2021 (5) TMI 273 - Tri - Insolvency and Bankruptcy

Tribunal Grants Relief: Payment via Equity, Exemption from Regulations, Recovery Rights

The Tribunal granted various reliefs to the Applicant, allowing payment of sale consideration through equity shares, extinguishing existing shares, and ... Sale of corporate debtor as a going concern - liquidator's power under the Liquidation Process Regulations (including Regulation 32) - vesting of assets free from encumbrances - extinguishment of pre-transfer liabilities - exemption from SEBI regulations for acquisition under liquidation - effect of sale on pending proceedings and statutory compliances - rights and obligations of purchaser post-transferSale of corporate debtor as a going concern - vesting of assets free from encumbrances - Permission to effect acquisition by payment/adjustment of sale consideration through subscription to equity, with allotment of new shares, cancellation of existing share capital and delisting consequential thereto. - HELD THAT: - The Tribunal granted permission to the successful bidder to pay the sale consideration by subscribing to equity of the Corporate Debtor and directed that upon payment the Corporate Debtor shall allot shares to the Applicant constituting 100% equity, cancel existing shares held by promoters and public shareholders and delist the Company with immediate effect. The order implements the Liquidator's sale of the Corporate Debtor as a going concern and gives effect to the transfer sequence as prayed by the Applicant, subject to allotment being made in accordance with applicable laws. The Tribunal treated such reliefs as incidental to consummation of a going-concern sale effected under the liquidation process and necessary to enable the purchaser to operate the business post-transfer. [Paras 14]Permission granted for acquisition by investment into equity; allotment, cancellation of existing shares and delisting effected as set out in the order.Exemption from SEBI regulations for acquisition under liquidation - Claim for exemption from specified SEBI regulations to give effect to the acquisition was allowed by the Tribunal. - HELD THAT: - The Tribunal exempted the Applicant/Corporate Debtor from compliance with Regulation 158(2) and Regulation 170 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and Regulation 3(3) of the SEBI (Delisting of Equity Shares) Regulations, 2009, insofar as such compliance would otherwise be required to effect the acquisition, cancellation/extinguishment of existing share capital, issuance of new shares and delisting. The exemption was granted as ancillary relief necessary to implement the sale of the Corporate Debtor as a going concern in liquidation. [Paras 14]Exemptions from the specified SEBI regulations granted to the extent necessary to give effect to the acquisition.Extinguishment of pre-transfer liabilities - vesting of assets free from encumbrances - effect of sale on pending proceedings and statutory compliances - Rights, title and interest in the Corporate Debtor's assets shall vest in the Applicant free from encumbrances and the Applicant shall not be liable for pre-transfer liabilities; pending proceedings shall not affect assets sold. - HELD THAT: - Relying on the liquidation sale as a going concern and the Liquidator's process, the Tribunal directed that on payment of consideration the Applicant shall obtain all rights, title and interest in the Corporate Debtor's assets free from security interests, encumbrances, claims or liabilities. The Tribunal further provided that the Applicant shall not be responsible for past liabilities of the Corporate Debtor and that proceedings (other than those against erstwhile promoters or former management) shall not have bearing on the assets sold. The sale proceeds are to be distributed by the Liquidator in terms of Section 53 of the Code. These directions operationalise the principle that a going-concern sale in liquidation transfers the business free of antecedent liabilities as between purchaser and the corporate assets sold. [Paras 14]Assets vest in Applicant free of encumbrances; Applicant not liable for pre-transfer liabilities and pending proceedings do not affect the sold assets.Rights and obligations of purchaser post-transfer - liquidator's obligations to assist post-acquisition - intellectual property rights and restraints on promoters - Applicant entitled to enforce rights of the Corporate Debtor post-transfer, liquidator to assist, Intellectual Property remains with Corporate Debtor and promoters restrained from using/transferring such IPR. - HELD THAT: - The Tribunal recognised the Applicant's right to recover amounts due to the Corporate Debtor and to review or terminate pre-existing contracts insofar as necessary to run the business. The Liquidator was directed to complete statutory filings and to provide cooperation for smooth completion of acquisition and vesting (including assisting with land/record formalities). The Tribunal ordered that Brands and IPR belonging to the Corporate Debtor remain vested with the Corporate Debtor and restrained existing promoters/guarantors/erstwhile promoters and their associates from conducting business using or transferring such IPR. Renewal of licenses was allowed upon payment of renewal fees where applicable. [Paras 14]Applicant granted post-transfer operational rights; Liquidator directed to assist; IPR to remain with Corporate Debtor and promoters restrained from use/transfer.Brought forward losses and tax consequences of acquisition - Tribunal declined to grant sweeping directions to tax and other statutory authorities; matters concerning brought forward losses, tax exemptions and statutory waivers were left to the appropriate authorities for consideration. - HELD THAT: - While the Tribunal recognised that the Corporate Debtor may be entitled to benefits of brought forward losses subject to permissions of the appropriate authority, it did not issue directions to CBDT, Customs, State GST authorities or other statutory bodies to waive taxes, stamp duty or to deem assessments closed. The Applicant was permitted to approach the concerned authorities for reliefs such as treatment under the Income-tax Act and exemptions from stamp duty and other levies; the Tribunal left consideration and grant of such fiscal exemptions to those