Tribunal Upheld Sale of Corporate Debtor Free from Liabilities

The Tribunal upheld the sale of the Corporate Debtor as a going concern without liabilities, including contingent liabilities, and granted the extinguishment of past/remaining unpaid outstanding liabilities after the distribution of sale proceeds as per Section 53 of the Insolvency and Bankruptcy Code, 2016. Additionally, the Tribunal granted a waiver of past non-compliances under applicable laws to aid the effective revival of the Corporate Debtor. The decision aimed to ensure the purchaser starts on a clean slate and emphasized the need to relieve the purchaser from any past liabilities for a fresh start.

---

---

Issues Involved:
1. Denial of sale of Corporate Debtor as a going concern without liabilities.
2. Extinguishment of remaining unpaid liabilities after distribution of sale proceeds.
3. Waiver of past non-compliances under applicable laws.

Detailed Analysis:

Denial of Sale of Corporate Debtor as a Going Concern without Liabilities
The Appellant, M/s Shiv Shakti Inter Globe Exports (P) Ltd., challenged the order dated 18.05.2020 by the Adjudicating Authority, which partially allowed the closure of the liquidation process of K.T.C. Foods Private Limited without its dissolution. The Appellant was aggrieved as the sale of the Corporate Debtor as a going concern was denied without any liabilities, including contingent liabilities, and without immunity from existing litigations. The Appellant argued that the principle of extinguishing any liabilities, including contingent liabilities, with immunity from existing litigation against the Corporate Debtor, was ignored by the Adjudicating Authority. The Tribunal held that when the sale proceeds of a Corporate Debtor are distributed as per Section 53 of the Insolvency and Bankruptcy Code, 2016, no other claims can be entertained. The Tribunal emphasized that the purchaser should not be burdened with past liabilities, especially those not mentioned during the CIRP or liquidation stage, to ensure the purchaser starts on a "clean slate."

Extinguishment of Remaining Unpaid Liabilities after Distribution of Sale Proceeds
The Appellant also sought the extinguishment of any remaining unpaid liabilities after the distribution of the sale proceeds as per Section 53 of the IBC. The Tribunal noted that the sale certificate issued to the Appellant explicitly mentioned that the proceeds from the sale of the Corporate Debtor as a going concern shall be allocated for payment to respective creditors in terms of Section 53 of the Code. The Tribunal agreed with the Appellant that subsequent to the sale, no other entity, including any government entity, can claim any past unpaid or outstanding dues against the Corporate Debtor. The Tribunal modified the impugned order to include the extinguishment of past/remaining unpaid outstanding liabilities, including contingent liabilities, prior to the sale as a going concern, after payment of sale proceeds distributed in accordance with Section 53 of the Code.

Waiver of Past Non-compliances under Applicable Laws
The Appellant also sought a waiver of all past non-compliances of the Corporate Debtor under applicable laws for the period prior to the e-auction. The Tribunal held that it is essential to grant necessary consequential reliefs, including the waiver of all past non-compliances under applicable laws, to ensure the effective revival of the Corporate Debtor as a going concern. The Tribunal supported this view by referring to the legislative intent to extinguish all claims to aid the purchaser of the Company as a going concern to start afresh.

Conclusion
The Tribunal allowed the appeal to the extent that the sale of the Corporate Debtor as a going concern was upheld, and the directions sought for extinguishment of past/remaining unpaid outstanding liabilities and waiver of past non-compliances were granted. The Tribunal emphasized that the purchaser should not be burdened with any past liabilities to ensure a fresh start for the Corporate Debtor as a going concern.

---