NCLT Chennai Explains The Difference Between Sale Of 'Corporate Debtor As A Going Concern' U/R 32(E) And Sale Of 'Business Of The Corporate Debtor As A Going Concern' In IBC

The Liquidator of Gemini Communications Ltd., who is the Applicant in the present case, sold the Corporate Debtor as a going concern to the successful bidder, M/s. Pixtronic Global Technologies Pvt. Ltd.

The Liquidator filed an application u/s 35(1)(n) r/w Section 60(5) of the IBC, 2016 and Regulation 32(e) of the IBBI (Liquidation Process) Regulations, 2016 seeking approval for sale of Corporate Debtor as a going concern.

The Tribunal observed that 'sale as a going concern' means all such assets and liabilities, which constitute an integral business of the Corporate Debtor, that must be transferred together, and the consideration must be for the business of the Corporate Debtor. The buyer of the assets and liabilities should be able to run business without any disruption.

The Tribunal explained that there are two going concern sales defined under Regulation 32 of the IBBI (Liquidation Process) Regulations, 2016. The first is sale of 'Corporate Debtor as a going concern' under Regulation 32(e) and the second is the sale of 'Business of the Corporate Debtor as a going concern' under Regulation 32(f).

"In the sale of "Corporate Debtor as a going concern" under Regulation 32(e) of IBBI (Liquidation Process) Regulations, 2016 the Corporate Debtor will not be dissolved. In this part of sale, the entire business, assets and liabilities, including all contracts, licenses, concessions, agreements, benefits, privileges, rights or interests of the Corporate Debtor will be transferred to the acquirer. The existing the Corporate Debtor will be transferred to the acquirer. The existing shares of the Corporate Debtor will not be transferred and shall be extinguished.

In the sale of "Business of Corporate Debtor as a going concern" under Regulation 32(f) of IBBI (Liquidation Process) Regulations, 2016, the entire business(s) along with assets and liabilities, including intangibles, will be transferred as a going concern to the acquirer, without transfer of the Corporate Debtor, and therefore, the Corporate Debtor will be dissolved. The existing shares will be extinguished. The remaining assets, other than those sold as part of business will be sold and the proceeds thereof will be used to meet the claims under Section 53 of IBC, 2016."

The Tribunal relied on the decision of the NCLAT in M/s. Visisth Services Ltd. Vs. Mr. S. V. Ramani, Liquidator of United Chloro-paraffins Pvt. Ltd. and held that as per Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016 the sale of as a 'going concern' means sale of both assets and liabilities and not assets sans liabilities, if it is stated on 'as is where is basis'.

The NCLT allowed the application for sale of the 'Corporate Debtor as a going concern' and directed the Liquidator to file an application under Regulation 45(3) of the IBBI (Liquidation Process) Regulations, 2016 for closure of the liquidation process after distributing the proceeds to the stakeholders as per the waterfall mechanism u/s 53 of the Code.

Case Title: M.S. Viswanathan v. Pixtronic Global Technologies Pvt. Ltd.

Counsel for Applicant: Mr. R. Venkatavaradan, Advocate

Counsel for the Respondent: Mr. B. Gopinath

Click Here To read/Download Order