2021 (3) TMI 556 - Tri - Insolvency and Bankruptcy

Liquidator of Corporate Debtor - E-auction for the Sale of the assets of the Corporate Debtor as a going concern - HELD THAT - While the Liquidation Process Regulations recognises going concern sale as one of the methods of sale, however, there is no definition as such for going concern either in the Code or in the Regulations. One advantage of the sale of the Corporate Debtor as a going concern is that the Corporate Debtor is retained, it will not be dissolved and the Corporate Debtor will be transferred along with the assets. So, the Corporate Debtor as a legal entity remains as such - The crux of the going concern sale is that the equity shareholding of the Corporate Debtor is extinguished and the acquirer takes over the undertaking with the assets, licenses, entitlements etc. The undertaking includes the business of the Corporate Debtor, assets, properties and rights etc. excluding the liabilities. However, in this case the assets that are included in the E-Auction Memorandum only have to be taken over by the Applicant. The decision to sell the Corporate Debtor as a going concern is taken by the Liquidator himself or in consultation with the Creditors / stakeholders and the proceeds from the sale of assets are going to be utilised for distribution to the Creditors in the manner specified under Section 53 of the Code. Hence all the Creditors of the Corporate Debtor get discharged and the assets are transferred free of any encumbrances. The legal entity of the Corporate Debtor however survives - In the case of sale as a going concern the Corporate Debtor will not be dissolved in terms of Section 54 of the Code. The assets with the attendant, claims, limitations, licenses, permits or business authorisations, remains in the Company. Only the ownership of the Company is acquired by the successful bidder from the Liquidator. The Applicant is permitted to bring in ₹ 40 crores as share capital and ₹ 150.90 crores as unsecured debt towards payment of sale consideration - The Applicant shall get all the rights, title and interest over whole and every part of the Corporate Debtor, including but not limited to contracts free from security interest, encumbrance, claim, counter claim or any demur. The sale consideration, when received, shall be distributed by the Liquidator in terms of the Section 53 of the Code. Application allowed.

Issues involved:
1. Sale of Corporate Debtor as a going concern.
2. Transfer of assets and liabilities.
3. Additional reliefs and concessions for smooth business operation.
4. Rights and obligations post-acquisition.
5. Extinguishment of existing shares and reconstitution of the board.
6. Continuation of licenses and contracts.
7. Compliance with statutory requirements and pending filings.
8. Benefits of brought forward losses and incentives.

Issue-wise Detailed Analysis:

1. Sale of Corporate Debtor as a going concern:
The Applicant was the successful bidder in the E-auction for the sale of the Corporate Debtor as a going concern. The sale was conducted under the Insolvency and Bankruptcy Code, 2016, and the Liquidation Process Regulations, 2016. The E-auction process memorandum specified that the sale would be on an "as is where is basis" and did not entail the transfer of any other title except the title the Company had on its assets as of the transfer date.

2. Transfer of assets and liabilities:
The sale of the Corporate Debtor as a going concern included the transfer of all current assets, employees, licenses, and liabilities post-liquidation commencement date to the successful bidder. The Liquidator confirmed the Applicant's bid of ?190.90 Crores and issued a letter of intent. The Applicant paid 25% of the sale consideration, with the remaining 75% to be paid by 11/12/2020. The Tribunal clarified that the transfer of ownership would result in the writing off of the existing shareholding and issuance of fresh equity shares to the successful bidder.

3. Additional reliefs and concessions for smooth business operation:
The Applicant sought various reliefs, concessions, and permissions essential for running the Corporate Debtor's business smoothly. These included the adjustment of sale consideration, extinguishment of liabilities, and continuation of licenses and contracts. The Tribunal acknowledged the necessity of these reliefs for the revival of the Corporate Debtor as a going concern.

4. Rights and obligations post-acquisition:
The Tribunal granted the Applicant all rights, title, and interest in the Corporate Debtor, free from security interests, encumbrances, claims, or counterclaims. The liabilities of the Corporate Debtor as of the acquisition date were extinguished, and the Applicant was not responsible for any past liabilities or pending proceedings against the Corporate Debtor.

5. Extinguishment of existing shares and reconstitution of the board:
The existing shares of the Corporate Debtor were extinguished without any payment to shareholders. The Tribunal directed the Liquidator to change the status of the Corporate Debtor from "liquidation" to "active" in the records of the Registrar of Companies. The board of the Corporate Debtor could be reconstituted as per the Companies Act, 2013, with the individuals recommended by the Applicant.

6. Continuation of licenses and contracts:
The Tribunal allowed the continuation of all existing licenses, approvals, and contracts, subject to payment of renewal fees. The Applicant was granted the right to review and terminate any contract entered into before the liquidation order date.

7. Compliance with statutory requirements and pending filings:
The Liquidator was directed to complete all pending filings with the Registrar of Companies, Income Tax Authorities, and other Government/Statutory Authorities. The Tribunal emphasized the importance of these compliances for the smooth functioning of the Corporate Debtor post-acquisition.

8. Benefits of brought forward losses and incentives:
The Corporate Debtor was entitled to the benefits of brought forward losses, subject to the permission of the appropriate authority under the Income Tax Act, 1961. The Corporate Debtor could also apply for incentives under the Package Incentive Scheme, framed by the Government of Maharashtra, subject to eligibility and norms.

Conclusion:
The Tribunal allowed the sale of the Corporate Debtor as a going concern and granted various reliefs and concessions to ensure the smooth running of the business post-acquisition. The Liquidator was directed to assist in the transition and complete all necessary compliances. The Corporate Debtor's liabilities were extinguished, and the Applicant was granted all rights and interests in the Corporate Debtor.

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