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2021 (3) TMI 1310 - AT - Insolvency and BankruptcyAs per Bansi Lal Bhat J. (Actg. Chairperson) Acquisition of Unit No. 1 of Corporate Debtor - acquisition on as is where is basis as is what is basis whatever there is basis - whether this acquisition implies acquisition of all the liabilities thereon? - It is contended that the impugned order is without jurisdiction and after issuance of Sale Certificate and delivery of possession to Appellant-auction purchaser the property in question no longer remained the property of the Corporate Debtor. Whether the liability in respect of the workers and employees and other liabilities pertaining to Unit No. 1 of the Corporate Debtor sold under the Act 2002 prior to commencement of CIRP are the liability of Corporate Debtor or the Appellant-auction purchaser? - HELD THAT - The Appellant-auction purchaser had accepted the acquisition of Unit No. 1 subject to condition of as is where is basis as is what is basis whatever there is basis and being fully aware of the nature of liabilities passing on to it in consequence of such sale besides being aware of the issuance of demand notice by Respondent No. 2- Rashtriya Anil Steel Majdoor Sangh thus the liabilities said to have been acquired by the Appellant in terms of the impugned order cannot be held to be an erroneous conclusion warranting interference. The impugned order does not suffer from any legal infirmity and factual frailty. The appeal lacks merit and is dismissed. As per V.P. Singh Member (T) Whether the Adjudicating Authority under the I B Code 2016 has jurisdiction to determine a bona fide auction purchaser s liability under the SARFAESI Act s provision when the property had been sold and sale certificate was issued before the commencement of CIRP of the Corporate Debtor? - Whether the Adjudicating Authority can decide the liabilities of a third party auction purchaser which had no role in the Corporate Debtor s Resolution Process and did not fall under the ambit of avoidance transactions as outlined under Sec. 44 45 under Section 60(5) of the Code? - Whether the Sale of only Part of the Assets of the Corporate Debtor under the SARFAESI Act can be considered the Sale of a Company (or Part thereof) as a going concern to make the purchaser liable for workmen s dues? - HELD THAT - It is pertinent to mention that based on the chronology of events it is clear that the Allahabad Bank auctioned immovable property along with plant and machinery of Unit - 1 of the Corporate Debtor ASSIL under SARFAESI Act 2002 and the Sale Certificate was issued on 9 February 2018. CIRP commenced against the Corporate Debtor ASSIL on 5 March 2018. The most important question that arises for our consideration is whether the Adjudicating Authority while exercising its powers under the I B Code 2016 had any authority to fasten the liability of the Corporate Debtor on the auction purchaser whom the property was sold before the commencement of CIRP - Section 18(1)(f)(vi) have made the task of the Interim Resolution Professional in taking control and custody of an asset over which the Corporate Debtor has ownership rights subject to the determination of ownership by a court or other authority. An asset owned by a third party but which is in possession of the Corporate Debtor under contractual arrangements is kept explicitly out of the definition of the term assets under the Explanation to Section 18. Insolvency and Bankruptcy Code is complete in itself. Section 18 deals with the duties of Interim Resolution Professional. Sub-section (f) to Section 18 of the Code provides that IRP can take control and custody of any asset; the Corporate Debtor has ownership and is recorded in the corporate debtor balance sheet. Sub-section (vi) to Section 18 authorises the IRP to take over assets subject to the determination of ownership by a Court or Authority. In the instant case on 5 March 2018 when CIRP commenced against the Corporate Debtor ASSIL the IRP was authorised to take over its assets. But the property which was already sold/auctioned before initiation of the CIRP and Sale Certificate dated 9 February 2018 was finally issued in pursuance of the Order of the Senior Civil Judge Court and Chief Metropolitan Magistrate Court Jaipur was not the property of the Corporate Debtor. The auction purchaser was a third party which had no concern with the Corporate Insolvency Resolution Process of the Corporate Debtor ASSIL. Thus the corporate Debtor s liability can t be fastened on the third party which happens to be a stranger to the CIRP of the Corporate Debtor and that too by exercising powers as an Adjudicating Authority u/s. 60(5) of the I B Code 2016. In the instant case Allahabad Bank is a secured creditor of ASSIL which has auctioned the secured assets of the Corporate Debtor. There is not an iota of doubt that the alleged auction sale was under SARFAESI Act. Therefore the Adjudicating Authority/National Company Law Tribunal had no authority to fasten the Corporate Debtors liability on the auction purchaser. In the case where the Sale is made under the SARFAESI Act then after completing the sale process and issuance of the Sale Certificate the Adjudicating Authority had no authority to pass an order U/s. 60(5) of the Code. The Adjudicating Authority under the I B Code 2016 had no jurisdiction to determine a bona fide auction purchaser s liability under the SARFAESI Act s provisions; the same has been purchased before the commencement of CIRP of the Corporate Debtor - while exercising its power u/s. 60(5) of the Code the Adjudicating Authority has exceeded its jurisdiction in determining a third party s liabilities which had no role in the Corporate Debtor s Insolvency Resolution Process. Appeal allowed. The majority view authored by separate judgment brother Hon ble Acting Chairperson Justice B.L. Bhatt shall prevail.