authorities. [Paras 14, 15]Requests for tax and statutory authority exemptions not granted by the Tribunal; Applicant permitted to approach the relevant authorities for consideration.Final Conclusion: The Tribunal allowed the Applicant to complete acquisition of the Corporate Debtor as a going concern by investment into equity, directed allotment of new shares, cancellation of existing share capital and delisting, granted specified exemptions from SEBI regulations for the purpose of implementing the sale, vested assets in the Applicant free of encumbrances and extinguished the Applicant's liability for pre-transfer obligations; matters concerning tax reliefs, stamp duty and waivers were left to the appropriate statutory authorities to consider and the Application was disposed of accordingly. Issues Involved:1. Permission to pay/adjust sale consideration by way of investment into equity shares.2. Extinguishment of existing shares and delisting of shares.3. Exemptions from SEBI regulations.4. Rights, title, and interest over Corporate Debtor.5. Extinguishment of liabilities and claims.6. Pending proceedings and non-compliance.7. Continuation of licenses and approvals.8. Right to review and terminate contracts.9. Vesting of assets and intellectual property rights.10. Recovery of amounts due to Corporate Debtor.11. Past liabilities and accounting entries.12. Completion of pending filings.13. Benefits of brought forward losses.14. Consideration of bid as a resolution plan under Income Tax Act.15. Support and assistance from Liquidator.16. Exemption from taxes and stamp duty.Detailed Analysis:1. Permission to Pay/Adjust Sale Consideration:The Tribunal granted permission to the Applicant to pay/adjust the sale consideration of Rs. 109,964,559 by way of investment into the equity shares of the Corporate Debtor. It was ordered that upon payment, the Corporate Debtor shall allot 10,996,456 shares at a face value of Rs. 10 each to the Applicant and its shareholders, constituting 100% of the equity of the Corporate Debtor.2. Extinguishment of Existing Shares and Delisting of Shares:The Tribunal directed the cancellation of all existing shares held by the promoter group and public shareholders prior to the issuance of new shares. The shares of the Corporate Debtor were ordered to be delisted with immediate effect.3. Exemptions from SEBI Regulations:The Applicant/Corporate Debtor was exempted under various SEBI regulations, including Regulation 158(2) and Regulation 170 of SEBI (Issue of Capital & Disclosure Requirement) Regulations, 2018, and Regulation 3(2) and Regulation 3(3) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and SEBI (Delisting of Equity Shares) Regulations, 2009.4. Rights, Title, and Interest Over Corporate Debtor:The Applicant was granted all rights, title, and interest over the Corporate Debtor, including contracts free from security interest, encumbrance, claim, counterclaim, or any demur. The sale consideration, upon receipt, was to be distributed by the Liquidator as per Section 53 of the Code.5. Extinguishment of Liabilities and Claims:The Tribunal ruled that the Applicant shall not be responsible for any claims, liabilities, or obligations, including government dues, and that all liabilities of the Corporate Debtor as of the date of the order stand extinguished concerning the Applicant.6. Pending Proceedings and Non-Compliance:Any pending proceedings against the Corporate Debtor, except those against erstwhile promoters or former management members, were deemed not to affect the sold assets. Non-compliance with laws, rules, regulations, etc., by the Corporate Debtor was also extinguished concerning the Applicant.7. Continuation of Licenses and Approvals:The relief sought for the continuation of licenses, approvals, and entitlements was allowed, subject to the payment of renewal fees from the date of the order to the licensing authorities.8. Right to Review and Terminate Contracts:The Applicant/Corporate Debtor was granted the right to review and terminate any contract entered into prior to the date of the order.9. Vesting of Assets and Intellectual Property Rights:The assets specified in the e-auction memorandum were ordered to vest with the Applicant upon payment of the consideration. Intellectual Property Rights, including the brand name 'KSK,' were to remain with the Corporate Debtor, and existing promoters/guarantors were restrained from using or transferring such IPR.10. Recovery of Amounts Due to Corporate Debtor:The Applicant/Corporate Debtor was granted the right to recover amounts due from any third party, including related parties, without any set-off of liabilities extinguished.11. Past Liabilities and Accounting Entries:The Applicant was not to be held responsible for past liabilities of the Corporate Debtor. The Liquidator and Applicant were directed to ensure necessary accounting entries for smooth transmission and clearing the balance sheet.12. Completion of Pending Filings:The Liquidator was directed to complete pending filings with the Registrar of Companies, Income Tax Authorities, and any other government/statutory authorities.13. Benefits of Brought Forward Losses:The Corporate Debtor was entitled to the benefits of brought forward losses, subject to permission from the appropriate authority under the relevant provisions of the Income Tax Act, 1961.14. Consideration of Bid as a Resolution Plan Under Income Tax Act:The Applicant was advised to approach the concerned authority to consider the bid as a resolution plan under Section 79 of the Income Tax Act, 1961.15. Support and Assistance from Liquidator:The Liquidator was directed to provide all necessary support and assistance to the Applicant for the smooth functioning of the Corporate Debtor and completion of the acquisition.16. Exemption from Taxes and Stamp Duty:The Tribunal left it open to the Applicant to approach the concerned authorities for exemptions from taxes and stamp duty, noting that the Applicant had purchased the Corporate Debtor as a going concern during liquidation.Conclusion:The Tribunal granted several reliefs to the Applicant, facilitating the acquisition of the Corporate Debtor as a going concern, while ensuring compliance with relevant laws and regulations, and addressing the extinguishment of liabilities and claims against the Corporate Debtor.