Clean slate principle protects a going-concern purchaser from antecedent prosecution notices after liquidation.

A company sold as a going concern after liquidation could not be burdened with pre-transfer liabilities or prosecution for alleged antecedent defaults, because the clean slate principle and Section 32A of the Insolvency and Bankruptcy Code protected the purchaser from carrying forward such liabilities. The Court also found that the NCLT-approved sale and transfer order, together with the terms of sale, covered the alleged post-acquisition issues relied on in the notices. As the authority had already formed a concluded view on prosecution despite earlier detailed replies, the impugned show cause notices were held unsustainable and were quashed.

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Issues: Whether the impugned show cause notices proposing prosecution could be sustained against a company that had undergone liquidation and was sold as a going concern to new management, and whether the petitioner could still be fastened with liability for alleged pre and post-acquisition violations.

Analysis: The company had undergone liquidation and was sold as a going concern under the liquidation regulations, with approval of the sale and transfer by the NCLT. The Court treated liquidation as resulting in a civil death of the erstwhile corporate debtor, with only the corporate identity revived for the new management. Applying the clean slate principle and the scope of Section 32A of the Insolvency and Bankruptcy Code, 2016, the Court held that liabilities and alleged defaults arising before the change in management could not be carried over to the purchaser of the going concern. The Court further held that even the alleged post-acquisition issues were covered by the NCLT approval order and the terms of sale, and that repeated prior notices had already elicited detailed replies. Since the impugned notices showed that the authority had already made up its mind to prosecute, no useful purpose would be served by requiring another response.

Conclusion: The show cause notices were unsustainable and liable to be quashed; the petitioner succeeded.

Final Conclusion: The writ petitions were allowed and the impugned prosecution notices were set aside, leaving the petitioner free from the threatened proceedings arising out of the alleged violations.

Ratio Decidendi: A company sold as a going concern after liquidation cannot be burdened with antecedent liabilities or prosecution for pre-transfer defaults, and where the authority has already formed a concluded view, the impugned notice can be interfered with.

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