TaxTMI 
TaxTMI 
2021 (8) TMI 1000
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....r closure of the Liquidation Process as per Regulation 45(3)(a) of IBBI Liquidation Process Regulations, 2016 (hereinafter referred to as the 'Liquidation Process Regulations'), as the 'Corporate Debtor' was being sold as a going concern in the e-Auction held on 20.11.2019 declaring Mr. Vijay Verma/the first Respondent as the highest bidder at a bid price of Rs. 4,51,99,713/-. By the Impugned Order, the Adjudicating Authority has dismissed this I.A. observing as follows:- "32. On reading this CIRP Regulation, it appears at the outset, an effort has been strenuously made to rewrite IBC without amendment to the Code- the reasons for saying so is- "1. Foremost hurdle is, this Regulation is a new concept not backed by any provision of law in IBC. The Regulating Authority cannot stretch its muscle beyond its strength, if it does so, it is exercising jurisdiction not contemplated under IBC. No mention about this arrangement either in section 28 or section 30 or any other section of the Code. 2. The CIRP process is separate and the liquidation process is separate. Separate yardsticks have been set up by the Code. 3. How CoC, which would not remain in ex....
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....ocess 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 company as a going concern. Is it that this process has to continue until the corporate debtor is sold as a going concern? If this is permitted, tomorrow somebody may suggest something else. Where is the end for it? It is a policy decision- which cannot be taken by IBBI particularly when no such concept is contemplated under the Code and more particularly when section explicitly given a mandate for dissolution. 11. In most of the cases, these companies remain as going concerns on the records of RoC, but if ground situation is taken into account, these companies are gone cases, companies where only two computers, or companies with one landed property. Not really any business, except in a few companies. 12. The benefit in these liquidation cases mostly go to the buyer, because real value of the asset will not come out, only distress value will come out in the form of liquidation value, in most cases will be far less than real market value or entrepreneur value. ....
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....her window under liquidation through Sec. 230 of the Companies Act, 2013, therefore there cannot be any other procedure which is militating the procedure set out under the code. Accordingly, this IA 1940/2020 is hereby dismissed as misconceived." 2. The main issues which arise for consideration are:- Whether the Liquidator is authorized to sell the 'Corporate Debtor' as a going concern pursuant to Regulation 32 of IBBI (Liquidation Process) Regulations, 2016. Whether Adjudicating Authority was correct in concluding that Regulations 39C of CIRP Regulations and 32A, 45(3) of the Liquidation Process Regulations are inconsistent with Section 54 of the Code. Whether the 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. Submissions on behalf of Learned Counsel appearing for Appellant/ Liquidator: 3. The Learned Sr. Counsel submitted as follows:- The Learned Adjudicating Authority has failed to appreciate that the Liquidator is authorized to sell the 'Corporate Debtor' or its business as a going concern pursuant to Regulations 32(e)....
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....e Liquidation Process Regulations; that Regulation 39C was inserted in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons), Regulations, 2016, with effect from 25.07.2019, but, by then the Application under Section 33 of the Code seeking Liquidation of the 'Corporate Debtor' had already been filed before the Adjudicating Authority and therefore passing of Resolution of CoC under Regulation 39C was not possible. The Adjudicating Authority has erroneously rejected I.A. No. 1490 of 2020 on the ground that Regulation 32A and 45(3) are inconsistent with the Code and framed without jurisdiction by IBBI. Learned Sr. Counsel drew our attention to the Notice issued by this Tribunal on 28.09.2020, wherein the Impugned Order was stayed only to avoid the death of the 'Corporate Debtor'. 4. Submissions on behalf of the Learned Counsel appearing for the first Respondent/Successful Bidder: The auction was successfully conducted on 20.11.2019, the first Respondent/Mr. Vijay Verma emerged as the highest successful bidder at a bid price of Rs. 4,51,99,737/- and was immediately intimated by the Liquidator to execute the sale document. The ....
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....e Code is an economically beneficial Legislation which aims to put the 'Corporate Debtor' back on its feet maximizing the value of assets of the 'Corporate Debtor' and promotes entrepreneurship. The long title to the legislation indicates the objective:- "An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and bankruptcy Board of India, and for matters connected therewith or incidental thereto." (Emphasis Supplied) 7. The regime under the IBC is positively progressive as can be seen from several amendments that were brought forth. Having regard to the observations made by the Adjudicating Authority in the Order impugned, we find it significant to detail the discussion by IBBI on this issue. 8. Discussion Paper dated 30.01.2019 on 'Corporate Liquidation Process by IBBI:- "A.....
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....r, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order ...." 2.7 The Companies Act, 2013 (Act) envisages compromise or arrangements. Section 230 thereof, as amended by the Code, enables compromise or arrangement on the application by a liquidator appointed under the Code, as under: "230. Power to compromise or make arrangements with creditors and members.- (1) Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs...." ....2.15 The Bankr....
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.... a viable business. It minimises disruption to business and prevents loss of employment. The law enables broadly two options in this regard: 3.1 Compromise or arrangement under section 230 of the Companies Act, 2013: If there is a proposal for a compromise or arrangement, the Liquidator should make an application to the NCLT under the Act (not the Adjudicating Authority under the Code) and then proceed in the manner directed by the NCLT in accordance with the Act. While compromise or arrangement under section 230 of the Act is proposed, it must be utilised first and only on its failure, liquidation under the Code should commence. The Code read with regulations may provide that where a credible proposal is made to the Liquidator under section 230 of the Act for compromise or arrangement of the CD within three days of the date of order under section 33 of the Code for liquidation, the Liquidator shall file an application under the said section within seven days of the order of liquidation. If approved by the NCLT, the Liquidator shall complete the process under section 230 within 90 days of the order of liquidation. The Regulations may provide that liquidation process under ....
