Appellate Authority (NCLAT) 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’.
The question here is whether the Code mandates Liquidator for sale/auction of liabilities of the CD under liquidation.& whether the liabilities of CD survive post completion of the liquidation process.(In the present case/transaction the liabilities are sought to be transferred to auction purchaser, along with assets in going concern sale of the CD.)
# Section 36. Liquidation estate. -
(1) For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the corporate debtor.
XXXXX
# Section 53. Distribution of assets. -
(1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period as may be specified, namely: -
XXXXX
As per the provisions of the Code, liquidator can only sell/auction the assets of the CD, which forms the part of “Liquidation Estate” and all the liabilities of the CD are to be mandatorily settled in terms of the provisions of Section 53 of the Code.
# Section 240. Power to make regulations. –
(1) The Board may, by notification, make regulations consistent with this Code and the rules made thereunder, to carry out the provisions of this Code.
XXXXX
Case Law;
i). NCLT Mumbai-1 (2018.11.29) 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.
ii). 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.
iii). 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.
iv). 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.
Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.
-------------------------------------------------
No comments:
Post a Comment