Sale Of Corporate Debtor In Liquidation As Going Concern Beyond 90 Days Is Permissible Under Amended Regulation 32A(4) Of IBC: NCLAT

Brief Facts:

M/s Continental Piling and Excavation Pvt. Ltd. filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) against M/s Anwesha Engineering & Projects Ltd. before the Tribunal which was admitted on 25.01.2021.

Three resolution plans were received but all three plans failed as they did not receive the requisite majority when they were put to vote in the 16th meeting of the Committee of Creditors (CoC) rather the CoC voted for the liquidation and sale of the Corporate Debtor as a going concern by 100% majority as per Regulation 32 of the IBBI (Liquidation Process) Regulations, 2016 ('Regulations').

At the relevant time, Regulation 32A(4) of the Regulations required the sale of the corporate Debtor as a going concern only within the first 90 days from the date of liquidation of the Corporate Debtor.

The liquidator preferred an application for liquidation of the Corporate Debtor under Section 33 of the Code on 15.04.2022.

While the above application was pending, the Regulation 32A(4) was amended and the requirement for sale to be conducted within 90 days was removed. Now the sale could be conducted in the first auction whereas Regulation 32A (e) provides that the liquidator may sell the business (s) of the Corporate Debtor as a going concern.

The liquidator noted that the 90-day time period within which the sale had to be conducted expired even before the amendment in Regulation 32A(4) was brought in therefore an application seeking condonation of delay for conducting the sale beyond 90 days was filed.

Thereafter, a public notice was issued in pursuance of which Inderdeep Construction Company was declared as a Successful Bidder. The Bidder paid the entire amount and the sale certificate was also issued. Subsequently, the Tribunal was also informed of the successful sale of the corporate debtor as a going concern and an affidavit was also filed demonstrating the compliance of Regulation 32A(4).

Contentions:

The appellant submitted that the only objection with respect to the sale of the corporate debtor was that the sale was conducted beyond 90 days. However, the requirement of 90 days has been removed by the amendment as per which the sale can be conducted in the first attempt.

It was also argued that the clean slate theory also applies in the case of liquidation sale by the liquidator, therefore, Respondent No. 2 cannot claim the past dues.

Per contra, the respondent submitted that the TDS demand of Rs. 1,34,80,428/- is due from the period prior to the sale of the Company. The sale of the Corporate Debtor as a going concern shall mean that the Corporate Debtor survives but only the ownership is transferred by the liquidator to the purchaser.

It was also argued that going concern means that the sale is a transfer of assets along with liabilities but in the matter of liquidation only assets are transferred and the liabilities of the Corporate Debtor have to be settled in terms of Section 53 of the Code.

Observations:

The Tribunal noted that the effect of the purchase is that the Tribunal was informed that there is an amendment in Regulation 32A(4). The liquidator has complied with the Regulation and sold the corporate debtor as a going concern in the first auction. The Successful Bidder has also paid the entire amount that has been distributed to the stakeholders.

It further observed that the reliance placed by the Tribunal on unamended Regulation 32A(4) was misplaced. The time period of 90 days within which the sale has to be completed has been done away with by the amendment dated September 16, 2022 therefore filing an application for seeking condonation of delay by the appellant was an inadvertent exercise on the part of the liquidator.

The NCLAT in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Pvt. ltd. held that while approving the sale of the corporate debtor as a going concern, it must be ensured that after the sale, the corporate debtor is not burdened with unpaid liabilities prior to sale and after payment of the sale proceeds is distributed in accordance with section 53 of the code.

It further observed that not only had Regulation 32A(4) been duly amended on 16.09.2022 and the sale as a going concern took effect on 28.08.2023 but also the entire amount has been paid by the highest bidder and that has already been distributed to the stakeholders by the Liquidator.

Accordingly, the order of the Tribunal was set aside.

Case Title: Anuj Bajpai and Anr. Vs. Inderdeep Construction Company & Anr.

Case Number: Comp. App. (AT) (Ins) No.1698 of 2024 & I.A. No.6123 of 2024 and Comp. App. (AT) (Ins) No.1518 of 2024 & I.A. No.5507 of 2024

Judgment Date: 13/02/2025

For Appellant: Mr. Naveen Pahwa, Sr. Advocate with Mr. Rahul Gaikwad, Ms. Stuti Vatsa and Mr. Govind, Advocates

For Respondent: Mr. Abhijeet Sinha, Sr. Advocate with Mr. Karan Valecha, Advocate for R-1

For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Mr. Karan Valecha and Mr. Aditya Shukla, Advocates

For Respondent: Mr. Naveen Pahwa, Sr. Advocate with Mr. Rahul Gaikwad, Ms. Stuti Vatsa and Mr. Govind, Advocates for R-

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