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2022 (3) TMI 13 - AT - Insolvency and BankruptcyClosure of liquidation process of the Corporate Debtor K.T.C. Foods Private Limited without dissolution of K.T.C. Foods Private Limited - denial of sale of the Corporate Debtor as a going concern - extinguishment of the remaining unpaid liabilities of the Corporate Debtor after distribution of the proceeds of the sale of Corporate debtor as a going concern as per the order of priority provided in Section 53 of the Insolvency and Bankruptcy Code, 2016 - waiver from all the past non-compliances of the Corporate Debtor under applicable laws for the period prior to the e-auction - HELD THAT - Since, no Resolution Plan was received during the CIRP, the Committee of Creditors in the meeting held on 25.04.2019 passed resolution with 100% voting rights approving liquidation of the Corporate debtor and the Ld. Adjudicating Authority after considering entire facts passed the liquidation order against the Corporate Debtor and appointed the Resolution Professional as the Liquidator - during the process, the valuation reports were obtained from two valuers and since it came to the notice of then Resolution Professional that the estimates of the values provided are significantly different, the then Resolution Professional /Liquidator in compliance with Regulation 35(1)(b) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 appointed a third valuer as approved by the Members of the CoC in the third meeting of CoC on 12.03.2019 being Crest Capital Group Private Limited and in compliance with Regulation 35(1) of the CIRP Regulations 2016, considered the average of estimates of the values. As per the summary of the valuation the fair value is fixed at 24.63 Crores and liquidation value at 18.45 Crores. The e-auction was conducted on 19.11.2019, the Appellant also participated in the e-auction and successfully bid an amount of ₹ 18,45,86,646/- being 100% of the reserve price. The Letter of Intent was issued to the Appellant on 21.11.2019 declaring the prospective bidder as successful bidder and the Appellant deposited ₹ 17,42,86,646/- after netting off the process participation deposit of ₹ 3,00,000/- and earnest money deposit of ₹ 1,00,00,000/- accordingly - It is also an admitted fact the sale certificate was issued on 26.11.2019 to the Appellant by the Liquidator wherein it was explicitly mentioned that the proceeds from sale of the Corporate debtor as a going concern shall be allocated for payment to respective creditors in terms of Section 53 of the Code. Thus, the Adjudicating Authority has erred in denying the sale of the Corporate Debtor as a going concern to the Appellant without including any contingent liabilities, we hold that it is a settled law that when the sale proceeds of a Corporate Debtor are duly distributed in the Order of priority and in the manner prescribed under Section 53 of the Code, claims of any other Creditor cannot be entertained contrary to the provisions entailed under Section 53; subsequent to the distribution of sale proceeds under Section 53 no other entity including any Government entity can claim any past unpaid or outstanding dues against the Appellant who has purchased the Corporate Debtor Company as a going concern - at this stage subsequent to the sale of the Corporate Debtor Company as a going concern , these claims cannot be foisted upon the Appellant. The scope and objective of the Code is to extinguish all claims specifically the ones which were not even made during the CIRP or in the Liquidation stage, to aid the purchaser of the Company as a going concern to start on a clean slate . The Hon ble Supreme Court in GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY VERSUS EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR ORS. 2021 (4) TMI 613 - SUPREME COURT and in COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS 2019 (11) TMI 731 - SUPREME COURT has laid down the proposition that the purchaser of the Company even in the Liquidation stage cannot be burdened with past liabilities when it is not mentioned in the Sale Notice . It is no longer Res Integra that while approving a Corporate Debtor sale as a going concern in Liquidation Proceedings without its dissolution in terms of Regulation 32(e) of the Liquidation Process Regulations, 2016, it is essential to see that the Corporate Debtor is not burdened by any past or remaining unpaid outstanding liabilities prior to the sale of the Company as a going concern and after payment of the sale proceeds distributed in accordance with Section 53 of the Code - Impugned Order is modified to the extent that the sale of the first Respondent as a going concern is upheld and the direction seeking extinguishment of past/remaining unpaid outstanding liabilities including contingent liabilities, prior to the sale as a going concern , after payment of sale proceeds distributed in accordance with Section 53 of the Code, is allowed. Appeal allowed.
Issues Involved:
1. Denial of sale of Corporate Debtor as a going concern without liabilities. 2. Extinguishment of remaining unpaid liabilities after distribution of sale proceeds. 3. Waiver of past non-compliances under applicable laws. Detailed Analysis: Denial of Sale of Corporate Debtor as a Going Concern without Liabilities The Appellant, M/s Shiv Shakti Inter Globe Exports (P) Ltd., challenged the order dated 18.05.2020 by the Adjudicating Authority, which partially allowed the closure of the liquidation process of K.T.C. Foods Private Limited without its dissolution. The Appellant was aggrieved as the sale of the Corporate Debtor as a going concern was denied without any liabilities, including contingent liabilities, and without immunity from existing litigations. The Appellant argued that the principle of extinguishing any liabilities, including contingent liabilities, with immunity from existing litigation against the Corporate Debtor, was ignored by the Adjudicating Authority. The Tribunal held that when the sale proceeds of a Corporate Debtor are distributed as per Section 53 of the Insolvency and Bankruptcy Code, 2016, no other claims can be entertained. The Tribunal emphasized that the purchaser should not be burdened with past liabilities, especially those not mentioned during the CIRP or liquidation stage, to ensure the purchaser starts on a "clean slate." Extinguishment of Remaining Unpaid Liabilities after Distribution of Sale Proceeds The Appellant also sought the extinguishment of any remaining unpaid liabilities after the distribution of the sale proceeds as per Section 53 of the IBC. The Tribunal noted that the sale certificate issued to the Appellant explicitly mentioned that the proceeds from the sale of the Corporate Debtor as a going concern shall be allocated for payment to respective creditors in terms of Section 53 of the Code. The Tribunal agreed with the Appellant that subsequent to the sale, no other entity, including any government entity, can claim any past unpaid or outstanding dues against the Corporate Debtor. The Tribunal modified the impugned order to include the extinguishment of past/remaining unpaid outstanding liabilities, including contingent liabilities, prior to the sale as a going concern, after payment of sale proceeds distributed in accordance with Section 53 of the Code. Waiver of Past Non-compliances under Applicable Laws The Appellant also sought a waiver of all past non-compliances of the Corporate Debtor under applicable laws for the period prior to the e-auction. The Tribunal held that it is essential to grant necessary consequential reliefs, including the waiver of all past non-compliances under applicable laws, to ensure the effective revival of the Corporate Debtor as a going concern. The Tribunal supported this view by referring to the legislative intent to extinguish all claims to aid the purchaser of the Company as a going concern to start afresh. Conclusion The Tribunal allowed the appeal to the extent that the sale of the Corporate Debtor as a going concern was upheld, and the directions sought for extinguishment of past/remaining unpaid outstanding liabilities and waiver of past non-compliances were granted. The Tribunal emphasized that the purchaser should not be burdened with any past liabilities to ensure a fresh start for the Corporate Debtor as a going concern.
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