2021 (8) TMI 1000 - AT - Insolvency and Bankruptcy

Supreme Court Upholds Liquidation Closure, Emphasizes Revival Over Liquidation

The Supreme Court allowed the appeal and set aside the Adjudicating Authority's order dismissing the application for closure of liquidation. The Court ... Seeking for closure of the Liquidation Process - Corporate Debtor was being sold as a going concern in the e-Auction - Whether the Liquidator is authorized to sell the ‘Corporate Debtor’ as a going concern pursuant to Regulation 32 of IBBI (Liquidation Process) Regulations, 2016? - Regulations 39C of CIRP Regulations and 32A, 45(3) of the Liquidation Process Regulations are inconsistent with Section 54 of the Code or not - interpretation by the Adjudicating Authority of the provisions of the Code and ‘Liquidation Process Regulations’ in the Order impugned is contrary to the scope and spirit of the I&B Code or not - HELD THAT:- It is seen that the Hon’ble Apex Court in a catena of Judgements has time and again observed that ‘Liquidation’ should be the last resort only if the Resolution Plan submitted is not up to the mark and even in Liquidation, the Liquidator can sell the business of the ‘Corporate Debtor’ as a ‘going concern’ - Regulations 32A and 45(3) which were inserted in the Liquidation Process Regulations subsequent to ARCELORMITTAL INDIA PRIVATE LIMITED VERSUS SATISH KUMAR GUPTA & ORS. [2018 (10) TMI 312 - SUPREME COURT] and SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT] specifically define the process for sale of ‘Corporate Debtor’ or its business as a going concern. IBBI in furtherance of its delegated power has framed the regulations in accordance with the objectives and also as empowered under Section 240 of the Code. As per Section 241 of the Code, every rule and regulation made under the Code will be placed before the Parliament. For a total period of 30 days for both Houses to make any modification or annulment - Regulation 32-A(1) emphasizes the importance placed on the transfer of the ‘Corporate Debtor’ or its business on a going concern basis. Regulation 39C of CIRP Regulations read with Regulations 32, 32A and 45(3) of Liquidation Process Regulations, it is clear that under Regulation 39C, the CoC may recommend that the Liquidator may first explore sale of the ‘Corporate Debtor’ as a going concern under Clause (e) of Regulation 32 or Sale of the business of the ‘Corporate Debtor’ under Clause (f) of Regulation 32. 32A provides that if the Liquidator is of the opinion that sale under Clause (e) or (f) of Regulation 32 shall maximize the value of the ‘Corporate Debtor’, he shall endeavor to sell under the said Clauses 32-(A)-2 provides that for the purpose of sale under Sub-Regulation (1) the group of assets and liabilities of the ‘Corporate Debtor’, as identified by the CoC under Sub-Regulation (2) of Regulation 32C of the CIRP Regulations, shall be sold as a going concern - the Liquidator has rightly followed the procedure specified in Regulation 32A of the Liquidation Process Regulations. It is a well settled proposition that the legality and propriety of any Regulation/Notification/Rules/Act cannot be looked into by NCLT or NCLAT. The Tribunal can only ascertain whether the procedures provided for under the Code/Companies Act, 2013 are being followed or not. The Adjudicating Authority cannot go beyond this. The sale of the ‘Corporate Debtor Company’ was carried out by the Liquidator in accordance with the Regulations and we are constrained to observe that the Adjudicating Authority, has, apart from travelling beyond its jurisdiction in making observations regarding the power and functions of framing of Regulations by IBBI - Appeal allowed. Issues Involved:1. Authorization of the Liquidator to sell the 'Corporate Debtor' as a going concern pursuant to Regulation 32 of IBBI (Liquidation Process) Regulations, 2016.2. Consistency of Regulations 39C of CIRP Regulations and 32A, 45(3) of Liquidation Process Regulations with Section 54 of the Code.3. Interpretation of the provisions of the Code and 'Liquidation Process Regulations' by the Adjudicating Authority.Issue-Wise Detailed Analysis:1. Authorization of the Liquidator to sell the 'Corporate Debtor' as a going concern:The Liquidator is authorized to sell the 'Corporate Debtor' as a going concern under Regulations 32(e) & (f) of the Liquidation Process Regulations. This is consistent with the objective of the Code, which aims to maximize asset value and minimize job losses. The Supreme Court in 'Arcelormittal India Private Limited' and 'Swiss Ribbons Private Limited & Anr.' affirmed that liquidation should be the last resort. Regulation 32A, inserted after these decisions, defines the process for such sales, and Regulation 45(3) provides for the closure of liquidation proceedings if the 'Corporate Debtor' is sold as a going concern.2. Consistency of Regulations 39C of CIRP Regulations and 32A, 45(3) of Liquidation Process Regulations with Section 54 of the Code:Section 54 of the Code does not prohibit the closure of the liquidation process if the 'Corporate Debtor' is sold as a going concern. The Code aims to maximize asset value and ensure the continuation of the 'Corporate Debtor'. The Adjudicating Authority's conclusion that Regulations 39C, 32A, and 45(3) are inconsistent with the Code is contrary to the Code's objectives. The IBBI has the jurisdiction to frame these regulations under Section 240, and they are consistent with the Code's provisions.3. Interpretation of the provisions of the Code and 'Liquidation Process Regulations' by the Adjudicating Authority:The Adjudicating Authority's interpretation that the Liquidator cannot sell the 'Corporate Debtor' as a going concern and that only dissolution is envisaged under the Code is incorrect. The Supreme Court has emphasized that liquidation should be the last resort and that every effort should be made to keep the 'Corporate Debtor' as a going concern. The Adjudicating Authority overstepped its jurisdiction by questioning the validity of the regulations framed by IBBI, which is empowered to make such regulations under Section 240 of the Code.Conclusion:The Liquidator's sale of the 'Corporate Debtor' as a going concern was carried out in accordance with the regulations. The Adjudicating Authority's order dismissing the application for closure of liquidation was set aside. The Tribunal emphasized that the Code aims to revive the 'Corporate Debtor' and that liquidation should be the last resort. The appeal was allowed, and the impugned order was set aside.