2022 (5) TMI 1459 - Tri - Insolvency and Bankruptcy

Sale of Corporate Debtor includes liabilities, bidder must assume all obligations. Liability relief denied.

The Tribunal held that the sale of the Corporate Debtor as a going concern includes both assets and liabilities. The Applicant's argument to be relieved ... Sale as a 'Going Concern' includes assets as well as liabilities - Duty to identify and group assets and liabilities under Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016 - Effect of e auction process documents and bidder's obligation to undertake due diligence - Distinguishing precedents where extinguishment followed distribution of sale proceedsSale as a 'Going Concern' includes assets as well as liabilities - Duty to identify and group assets and liabilities under Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016 - Effect of e auction process documents and bidder's obligation to undertake due diligence - Whether sale of the Corporate Debtor as a going concern includes both assets and liabilities or assets alone without liabilities - HELD THAT: - The Tribunal held that sale of a corporate debtor as a 'going concern' includes both assets and liabilities and not assets sans liabilities. The Bench relied on the NCLAT's reasoning in M/s. Visisth Services Limited v. S.V. Ramani which concluded that a going concern sale transfers integral assets and liabilities together, and applied that principle to the present facts. The decision in M/s. Shiv Shakti Inter Globe Exports Pvt. Ltd. v. KTC Foods Pvt. Ltd. was distinguished on facts: in that matter the question arose after distribution of sale proceeds under Section 53 of the Code and the liquidator's application sought extinguishment/waiver post distribution, whereas in the present case the auction purchaser sought a declaration of non liability prior to distribution, issuance of sale certificate and delivery of possession. The Tribunal also relied on clause 3 of Regulation 32A, which casts a duty on the liquidator (in consultation with the committee) to identify and group assets and liabilities to be sold as a going concern, and noted that the e auction process documents expressly put bidders on notice to conduct independent inquiries and that outstanding local/statutory dues would be borne by the successful bidder. Applying these principles to the record, the Bench found the applicant was not entitled to the declaration sought that he would not be liable for the corporate debtor's liabilities. [Paras 4, 6, 16, 17, 18]The application is dismissed; sale as a going concern includes assets and liabilities and the applicant is not entitled to the sought declaration of non liability.Final Conclusion: The Tribunal dismissed the interlocutory application and held that a going concern sale transfers both assets and liabilities; the auction purchaser is not entitled to a pre emptive declaration absolving it from the corporate debtor's liabilities. Issues Involved:1. Whether the sale of the Corporate Debtor as a going concern under the Code and the Regulations includes both assets and liabilities or assets alone without any liabilitiesRs.Issue-wise Detailed Analysis:1. Nature of Sale of Corporate Debtor as a Going Concern:The primary issue to be decided was whether the sale of the Corporate Debtor as a going concern includes both assets and liabilities or merely assets without liabilities.Applicant's Position:The Applicant, the successful auction purchaser, contended that he should not be responsible for any claims, liabilities, or obligations of the Corporate Debtor as of the date of the auction. He argued that the e-auction process documents did not mention any liabilities, and thus, he should not be forced to assume them. The Applicant relied on the precedent set by the NCLT, Mumbai in the case of Topworth Pipes and Tubes Pvt. Ltd., where similar concessions were granted.Liquidator's Position:The Liquidator opposed the Application, arguing that the sale was conducted as per Regulation 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, which includes both assets and liabilities. The Liquidator emphasized that the e-auction notice and process documents clearly indicated the sale of the Corporate Debtor as a going concern, which inherently includes liabilities. The Liquidator also highlighted that the Applicant had been duly notified of the liabilities and was required to conduct due diligence.Tribunal's Analysis:The Tribunal referred to multiple precedents to resolve the issue. The Hon'ble NCLAT in the case of M/s. Visisth Services Limited Vs. S.V. Ramani had held that the sale of a Corporate Debtor as a going concern includes both assets and liabilities. The Tribunal noted that the sale as a going concern means the transfer of the entire business, including all its assets and liabilities, as specified in Regulation 32A.The Tribunal also considered the judgment in M/s. Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s. KTC Foods Private Limited, where the NCLAT had observed that the sale of a Corporate Debtor as a going concern did not include liabilities. However, the Tribunal distinguished this case based on its specific circumstances, where the sale proceeds had already been distributed as per Section 53 of the Code.The Tribunal emphasized that in the present case, the sale certificate had not yet been issued, and the liquidation proceeds had not been distributed. The Applicant was also put on notice regarding the liabilities, and the bid documents clearly stated that the successful bidder would bear any dues, statutory or otherwise.Conclusion:The Tribunal concluded that the sale of the Corporate Debtor as a going concern includes both assets and liabilities. The Applicant's request for relief from liabilities was dismissed. The Tribunal reiterated that the Applicant had given up other reliefs, and thus no further discussion was needed on those aspects.Final Order:The Application was dismissed, affirming that the sale of the Corporate Debtor as a going concern includes both assets and liabilities.