No Bar On Sale Of Corporate Debtor As A Going Concern After First Auction, Permission Of AA not required: NCLT Delhi

Background Facts

Nolsar International Limited (“Corporate Debtor”) was admitted into the Corporate Insolvency Resolution Process (“CIRP”) by the Adjudicating Authority. Subsequently, the Adjudicating Authority passed an order for liquidation of the Corporate Debtor on 28.02.2020 and appointed a Liquidator.

In the first auction conducted by the Liquidator, the Corporate Debtor could not be sold as a going concern. After several rounds of auction, the Liquidator came across a prospective buyer who desired to purchase the Corporate Debtor as a going concern. The Liquidator filed an application before the Adjudicating Authority seeking permission to sell the Corporate Debtor as a going concern.

The Liquidator argued that since the Corporate Debtor could not be sold as going concern in the first Auction, there is a bar imposed under Regulation 32A(4) of the IBBI (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”) on selling the Corporate Debtor as a going concern in subsequent auctions. Therefore, the indulgence of the Adjudicating Authority is required.

Relevant Laws

Regulation 32 of IBBI (Liquidation Process) Regulations, 2016

“32. Sale of Assets, etc. The liquidator may sell –

(a) an asset on a standalone basis;

(b) the assets in a slump sale;

(c) a set of assets collectively;

(d) the assets in parcels;

(e) the corporate debtor as a going concern; or

(f) the business(s) of the corporate debtor as a going concern: Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate.”

Regulation 32A(4) of IBBI (Liquidation Process) Regulations, 2016

“32A. Sale as a going concern.

(4) The liquidator may sell the assets of the corporate debtor under clause (e) of regulation 32 exclusively only at the first auction.”

Issue

Whether there is any bar in selling the Corporate Debtor as a going concern after the first auction and whether the Liquidator is required to seek any permission of this Adjudicating Authority for such a sale?

NCLT Verdict

The Bench observed that it can be inferred from a co-joint reading of Regulation 32A(4) and Regulation 32(e) of Liquidation Regulations that the Corporate Debtor can be sold as going concern in the first auction.

“However, as regards to the word “exclusively” mentioned in the Regulation 32A(4), we are of the view that whereas the liquidator may sell the assets of the corporate debtor under clause (e) of regulation 32 exclusively only at the first auction, we find no such bar in selling the assets of the Corporate Debtor in the subsequent auctions, where the Liquidator has all other options of sale as stipulated under Regulation 32A, available including selling of the Corporate Debtor as going concern.”

Further, the sale of assets through more than one auction has already taken place, therefore, the Liquidator has the entire basket of options available for the sale of assets as stipulated under Regulation 32 of Liquidation Regulations. The Bench held that there is no legal disability for the Liquidator in exercising any of the methods of sale stipulated under Regulation 32, including the sale of the Corporate Debtor as going concern.

The Regulation 32 of Liquidation Regulations itself provides requisite flexibility in choosing the methods of sale during the auctions subsequent to the first auction, and there is no requirement in law seeking permission of this Adjudicating Authority.

The Bench dismissed the application while opining that the Liquidator is under no obligation to seek permission of the Adjudicating Authority for choosing the method of sale.

Case Title: Mr. Surinder Manchanda v Nolsar International Limited

Case No.: Company Petition No. (IB)-1031(ND)/2018

Click Here To Read/Download Order