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2022 (5) TMI 1459 - Tri - Insolvency and BankruptcyAuction - sale of corporate debtor - Whether the sale of the Corporate Debtor as a going concern under the Code and the Regulations includes both assets and liabilities or assets alone without any liabilities? - HELD THAT - The issue whether the sale of the Corporate Debtor as a going concern includes assets and liabilities or assets alone is no longer res-integra. The Hon'ble NCLAT in M/S. VISISTH SERVICES LIMITED VERSUS S.V. RAMANI, UNITED CHLORO PARAFFINS PRIVATE LTD., STATE BANK OF INDIA 2022 (1) TMI 460 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI in the similar circumstances of the present case on hand, where it was held that Sale of a Company as a 'Going Concern' means sale of both assets and liabilities, if it is stated on 'as is where is' basis. In the present case on hand, the application is filed by auction purchaser himself seeking the declaration without distribution of the liquidation proceeds to the creditors and before issuing sale certificate and possession of the Corporate Debtor. In addition to this, the liquidator in this case clearly put the Applicant on notice that sale of the Corporate Debtor as going concern as is where is' basis and the Applicant is duty bound to make due diligence with regard to the local taxes/maintenance fees/electricity expenses/water charges etc., outstanding as on date or yet to fall due in respect of the relevant asset should be ascertained by the E-Auction process applicant and would be borne by the successful bidder. The Applicant is not entitled for the relief sought for - application disposed off.
Issues Involved:
1. Whether the sale of the Corporate Debtor as a going concern under the Code and the Regulations includes both assets and liabilities or assets alone without any liabilities? Issue-wise Detailed Analysis: 1. Nature of Sale of Corporate Debtor as a Going Concern: The primary issue to be decided was whether the sale of the Corporate Debtor as a going concern includes both assets and liabilities or merely assets without liabilities. Applicant's Position: The Applicant, the successful auction purchaser, contended that he should not be responsible for any claims, liabilities, or obligations of the Corporate Debtor as of the date of the auction. He argued that the e-auction process documents did not mention any liabilities, and thus, he should not be forced to assume them. The Applicant relied on the precedent set by the NCLT, Mumbai in the case of Topworth Pipes and Tubes Pvt. Ltd., where similar concessions were granted. Liquidator's Position: The Liquidator opposed the Application, arguing that the sale was conducted as per Regulation 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, which includes both assets and liabilities. The Liquidator emphasized that the e-auction notice and process documents clearly indicated the sale of the Corporate Debtor as a going concern, which inherently includes liabilities. The Liquidator also highlighted that the Applicant had been duly notified of the liabilities and was required to conduct due diligence. Tribunal's Analysis: The Tribunal referred to multiple precedents to resolve the issue. The Hon'ble NCLAT in the case of M/s. Visisth Services Limited Vs. S.V. Ramani had held that the sale of a Corporate Debtor as a going concern includes both assets and liabilities. The Tribunal noted that the sale as a going concern means the transfer of the entire business, including all its assets and liabilities, as specified in Regulation 32A. The Tribunal also considered the judgment in M/s. Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s. KTC Foods Private Limited, where the NCLAT had observed that the sale of a Corporate Debtor as a going concern did not include liabilities. However, the Tribunal distinguished this case based on its specific circumstances, where the sale proceeds had already been distributed as per Section 53 of the Code. The Tribunal emphasized that in the present case, the sale certificate had not yet been issued, and the liquidation proceeds had not been distributed. The Applicant was also put on notice regarding the liabilities, and the bid documents clearly stated that the successful bidder would bear any dues, statutory or otherwise. Conclusion: The Tribunal concluded that the sale of the Corporate Debtor as a going concern includes both assets and liabilities. The Applicant's request for relief from liabilities was dismissed. The Tribunal reiterated that the Applicant had given up other reliefs, and thus no further discussion was needed on those aspects. Final Order: The Application was dismissed, affirming that the sale of the Corporate Debtor as a going concern includes both assets and liabilities.
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