TaxTMI 
TaxTMI 
2021 (1) TMI 978
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....erest had come responding to the Invitation of Interest published, the RP, at the instance of the CoC, obtained liquidation order from this Bench. During liquidation, upon publication of E-Auction notice to sell the corporate Debtor as going-concern, the aforesaid person purchased the asset at the rate mentioned above. For the company was sold as going concern, now the liquidator is before this Bench seeking for closure of the liquidation process so that highest bidder, along with another will become directors, paid up capital shall stand reduced to Rs. 4.50 Crores divided into 45,00,00 shares of Rs. 10 each and balance consideration of Rs. 1,99,737 to be treated as unsecured loan. That the redrawn share capital, reserves and share premium, if any, to form balance sheet, shall be in compliance with other provisions of the Companies Act and other applicable laws to properly represent the purchase consideration after nullifying the debit balance of profit and Loss account from the present capital and reserves. 2. For us, this whole process has become mind boggling. We don't know where this arrangement has come from; one thing is for sure it is not compatible with the structura....
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....under sub-section (1) order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly. (3) A copy of an order under sub-section (2) shall within seven days from the date of such order, be forwarded to the authority with which me corporate debtor is registered." 4. By looking at this argument and section 54, it is clear that the mandate u/s 54 is to terminate the life of corporate debtors by dissolving them after liquidation of their assets. As against this statutory mandate, can IBBI pass Regulations directing dispensation of operation of section 54 by devising a concept not present in the Code, stating that to maximize the value of the Corporate Debtor the liquidator may sell the corporate debtor as a going concern or business of the corporate debtor as a going concern and close the liquidation process with the approval of this Adjudicating Authority bypassing dissolution mandate u/s 54? If it is selling business of the corporate debtor, we may not call for scrutiny of the Regulations because business will remain tied up with undertaking. But selling of a company is not envisaged either under IBC or....
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....egulations are flawed for many reasons, the one we immediately mention is, this Authority is not governed by IBBI, and it is governed by the Code. The Code in section 54 says after completion of liquidation process, the Corporate Debtor shall be dissolved. We must with full responsibility state that so long as Regulations are in conformity with the provisions of the Code, and for implementation of the Code as stated in section 240 (1), this Authority will approve those actions. Now the Regulations not being in conformity with the Code, we must necessarily deal with the issue to come out of this tussle. 9. Before getting into this wrangle, we shall first put it to ourselves as to whether this Adjudicating Authority/Tribunal has competency to deal with this conflict, when IBBI conferred with Regulating Power under the same enactment has regulated liquidation process in a clear mandate (Regulation 45(3)(a)) that the liquidator shall submit an application before this Authority along with final report for closure of liquidation where the corporate debtor is sold as a going concern. But aforesaid regulation is repugnant to the mandate u/s 54, because after liquidation of the assets of....
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....tioned as "as specified by the Board or in such manner as may be specified or prescribed". The point to remember is, it is for supplementation, not for supplantation. 14. To know what the relevant statutory provisions are saying, we shall reproduce all those provisions, which are as follows: 'Section 196 Powers and Functions of the Board 196. (1) The Board shall subject to the general direction of the Central Government, perform all or any of the following functions namely:- (a) register insolvency professional agencies, insolvency professionals and information utilities and renew, withdraw, suspend or cancel such registrations; (aa) promote the development of, and regulate, the working and practices of, insolvency professionals, insolvency professional agencies and information utilities and other institutions, in furtherance of the purposes of this Code; (b) specify the minimum eligibility requirements for registration of insolvency professional agencies, insolvency professionals and information utilities; (c) levy fee or other charges for carrying out the purposes of this Code, including fee for registration and renewal....
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....cy professional agencies, insolvency professionals and information utilities at such intervals as may be specified by the Board; (s) specify mechanisms for issuing regulations, including the conduct of public consultation processes before notification of any regulations; (t) make regulations and guidelines on matters relating to insolvency and bankruptcy as may he required under this Code, including mechanism for time bound disposal of the assets of the corporate debtor or debtor; and (u) perform such other functions as may be prescribed. (2) The Board may make model bye-laws to be to adopted by insolvency professional agencies which may provide for- (a) the minimum standards of professional competence of the members of insolvency professional agencies; (b) the standards for professional and ethical conduct of the members of insolvency professional agencies; (c) requirements for enrolment of persons as members of insolvency professional agencies which shall be non-discriminatory; Explanation.-For the purposes of this clause, the term "non-discriminatory" means lack of discrimination on the grounds of religion, ....
