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.
Excerpts of the order;
# 1. The above I.A. 1253/2021 is filed by one Mr. Gaurav Agarwal who is the successful auction purchaser in respect of auction dated 03.03.2021 conducted by the Liquidator claiming several among the following relief claimed in terms of prayer clause ‘ii’ of the Application:
ii. The Applicant shall not be responsible for any other claims/ liabilities/ obligations etc. payable by the Corporate Debtor as on this date to the Creditors or any other stakeholders including Government dues. All the liabilities of the Corporate Debtor as on the date stand extinguished, as far as the Applicant is concerned.
# 4. In the light of the above pleadings, and the rival contentions of both sides, the only issue that needs to be decided by this Bench in the above Interlocutory Application is:
Whether the sale of the Corporate Debtor as a going concern under the Code and the Regulations includes both assets and liabilities or assets alone without any liabilities?
# 6. The main grievance of the Applicant through the above application is that the present Applicant being an auction purchaser who purchased the Corporate Debtor Company as a going concern is not bound by any of its liabilities. The above issue whether the sale of the Corporate Debtor as a going concern includes assets and liabilities or assets alone is no longer res-integra. The Hon’ble NCLAT vide its order dated 11.01.2022 in M/s Visisth Services Limited VS. S.V. Ramani in Company Appeal (At) (Insolvency) No. 896 of 2020 in the similar circumstances of the present case on hand at para 9 held as follows:
“…9. 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…”
# 7. Similarly, the coordinate bench of NCLAT, Chennai Bench in its order dated 15.02.2022 in I.A./1215/CHE/2021 in CP/699/IB/2017 in M.S. Viswanathan Vs. Pixtronic Global Technologies Pvt. Ltd by relying on the above judgement of the Hon’ble NCLAT in M/s Visisth Services Limited VS. S.V. Ramani in Company Appeal (At) (Insolvency) No. 896 of 2020 clearly held that the Sale of Corporate Debtor as a ‘Going Concern ‘as is where is’ basis under Regulation 32 A of the IBBI (Liquidation Process) Regulations, 2016 and the Code means sale of assets as well as liabilities and not assets sans liabilities.
# 8. However, the learned counsel appearing for the Petitioner relied on the judgment of the Hon’ble NCLAT in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited and others in Company Appeal (AT) (Insolvency) No. 650 of 2020 which is later in point of time and argued that as per the judgment in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited and others the sale does not include liabilities and the above decision being the later decision will prevail over the earlier decision. Therefore, the only issue is which judgement of the Hon’ble NCLAT is a ratio.
# 9. In order to examine the above issue, it is important to mention here the background and scope of the appeal in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited and others as narrated in the first para of the order is as follows:
“…This Appeal has been preferred by the Appellant – ‘M/s Shiv Shakti Inter Globe Exports (P) Ltd.’ limited being aggrieved by the order dated 18.05.2020 passed by the Ld. Adjudicating Authority in CA No. 1189/2019 in C.P. No. IB136/Chd/Hry/2018 whereby and where under the Ld. Adjudicating Authority was pleased to partially allow CA No. 1189/2019 filed by the Liquidator. The Ld. Adjudicating Authority, while partially allowing the said CA 1189/2019 had inter alia directed closure of liquidation process of the Corporate Debtor K.T.C. Foods Private Limited without dissolution of K.T.C. Foods Private Limited. The Appellant is aggrieved by the impugned order as much as the Ld. Adjudicating Authority has denied the sale of the Corporate Debtor as a going concern to the Appellant without any liabilities including contingent liabilities and with immunity from existing litigations, if any, against the Corporate Debtor. The Ld. Adjudicating Authority has also denied the extinguishment of the remaining unpaid liabilities of the Corporate Debtor after distribution of the proceeds of the sale of Corporate debtor as a going concern as per the order of priority provided in Section 53 of the Insolvency and Bankruptcy Code, 2016 (for short IBC) as well as waiver from all the past non-compliances of the Corporate Debtor under applicable laws for the period prior to the e-auction...”
