2021 (3) TMI 1310 - AT - Insolvency and Bankruptcy

Auction purchaser liable for workers' claims under SARFAESI Act, 'as is where is' basis upheld.

Tarun International Ltd. Versus Vikram Bajaj and Ors.

Tarun International Ltd. Versus Vikram Bajaj and Ors. - TMI Issues Involved:1. Whether the liability in respect of the workers and employees and other liabilities pertaining to Unit No. 1 of the Corporate Debtor sold under the SARFAESI Act, 2002 prior to the commencement of CIRP are the liability of the Corporate Debtor or the Appellant-auction purchaser.2. Jurisdiction of the Adjudicating Authority under the IBC to determine liabilities of a third-party auction purchaser under SARFAESI Act.3. Whether the sale of only part of the assets of the Corporate Debtor under the SARFAESI Act can be considered the sale of a company as a going concern to make the purchaser liable for workmen’s dues.Issue-wise Detailed Analysis:1. Liability of Workers and Employees:The Appellant contended that it is the auction purchaser of the property sold by Allahabad Bank under the SARFAESI Act before the initiation of CIRP against the Corporate Debtor. The sale was conducted on an 'as is where is basis' and the property was sold free from all encumbrances. The Adjudicating Authority determined that the liabilities towards workmen and employees, as well as other statutory liabilities, were to be borne by the Appellant-auction purchaser. The Authority found that the Allahabad Bank had made it clear to the Appellant that the acquisition of Unit No. 1 was on an 'as is where is basis,' implying that it included all liabilities. This finding was challenged by the Appellant as erroneous and unsustainable.2. Jurisdiction of Adjudicating Authority:The Appellant argued that the Adjudicating Authority under the IBC had no jurisdiction to pass orders in relation to prior transactions except as provided under Sections 44-45 of the IBC. It was contended that the property was sold free from all encumbrances and the Appellant acquired only the property and not the company, hence the liabilities of the Corporate Debtor could not be fastened upon the Appellant. The Respondent argued that the Adjudicating Authority alone had the jurisdiction to decide upon the claims against the Corporate Debtor and determine whether the liabilities were payable by the auction purchaser or continued to be admissible against the Corporate Debtor.3. Sale of Assets as Sale of Company:The Appellant contended that the sale of Unit No. 1 was not the sale of the company as a going concern, and therefore, it should not be liable for the workmen’s dues. The Respondent argued that the sale was conducted on an 'as is where is basis,' and the Appellant was aware of the liabilities before participating in the auction. The sale notice and subsequent correspondence made it clear that the auction purchaser was liable for the statutory dues.Judgment Analysis:The Tribunal concluded that the Appellant-auction purchaser had accepted the acquisition of Unit No. 1 subject to the condition of 'as is where is basis' and was fully aware of the liabilities passing on to it. The impugned order saddling the Appellant with the liability to bear all claims of the workers and employees was upheld. The majority judgment dismissed the appeal, stating that the Adjudicating Authority had the jurisdiction to determine the liabilities and the Appellant could not unilaterally back out of such liability.Separate Judgment:A dissenting opinion by one of the members argued that the Adjudicating Authority under the IBC had no jurisdiction to determine the liability of a bona fide auction purchaser under the SARFAESI Act when the property was sold before the commencement of CIRP. It was held that the Adjudicating Authority exceeded its jurisdiction in determining the liabilities of a third party, and the sale of assets should not be considered the sale of a company as a going concern. The dissenting opinion suggested that the appeal should be allowed and the impugned order set aside. However, the majority view prevailed, and the appeal was dismissed.