stands extinguished, qua the successful bidder.
The erstwhile promoters or any member, associate of the Existing and Erstwhile promoter groups is hereby restrained from doing any business directly or indirectly in connection with the products and services presently offered by the Corporate Debtor
Relief sought with regard to issuance/renewal of all kinds of licenses / permissions/ approvals required is allowed subject to payment of renewal fees, if any, from this date to the Licensing Authorities.
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xi). NCLT Mumbai-1 (21.06.2021) in Janhavi Dixit VS. Rajat Mukherjee Liquidator of Enviiro Bulkk Handling Systems Pvt Ltd [I.A. No. 741 of 2021 in C.P. (IB) No. 1319/MB/2017] held that;
. . .since the Liquidator has already accepted the bid for ₹. 15.30 Crores and the auction sale of the Corporate Debtor as a going concern is completed on 18.03.2021, no specific order or ratification of the sale is required. The action of the Liquidator is in accordance with the relevant provisions of the Code and consequences thereof would follow according to law. Reiteration by the Tribunal is neither contemplated nor necessary.
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xii). NCLT Mumbai-I (09.03.2021) in Gaurav Jain Vs. Sanjay Gupta, [IA No. 2264 of 2020 in C.P. (IB) No. 1239/MB/2018] held that;
The crux of the ‘going concern sale’ is that the equity shareholding of the Corporate Debtor is extinguished and the acquirer takes over the undertaking with the assets, licenses, entitlements etc.
The Corporate Debtor survives, only the ownership is transferred by the Liquidator to the purchaser. All the rights, titles and interest in the Corporate Debtor including the legal entity is transferred to the purchaser. After the sale as a ‘going concern’, the purchaser will be carrying on the business of the Corporate Debtor.
As far as the Liquidator is concerned, when the sale consideration is received from the bidder / purchaser, the same will be distributed to the Creditors in accordance with Section 53 of the Code. Since the amount is paid to the Creditors in terms of the Code, the liabilities of the Corporate Debtor towards the Creditors are treated as settled and the purchaser takes the assets free of any encumbrances or whatsoever.
In the normal parlance “going concern” sale is transfer of assets along with the liabilities. However, as far as the ‘going concern’ sale in liquidation is concerned, there is a clear difference that only assets are transferred and the liabilities of the Corporate Debtor has to be settled in accordance with Section 53 of the Code and hence the purchaser of this assets takes over the assets without any encumbrance or charge and free from the action of the Creditors.
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xiii). NCLT Mumbai-1 (29.11.2018) in Alchemist Asset Reconstruction Company Ltd. Vs. Abhijeet MADC Nagpur Energy Pvt. Ltd. [MA 1343/2018 IN CP (IB)-1315/MB/2017] held that;
It is to be clarified that when sale is to be made on a going concern basis, then certainly after the transfer of undertaking, acquirer gets all right, title and interest in the whole and every part of the undertaking, without any security interest, encumbrance, claim, counterclaim, or any demur, into the acquirer.
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