2020 (10) TMI 769 - Tri - Insolvency and Bankruptcy

Approval of the sale of Corporate Debtor as a going concern to M/s. Geosoft Distributors Private Limited by way of private sale without any liabilities and with immunity from existing litigations, if any, against the Corporate Debtor - private sale be allowed to be distributed as per order of priority specified in Section 53 of the Insolvency and Bankruptcy Code, 2016 and remaining outstanding liabilities be extinguished - HELD THAT - It is worth noting that no valuation by any of the valuers of licences/brand owned by the Corporate Debtor has been done although it is being sought to be transferred. Legal validity of the proposal made by the liquidator - HELD THAT - First of all, sale of Corporate Debtor as a going concern without transfer of liabilities is not in consonance with the provisions of Regulation 32A(3) read with Regulation 32(e) (f), hence, for this reason alone it is not acceptable and thus, rejected. The pleas made by the Liquidator as regards the continuance of licences in the name of the Corporate Debtor, waiver of penalties/other penal actions in relation to non-compliance by the Corporate Debtor etc. are outside jurisdiction of Adjudicating Authority - Further, there are no specific provisions like Section 30 of IBC, 2016 as applicable to approval of resolution plan, hence, in liquidation, approval of sale of assets by Adjudicating Authority cannot empower the buyer of the assets to have such benefits. In this regard, we are further of the view that the moment liquidation is ordered, any proceedings under any law can continue which had been pending before the order of liquidation being passed. This is as per the provisions of Section 33(5) of IBC, 2016. Hence, such pleas made by liquidator are rejected. Sale as a going concern involves transfer of both assets and liabilities or group of assets or liabilities which are clubbed together. The purpose of such clubbing is that the business entity should continue along with its employees. Further, sale of a going concern essentially involves slump sale wherein no specific values are assigned to individual assets and undertaking is sold as a whole along with the liabilities. However, in the present case, only tangible assets have been valued on individual basis. Thus, from this angle also, the proposal made by the Ld. Liquidator is not in accordance with the generally accepted practices, hence, rejected. Further, if the liabilities are excluded and the valuation of the Corporate Debtor is done on the basis of only tangible assets, then, even though the consideration is apparently more than the reserve price, but in real sense, it is equivalent to giving the entity on a platter to the prospective buyer. In the present case, it is not in dispute that the valuation of the intangible assets i.e. licences has not been done at all. Considering the fact that no valuation has been done over intangible assets and proposal based upon the valuation of tangible assets and its reserve price to transfer the Corporate Debtor as a going concern when associated liabilities is not in consonance with the provisions of the IBC, 2016 read with Regulation made thereunder, this application filed by the Liquidator is rejected.

Summary

Issues Involved:
1. Approval of the sale of the Corporate Debtor as a going concern.
2. Distribution of proceeds as per Section 53 of the Insolvency and Bankruptcy Code, 2016.
3. Renewal/extension of licenses and government approvals.
4. Waiver of past non-compliance consequences.
5. Continuation of incentives and benefits.
6. Extinguishment of existing equity shares and issuance of new shares.
7. Legal validity of the proposal made by the Liquidator.
8. Valuation of assets, including intangible assets and financial assets.

Detailed Analysis:

1. Approval of the Sale of the Corporate Debtor as a Going Concern:
The Liquidator sought approval for the private sale of the Corporate Debtor as a going concern to M/s. Geosoft Distributors Private Limited for ?3,10,00,000 without liabilities and with immunity from existing litigations. The Tribunal noted that the sale proposal without transferring liabilities is not in consonance with Regulation 32A(3) read with Regulation 32(e) & (f) of the Liquidation Process Regulations, 2016. Therefore, the proposal was rejected.

2. Distribution of Proceeds as per Section 53 of IBC, 2016:
The Liquidator requested that the proceeds from the sale be distributed according to the priority specified in Section 53 of IBC, 2016, and that remaining outstanding liabilities be extinguished. The Tribunal did not approve the sale, making this request moot.

3. Renewal/Extension of Licenses and Government Approvals:
The Liquidator requested that all licenses and government approvals in the name of the Corporate Debtor be renewed/extended by the concerned authorities. The Tribunal held that such pleas are outside the jurisdiction of the Adjudicating Authority, referencing the Supreme Court's decision in the Embassy Properties case.

4. Waiver of Past Non-Compliance Consequences:
The Liquidator also sought waiver of penalties and other penal actions for past non-compliances. The Tribunal rejected this request, stating that it is beyond the jurisdiction of the Adjudicating Authority.

5. Continuation of Incentives and Benefits:
The Liquidator requested that all incentives and benefits granted to the Corporate Debtor continue to remain valid and not be withdrawn due to the change in ownership. The Tribunal rejected this request as it is outside the jurisdiction of the Adjudicating Authority.

6. Extinguishment of Existing Equity Shares and Issuance of New Shares:
The Liquidator proposed that existing equity shares be extinguished and fresh shares be allotted to Geosoft Distributors Private Limited. The Tribunal did not approve the sale, so this request was not addressed further.

7. Legal Validity of the Proposal Made by the Liquidator:
The Tribunal found that the proposal to sell the Corporate Debtor as a going concern without transferring liabilities is not legally valid under the provisions of Regulation 32A(3) read with Regulation 32(e) & (f) of the Liquidation Process Regulations, 2016. The Tribunal emphasized that sale as a going concern involves the transfer of both assets and liabilities, and the current proposal did not comply with this requirement.

8. Valuation of Assets, Including Intangible Assets and Financial Assets:
The Tribunal noted that the valuation of intangible assets such as licenses and brands owned by the Corporate Debtor had not been done. Additionally, there were financial assets, and no effective steps appeared to have been taken to realize them. The Tribunal found that the proposal based on the valuation of only tangible assets was not acceptable and directed the Liquidator to work out a more commercially beneficial proposal for all stakeholders.

Conclusion:
The Tribunal rejected the Liquidator's application for the private sale of the Corporate Debtor as a going concern without liabilities. The Tribunal directed the Liquidator to develop a commercially beneficial proposal that aligns with the provisions of the Insolvency and Bankruptcy Code, 2016, and the associated regulations. The application CA(IB) No. 1618/KB/2019 was disposed of accordingly, and the Registry was directed to communicate the order to the Operational Creditor and the Corporate Debtor.