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.... 240. Power to make Regulations. (1) The Board may, by notification, make regulations consistent with this Code and the rules made thereunder, to carry out the provisions of this Code. (2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely: - (a) the form and the manner of accepting electronic submission of financial information under sub-clause (a) of clause (9) of section 3; (b) the persons to whom access to information stored with the information utility may be provided under sub-clause (d) of clause (9) of section 3; (c) the other information under sub-clause (f) of clause (13) of section 3; (d) the other costs under clause (e) of sub-section (13) of section 5; (e) the cost incurred by the liquidator during the period of liquidation which shall be liquidation cost under sub-section (16) of section 5; (f) the other record or evidence of default under clause (a), and any other information under clause (c), of sub-section (3) of section 7; [(g) * * * ] (h) the period under clause (a) of su....
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.... 29; (v) the other matter pertaining to the corporate debtor under the Explanation to sub-section (2) of section 29; (w) the manner of making payment of insolvency resolution process costs under clause (a), the manner of [payment of debts] under clause (b), and the other requirements to which a resolution plan shall conform to under clause (d), of sub-section (2) of section 30; [(wa) other requirements under sub-section (4) of section 30;] (x) the fee for the conduct of the liquidation proceedings and proportion to the value of the liquidation estate assets under sub-section (8) of section 34; (y) the manner of evaluating the assets and property of the corporate debtor under clause (c), the manner of selling property in parcels under clause (f), the manner of reporting progress of the liquidation process under clause (n), and the other functions to be performed under clause (o), of sub-section (1) of section 35; (z) the manner of making the records available to other stakeholders under sub-section (2) of section 35; (za) the other means under clause (a) of sub-section (3) of section 36; (zb) the other assets un....
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.... professional agencies, insolvency professionals and information utilities under clause (r), and mechanism for disposal of assets under clause (t), of sub-section (1) of section 196; (zw) the place and the time for discovery and production of books of account and other documents under clause (i) of sub-section (3) of section 196; (zx) the other committees to be constituted by the Board and the other members of such committees under section 197; (zy) the other persons under clause (b) and clause (d) of section 200; (zz) the form and the manner of application for registration, the particulars to be contained therein and the fee it shall accompany under sub-section (1) of section 201; (zza) the form and manner of issuing a certificate of registration and the terms and conditions thereof under sub-section (3) of section 201; (zzb) the manner of renewal of the certificate of registration and the fee therefor, under sub-section (4) of section 201; (zzc) the other ground under clause (d) of sub-section (5) of section 201; (zzd) the form of appeal to the National Company Law Appellate Tribunal, the period within which ....
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.... (zzx) the manner and the time within which financial information may be updated or modified or rectified under section 216; (zzy) the form, manner and time of filing complaint under section 217; (zzz) the time and manner of carrying out inspection or investigation under sub-section (2) of section 218; (zzza) the manner of carrying out inspection of insolvency professional agency or 149 insolvency professional or information utility and the time for giving reply under section 219; (zzzb) the procedure for claiming restitution under sub-section (6), the period within which such restitution may be claimed and the manner in which restitution of amount may be made under sub-section (7) of section 220; (zzzc) the other funds of clause (c) of sub-section (1) of section 222. 15. If these two provisions are read together, it could be understood that Section 196 is to confer powers and functions upon IBBI, section 240 is to confer upon IBBI general power (sub-section 1) to regulate and particular power (sub-section 2) to regulate the areas mentioned in sub-section-2. If section 240 (2) regulating powers are read along with other provisions....
