2025 (2) TMI 633 - AT - IBC

NCLAT allows appeal after going concern sale wrongly dismissed despite compliance with amended Regulation 32A(4)

NCLAT Principal Bench allowed appeal challenging dismissal of going concern sale application. CD was sold as going concern under amended Regulation 32A(4) ... Sale of the Corporate Debtor (CD) as a going concern was conducted in compliance with the amended Regulation 32A(4) of the IBBI (Liquidation Process) Regulations, 2016 - unamended provision of Regulation 32A(4) regarding the 90-day period for the sale of the CD as a going concern - applicability of clean slate theory - HELD THAT:- It is pertinent to mention that the going concern sale means selling the CD on ‘ as is where is basis’ and allows the liquidator to sell the business of the CD under liquidation alongwith all the rights, titles and interest in the CD including its legal entity which is transferred to the successful purchaser on the basis of which the successful purchaser is to carry on the business of the CD. Regulation 32A(4), before the amendment, required that the sale was to be concluded within a period of 90 days but after its amendment on 16.09.2022, which happened before the sale affected by the liquidator on 28.08.2023, it requires that the sale has to be conducted in first attempt. There is no dispute that the sale has been conducted in the first attempt and no second attempt has been taken. There is also no dispute that purchase price paid by the successful bidder is more than the reserve price. The law is well settled as has been held by this Court in the case of M/s Shiv Shakti Globe Exports Pvt. Ltd. [2022 (3) TMI 13 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] that while approving CD sale as a going concern in liquidation proceedings without its dissolution, it is essential to see that the CD is not burdened by any cost or remaining unpaid outstanding liabilities prior to the sale of the company as a going concern and after payment of the sale proceeds are distributed in accordance with Section 53 of the Code. In the present case also, as has been stated in the purshis dated 08.04.2024, which has been duly taken into consideration while passing of the order in I.A No. 950 of 2023, that not only the Regulation 32A(4) has been duly amendment on 16.09.2022 and the sale as a going concern took effect on 28.08.2023 but also the entire amount has been paid by the highest bidder and that has already been distributed to the stakeholders by the Liquidator. Conclusion - The Tribunal has clearly committed an error in dismissing the application and thus there was no occasion for the Tribunal to make an adverse observation against the liquidator as well. Petition allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:1. Whether the sale of the Corporate Debtor (CD) as a going concern was conducted in compliance with the amended Regulation 32A(4) of the IBBI (Liquidation Process) Regulations, 2016.2. Whether the Tribunal erred in relying on the unamended provision of Regulation 32A(4) regarding the 90-day period for the sale of the CD as a going concern.3. Whether the Tribunal's adverse observations against the liquidator were justified.4. The applicability of the 'clean slate' principle to the sale of the CD as a going concern, specifically concerning past liabilities.ISSUE-WISE DETAILED ANALYSIS1. Compliance with Amended Regulation 32A(4)- Relevant legal framework and precedents: Regulation 32A(4) was amended on 16.09.2022, removing the 90-day time limit for the sale of the CD as a going concern and instead requiring that the sale be conducted in the first attempt. The Tribunal's reliance on the unamended provision was contested.- Court's interpretation and reasoning: The Court found that the sale was conducted in compliance with the amended Regulation 32A(4) as it was conducted in the first attempt and the purchase price exceeded the reserve price.- Key evidence and findings: The sale was conducted on 28.08.2023, after the amendment, and the successful bidder paid the full amount, which was distributed to stakeholders.- Application of law to facts: The Court applied the amended Regulation 32A(4) to the facts, concluding that the sale was validly conducted.- Treatment of competing arguments: The Tribunal's reliance on the unamended provision was deemed erroneous as the amendment had removed the 90-day requirement.- Conclusions: The sale was conducted in compliance with the amended regulations, and the Tribunal's reliance on the unamended provision was incorrect.2. Tribunal's Adverse Observations Against the Liquidator- Relevant legal framework and precedents: The Tribunal made adverse observations against the liquidator for purportedly not conducting the sale within the 90-day period.- Court's interpretation and reasoning: The Court found that the liquidator acted in compliance with the amended regulations and that the delay was due to the non-participation of a major creditor, SBI.- Key evidence and findings: The liquidator filed a purshis indicating compliance with the amended Regulation 32A(4), and the sale was conducted in the first attempt.- Application of law to facts: The Court concluded that the liquidator's actions were justified and in compliance with the amended regulations.- Treatment of competing arguments: The Court dismissed the Tribunal's adverse observations as unfounded.- Conclusions: The adverse observations against the liquidator were unjustified.3. Clean Slate Principle and Past Liabilities- Relevant legal framework and precedents: The 'clean slate' principle, as established in precedents such as M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. and Ghanshyam Mishra & Sons Pvt. Ltd., holds that a purchaser of a CD as a going concern should not be burdened with past liabilities.- Court's interpretation and reasoning: The Court reiterated that the clean slate principle applies, and past liabilities cannot be imposed on the purchaser.- Key evidence and findings: The successful bidder paid the full bid amount, and the sale was conducted in compliance with the amended regulations.- Application of law to facts: The Court applied the clean slate principle, concluding that past liabilities cannot be claimed against the successful bidder.- Treatment of competing arguments: The Income Tax Department's claim for past dues was dismissed based on the clean slate principle.- Conclusions: The purchaser of the CD as a going concern is not liable for past dues.SIGNIFICANT HOLDINGS- The Court held that the sale of the CD as a going concern was conducted in compliance with the amended Regulation 32A(4), which requires the sale to be conducted in the first attempt.- The Tribunal's reliance on the unamended provision of Regulation 32A(4) was erroneous, and the adverse observations against the liquidator were unjustified.- The clean slate principle applies, and the purchaser of the CD as a going concern is not liable for past liabilities.- The Court set aside the impugned order and dismissed the claims for past dues against the successful bidder.