10. It is important to mention here that various prayers sought by the liquidator in the impugned application that are extracted below as mentioned in page 6 of the order as follows:
a. “That the Hon’ble Tribunal may graciously be pleased to approve the closure of Liquidation Process of the Corporate Debtor under Regulation 53 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and sale of Corporate Debtor as a going concern to M/s Shiv Shakti Inter Globe Exports Private Limited, the highest bidder without any liabilities including contingent liabilities and with immunity from existing litigations, if any, against the Corporate Debtor by way of E-Auction at a total consideration of INR 18,45,86,646/- (Rupees Eighteen Crores Forty Five Lacs Eighty Six Thousand Six Hundred and Forty Six only);
b. That the Hon’ble Tribunal may graciously be pleased to approve the aforesaid sale of Corporate Debtor without its dissolution;
c. That the order be passed that after distribution of the proceeds of the Sale of Corporate Debtor as a Going Concern as per order of priority provided in Section 53 of the Insolvency and Bankruptcy Code, 2016, the remaining unpaid outstanding liabilities of the Corporate Debtor shall be extinguished;
d. Extinguishment of ownership of the equity shares of the existing equity shareholders and allotment of fresh shares of the Corporate Debtor in favour of M/s Shiv Shakti Inter Globe Exports Private Limited, the Successful Bidder;
e. All consequences of past non-compliances of the Corporate Debtor under applicable laws for the period prior to this E-Auction shall be waived…”
# 11. Therefore, it is very clear from the above order in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited and others that the above Appeal was filed by the auction purchaser against the rejection of reliefs claimed in terms of prayer clause ‘c’ and ‘e’ in the above application filed by the liquidator. It is very clear from the order that the findings of the Hon’ble NCLAT in the above order was while dealing a situation after distribution of the proceeds of the sale of Corporate Debtor as a going concern as per the order on priority provided Section 53 of the Code. Therefore in those circumstances, the Hon’ble Case NCLAT held that the remaining unpaid outstanding liabilities of the Corporate Debtor extinguished and all consequences of past non-compliance of the Corporate Debtor under applicable laws in the period prior to e-auction shall be waived.
# 12. Thus, it is very clear that the Hon’ble NCLAT in the above appeal has made its observations in the Application filed by the liquidator which is not the circumstance of the present case. It is also worthwhile to note that the sale proceeds have already been distributed as per the order of priority provided in Section 53 of the Code in the above case which is not the same in the present case. In the present case on hand, the application is filed by auction purchaser himself seeking the declaration without distribution of the liquidation proceeds to the creditors and before issuing sale certificate and possession of the Corporate Debtor. 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.
# 13. It was also made it very clear to the auction purchaser in the bid documents that the liquidator does not take or assume any responsibility for any dues, statutory or otherwise, of the Company, including such dues, if any, which may affect transfer of the liquidation assets in the name of the Successful Bidder and such dues, if any, will have to be borne/paid by the Successful Bidder.
# 14. Similarly, the liquidator also put the Applicant notice that the bidders prior to submitting the bid should make their independent inquiries regarding the encumbrances, title of property claims/right/dues/affecting the property, inspect the property at their own expenses and satisfy themselves. The date and time of inspection of the property will be any time at site email Mr. CA Devnag P. Sampat dpsampat@sampatassoicates.in.
# 15. Therefore, it is very clear from the above facts that the auction purchaser was put on notice regarding all the above liabilities. The Hon’ble NCLAT in M/s Visisth Services Limited VS. S.V. Ramani, after discussing paragraphs 3.2, 3.2.1, 3.2.2, 4.2 and 4.2.1 of the IBBI discussion paper of Corporate Liquidation Process along with approved Regulations dated 27.04.2019 and various rulings of the Hon’ble Supreme Court held that sale of the Corporate Debtor as going concern includes both assets and liabilities not assets sans liabilities.
# 16. It is also important to observe here that both the above orders of the Hon’ble NCLAT were passed by the same Bench comprising of Hon’ble Justice Anant Bijay Singh, Member (Judicial) and Ms. Shreesha Merla, Member (Technical). It is also very important to observe here that the same Bench having observed that the sale of Corporate Debtor as a going concern under the Regulations includes assets and liabilities, not assets alone sans liabilities in their earlier order cannot re-write their order in a different way. Therefore, this Bench has no hesitation in holding that the order passed by the same Bench of the Hon’ble NCLAT in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited and others is distinguishable from the facts of the present case on hand and also from logic.
# 17. It is also very clear from the plain reading of Clause 3 of Regulation 32A of the Liquidation Process Regulations, 2016 which is extracted hereinbelow:
“3. Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee.”
It is very clear from the above Clause that in fact a duty is cast upon the stakeholders committee as well as the liquidator is find out the liabilities of the Corporate Debtor.
# 18. In view of the above observations and the law laid down by the Hon’ble NCLAT in M/s Visisth Services Limited VS. S.V. Ramani, this Bench has no hesitation in holding that the Applicant is not entitled for the relief sought in prayer clause (‘ii’) in the above Application and the above Application deserves to be dismissed. Accordingly, the above Application is dismissed. It is once again hereby clarified at the cost of repetition that since the Applicant has given up the other reliefs other than the relief in prayer clause (‘ii’) no discussion nor any finding needs to be given by this Bench in respect of the other reliefs.
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Blogger’s comments; Hon’ble NCLAT had occasion to deal with a case where in liquidation proceeding sale was conducted and assets were sold to Successful Auction Purchaser in Company Appeal (AT) (Insolvency) No. 650 of 2020, ‘Shiv Shakti Inter Globe Exports Pvt. Ltd. Through its Authorised Representative vs. KTC Foods Pvt. Ltd. Through Liquidator, Mr. Anup Kumar Singh & Anr.’, 2022 SCC OnLine NCLAT 85, wherein in Para 21 following was laid down by the Tribunal:-
“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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