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....e Act and the Code have some common threads: 4.1 Employment: In terms of section 33(7) of the Code, the order for liquidation is deemed to be a notice of discharge to the officers, employees and workmen of the CD, except when the business of the CD is continued during the liquidation process by the Liquidator. Section 35(1)(e) allows the Liquidator to carry on the business of the CD for its beneficial liquidation. Since both the options require continuation of business in beneficial interest, the employees may not be discharged. They should be transferred along with the CD or the business of the CD. 4.2 Continuation of Going Concern: The issue of an order under section 33 of the Code for liquidation does not mean cessation of business immediately. The classic jurisprudence of liquidation laws suggests that the Liquidator can keep the entity as a going concern for the benefit of stakeholders. Even section 35 (1) (e) of the Code requires the Liquidator to carry on the business of the CD for its beneficial liquidation as he considers necessary. He may carry on business to the extent necessary for realization of better value from GCS..........." (Emphasis Sup....
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....he liquidator may (a) sell an asset on a standalone basis; or (b) sell (i) the assets in a slump sale, (ii) a set of assets collectively, or (iii) the assets in parcels; or (c) sell the corporate debtor as a going concern." 7. Stakeholders have been expressing difficulty as to how to use the option to sell the CD as a going concern. A round table was held with them on 21st May, 2018 to understand the difficulties in selling the CD as a going concern. Several challenges were brought up. Section 52 read with section 33 (5) allows a secured creditor option to (i) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or (ii) realise its security interest in the manner specified in section 52 of the code read with regulation 37. Thus, a secured creditor may opt to realise its security interest outside the liquidation, foreclosing the option of sale of CD as a going concern by the liquidator. In order to sell the CD as a going concern in liquidation process, either the secured creditors opt in favour of relinquishing the....
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....ance with section 53 from the liquidation bank account, and (f) Protection of the intended buyer from all claims and liabilities pertaining to the period prior to the sale of the CD as a going concern. In such a case, the final report of liquidator, as required under clause (3) of regulation 45, shall form part of the application for the closure of the liquidation process of the CD and not for the dissolution of the CD to the AA to be made under section 54." (Emphasis Supplied) The Law laid down by the Hon'ble Supreme Court on 'Sale of 'Corporate Debtor' as a going concern': 11. The Hon'ble Supreme Court in 'M/s. Innoventive Industries Ltd.' Vs. 'ICICI Bank and Anr.', Civil Appeal Nos. 8337-8338 of 2017 has observed as follows:- From the viewpoint of creditors, a good realization can generally be obtained if the firm is sold as a going concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realization is lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay." (Em....
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....that if there is a Resolution Applicant who can continue to run the 'Corporate Debtor' as a going concern, every plausible effort must be made to ensure the same. 14. The Hon'ble Supreme Court in 'Swiss Ribbons Private Limited & Anr.' (Supra) in paras 27 & 28 has reiterated the same principle:- "27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate d....
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....mitted is not up to the mark and even in Liquidation, the Liquidator can sell the business of the 'Corporate Debtor' as a 'going concern'. 16. Regulations 32A and 45(3) which were inserted in the Liquidation Process Regulations subsequent to 'Arcelormittal India Private Limited' (Supra) and 'Swiss Ribbons Private Limited & Anr.' (Supra) specifically define the process for sale of 'Corporate Debtor' or its business as a going concern. 17. This Tribunal in the matter of 'S.C. Sekaran' Vs. 'Amit Gupta & Ors.' in Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018, directed as under:- " .. we direct the 'Liquidator' to proceed in accordance with law. He will verify claims of all the creditors; take into custody and control of all the assets, property, effects and actionable claims of the 'corporate debtor', carry on the business of the 'corporate debtor' for its beneficial liquidation etc. as prescribed under Section 35 of the I&B Code.... Before taking steps to sell the assets of the 'corporate debtor(s)' (companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so required, will pass appropr....
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....e corporate debtor as a going concern; or (f) the business(s) of the corporate debtor as a going concern: Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate." (Emphasis Supplied) 22. Regulation 32-A(1) stipulates:- "32A. Sale as a going concern. (1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where 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 first sell under the said clauses." Regulation 32-A(1) emphasizes the importance placed on the transfer of the 'Corporate Debtor' or its business on a going concern basis. 23. Regulation 45(3) of Liquidation Process Regulations and 39C of the CIRP Regulations, the main subject matter of the Order impugned, read as follows:- "45. Final report prior to dissolution. (3) [The liquidator shall submit an application along with the final report and the compliance certificate....
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....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. As can be seen from the agenda filed before us by way of on Affidavit by IBBI, Regulation 45(3) and Regulation 39C were inserted by IBBI to facilitate/strengthen the objectives of the Code. Any Order of dissolution is completely unnecessary in such cases. Having regard to the fact that the Code does not prevent the closure of Liquidation Process in the instance the 'Corporate Debtor' is sold as a going concern pursuant to Regulation 32(e) following a closure report filed under Regulation 45(3)(a) of the Liquidation Process Regulations it would be contradictory to observe that closure of Liquidation Proceedings cannot be done and only dissolution is provided for under the Code. This would demolish the very spirit and objective of the Code. It can be safely construed that before the completion of 270 days, if no decision under Regulation 39C is taken by the CoC, only Regulation 32A is to be followed. Additionally, in t....