Only Assets Are Transferred In Going Concern Sale Of Corporate Debtor Under Liquidation, Liabilities Must Be Settled U/S 53 Of IBC: NCLT Mumbai

Brief Facts

The Present Application is preferred by the Applicant for seeking various concessions and reliefs in relation to the assets sold as going concern Corporate Debtor.

The Company Petition No. 1088 of 2020 was filed to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor i.e. Topsgrup Services and Solutions Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor was admitted to CIRP vide an order dated 19.02.2021.

In the e-auction process, the applicant was declared as Successful Bidder and this status was confirmed via a latter issued by the liquidator wherein the applicant accepted all terms of the bid in toto.

NCLT's Analysis

The tribunal noted that while the Liquidation Process Regulations recognize “going concern sale” as one of the methods of sale, however, there is no definition as such for 'going concern' either in the Code or in the Regulations and also there is no provision in the 'Code' or any of the regulations with respect to the relief and concessions to be granted to a Successful Bidder in Liquidation.

It is thus incumbent upon us to rely upon the law settled by the Hon'ble NCLAT relevant or to refer the report of the “Insolvency Law Committee” dated 26/03/2018 Para 8.1 of the Report, wherein the committee examined the term “going concern” states as under: “The phrase 'as a going concern' imply that the Corporate Debtor would be functional as it would have been prior to the initiation of CIRP, other than the restrictions put by the Code.”

The tribunal further observed that the crux of the 'sale as a going concern' 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 undertaking includes the business of the Corporate Debtor, assets, properties and rights etc. excluding the liabilities.

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, the tribunal noted.

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 have to be settled in accordance with Section 53 of the Code and hence the purchaser of this asset takes over the assets without any encumbrance or charge and free from the action of the Creditors.

In the case of sale as a 'going concern' the Corporate Debtor will not be dissolved in terms of Section 54 of the Code. The assets with the attendant, claims, limitations, licenses, permits or business authorizations, remains in the Company. Only the ownership of the Company is acquired by the successful bidder from the Liquidator.

As regards to the point of Jurisdiction of Statutory Authorities for Granting Specific Reliefs and Concessions to the Successful Bidder, the Hon'ble Supreme Court in Anuj Jain Interim Resolution Professional for Jaypee Infratech Ltd. vs. Axis Bank Ltd. & Ors.,2020, clarified that “while the liquidation process can relieve the successful bidder from certain liabilities, any additional reliefs or specific concessions must be requested from the relevant statutory or regulatory authorities by the bidder. The court underscored that these authorities have the discretion to grant or deny such requests based on their statutory powers”

The tribunal noted that in Sunil Kumar Jain v. Sundaresh Bhatt, Liquidator of ABG Shipyard, 2022, the Hon'ble Supreme Court held that during liquidation, all the statutory liabilities do not automatically get extinguished.

The court has further held that “statutory dues like employee claims, taxes and other dues are paid in accordance with the waterfall mechanism specified under section 53 of the Code when the corporate debtor is in liquidation. This does not mean that the corporate debtor in liquidation is sold as a clean slate rather all dues and claims are to be settled as per the order of priority outlined under the IBC.”

The tribunal observed that upon the acquisition of assets through the liquidation process or the approval of a Resolution Plan, the Successful Bidder or Successful Resolution Applicant (SRA) is not automatically entitled to all desired reliefs and concessions. Instead, such reliefs must be sought from the concerned statutory authorities, which possess the jurisdiction to grant or deny the same.

Having discussed the legal position, the tribunal issued certain directions-

1. The Liquidator is directed to provide all support and Assistance to the Applicant for the smooth functioning of the Corporate Debtor to complete the acquisition strangely. No relief has been sought against the Liquidator but the Liquidator has been arrayed as Respondent by the Applicant.
2. The Liquidator and also Applicant shall be at liberty to take all the steps required to make accounting entries for the smooth transmission and clearing the balance sheet. The Liquidator is directed to ensure completion of pending filings with the Registrar of Companies, Income Tax Authorities and any other Government / Statutory Authorities.

In terms of the above, IA No.929 of 2024 filed by the Applicants stands disposed of accordingly.

Case Title: Mr. Ravikant Modi v. Mr. Anshul Gupta (Liquidator)

Case Reference: IA No. 929 of 2024 in CP (IB) No. 1088/MB/2020

Judgment Date: 21/11/2024

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