Issues Involved:
1. Whether the liability in respect of the workers and employees and other liabilities pertaining to Unit No. 1 of the Corporate Debtor sold under the SARFAESI Act, 2002 prior to the commencement of CIRP are the liability of the Corporate Debtor or the Appellant-auction purchaser. 2. Jurisdiction of the Adjudicating Authority under the IBC to determine liabilities of a third-party auction purchaser under SARFAESI Act. 3. Whether the sale of only part of the assets of the Corporate Debtor under the SARFAESI Act can be considered the sale of a company as a going concern to make the purchaser liable for workmen’s dues. Issue-wise Detailed Analysis: 1. Liability of Workers and Employees: The Appellant contended that it is the auction purchaser of the property sold by Allahabad Bank under the SARFAESI Act before the initiation of CIRP against the Corporate Debtor. The sale was conducted on an "as is where is basis" and the property was sold free from all encumbrances. The Adjudicating Authority determined that the liabilities towards workmen and employees, as well as other statutory liabilities, were to be borne by the Appellant-auction purchaser. The Authority found that the Allahabad Bank had made it clear to the Appellant that the acquisition of Unit No. 1 was on an "as is where is basis," implying that it included all liabilities. This finding was challenged by the Appellant as erroneous and unsustainable. 2. Jurisdiction of Adjudicating Authority: The Appellant argued that the Adjudicating Authority under the IBC had no jurisdiction to pass orders in relation to prior transactions except as provided under Sections 44-45 of the IBC. It was contended that the property was sold free from all encumbrances and the Appellant acquired only the property and not the company, hence the liabilities of the Corporate Debtor could not be fastened upon the Appellant. The Respondent argued that the Adjudicating Authority alone had the jurisdiction to decide upon the claims against the Corporate Debtor and determine whether the liabilities were payable by the auction purchaser or continued to be admissible against the Corporate Debtor. 3. Sale of Assets as Sale of Company: The Appellant contended that the sale of Unit No. 1 was not the sale of the company as a going concern, and therefore, it should not be liable for the workmen’s dues. The Respondent argued that the sale was conducted on an "as is where is basis," and the Appellant was aware of the liabilities before participating in the auction. The sale notice and subsequent correspondence made it clear that the auction purchaser was liable for the statutory dues. Judgment Analysis: The Tribunal concluded that the Appellant-auction purchaser had accepted the acquisition of Unit No. 1 subject to the condition of "as is where is basis" and was fully aware of the liabilities passing on to it. The impugned order saddling the Appellant with the liability to bear all claims of the workers and employees was upheld. The majority judgment dismissed the appeal, stating that the Adjudicating Authority had the jurisdiction to determine the liabilities and the Appellant could not unilaterally back out of such liability. Separate Judgment: A dissenting opinion by one of the members argued that the Adjudicating Authority under the IBC had no jurisdiction to determine the liability of a bona fide auction purchaser under the SARFAESI Act when the property was sold before the commencement of CIRP. It was held that the Adjudicating Authority exceeded its jurisdiction in determining the liabilities of a third party, and the sale of assets should not be considered the sale of a company as a going concern. The dissenting opinion suggested that the appeal should be allowed and the impugned order set aside. However, the majority view prevailed, and the appeal was dismissed.
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