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.... of the Code. In Kerala Samsthana Chethu Thozhilali Union v. State of Kerala [2006] 4 SCC 327, it has been held as follows: "17. A rule is not only required to be made in conformity with the provisions of the Act where under it is made, but the same must be in conformity with the provisions of any other Act, as a subordinate legislation cannot be violative of any plenary legislation made by the Parliament or the State Legislature. ** ** ** 37. Furthermore, the terms and conditions which can be imposed by the State for the purpose of parting with its right of exclusive privilege more or less has been exhaustively dealt with in the illustrations in sub-section (2) of section 29 of the Act There cannot be any doubt whatsoever that the general power to make rules is contained in sub-section (1) of section 29. The provisions contained in sub-section (2) are illustrative in nature. But, the factors enumerated in sub-section (2) of Section 29 are indicative of the heads under which the statutory framework should o....
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....ies after enactment, that too without power, the inbuilt balance will be lost. 23. If any study is made by a recommending agency like the Law Commission or Committee set up to look into the efficacy of the enactment, it will recommend to the legislature. In this process, if any particular provision is found not workable and the result is not in conformity with the purpose and object of the enactment, it has to go back to the maker. Repairing is not the job of Regulating Authority. In fact, the Regulating Authority or Rule Making Authority shall provide a support system for effective implementation of the provisions of the Code, not to travel beyond the line of control. 24. In Section 196 (t) & (u) of the Code in clause (t), power is given to make regulations and guidelines on matters relating to insolvency and bankruptcy as may he required under this Code, including mechanism for time bound disposal of the assets of the corporate debtor or debtor; and (u) perform such other functions as may be prescribed. 25. If these two clauses are read, it is apparent that time bound mechanism shall be framed for disposal of the assets of the corporate debtor and under clause (u), IBBI ....
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....53 envisages sale of the Corporate Debtor. When section itself has not conferred any right to sale of the Corporate Debtor, where is the question of IBBI setting out a new concept of sale of Corporate Debtor without any support of any of the sections of IBC. 29. What all we say is, in section 240 (2), regulating power is given to bring in supplementary procedure with regard to the sections mentioned therein, but not to the sections not mentioned in sub-section 2 of section 240. Section 54 is not included in section 240 (2) of the Code In section 54 also, it has not been mentioned "as specified by the Board or in such manner as may be specified or prescribed". When no discretion is given to IBBI to help out in implementation of section 54 of the Code, it should not have given an unsolicited go-by to the dissolution in the case of a business sold as a going concern. 30. In the follow up, if Regulations relating to Realization of assets (Chapter VI) is examined, the heading given is Realization of Assets, not realization of claims. It is realization of the assets of the Corporate Debtor, therefore whatever mechanism given there, it shall be only relating to realization of assets....
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....he event the corporate debtor goes into liquidation, on this premise the liquidator shall identify and group the assets and liabilities and ought to be sold as going concern, this RP shall place it before this Adjudicating Authority. CIRP Regulation 39C is as follows: 39C. Assessment of sale as a going concern. (Inserted on 25-7-2019) (1) While approving a resolution plan under section 30 or deciding to liquidate the corporate debtor under section 33, the committee may recommend that the liquidator may first explore sale of the corporate debtor as a going concern under clause (e) of regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 or sale of the business of the corporate debtor as a going concern under clause (f) thereof, if an order for liquidation is passed under section 33. (2) Where the committee recommends sale as a going concern, it shall identify and group the assets and liabilities, which according to its commercial considerations, ought to be sold as a going concern under clause (e) or clause (f) of regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulatio....
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....m efforts to derive maximum value from the corporate debtor. The ground reality is if value is there in the company and if the company can be run as going concern, people will come forward to take it as going concern. When the company has failed to resume its strength as a going concern after making all efforts, it will go to liquidation. When effort in the first phase has not yielded results, another window is left open in the liquidation stage to reorganize or amalgamate or merge the company through a scheme u/s 230-232 of the Companies Act 2013. There also if the company failed to reequip as a going concern, asset or undertaking could be sold as going concern, but not the corporate debtor itself. Assets could be valued and sold as going concern. Even in the case of selling the business as one lot, employees could be protected and other rights could also be protected. Selling assets or undertakings shall not stretch out to the sale of the corporate debtor. If this process of sale of the corporate debtor is approved, it will become third window, besides that, it is in violation of company concept. In fact IBBI has made it almost like a mandate to try for sale of the....