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TMI Blog2022 (8) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation contrary to Section 53 of the IBC which, again, is preceded by a non obstante clause, can be attributed to the expression going concern sale , as contemplated in Rule 32 of the Liquidation Process Regulations, 2016 - In the present case, the distribution licensee had made its claim during the resolution process as well as before the liquidator. Thus, whatever claim was allowed by the liquidator and sanctioned by the NCLT as Adjudicating Authority would be payable to the WBSEDCL from the sale proceeds in the ratio and order of priority as stipulated in Section 53. The WBSEDCL cannot, thus, have a double claim on the sale proceeds on the one hand and again from the auction purchaser merely on the strength of the expression going concern sale as used in the EOI. The claim of the WBSEDCL against the petitioners for the electricity dues left by the erstwhile owners/management of the petitioner no.1-company prior to commencement of the CIRP, is turned down - The WBSEDCL is directed to process the application of the writ petitioners for new electricity connection at the earliest and to give such electricity connection to the petitioners, without insisting upon payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners that the IBC is a complete code in itself, as held in Embassy Property Development Pvt. Ltd. Vs. State of Karnataka and others, reported at (2020) 13 SCC 308. The petitioners cite Innoventive Industries Ltd. Vs. ICICI Bank, reported at (2018) 1 SCC 407 in support of the proposition that the IBC is an exhaustive code on the subject matter of insolvency in relation to corporate entities and others. It is contended that Section 53 of the IBC has a non-obstante clause and lays down the method by which the proceeds from the sale of the liquidation assets of a corporate creditor in liquidation will be distributed among various stakeholders. The claim of the respondent no.1, it is argued, was admitted both in the CIRP and in liquidation and it was supposed to be paid, as an operational creditor, as per Section 53(1)(f) of the IBC. 9. If the liabilities are shifted to the buyer of the going concern, it is argued, then the various claimants who have a claim on the liquidation estate would have two claims, one on the liquidation estate and another claim on the buyer of the going concern, which cannot be permissible in law. 10. It is submitted that if electricity d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a clean slate to aid the purchaser of the corporate debtor who bought it as a going concern. 15. Learned counsel for the petitioners next cites Kolkata Municipal Corporation and another Vs. Union of India and others, a Single Bench Judgment of this court, reported at (2021) SCC Online Cal 145 , wherein it was held that Income Tax dues are in the nature of crown debts and cannot take precedence over secured assets, which proposition was upheld, thereby finalizing the claim of KMC within the realm of the IBC. The said claim, it was held, would have to wait for the outcome of the process and the distribution of the assets in terms of Section 53 of the IBC. The said Judgment was upheld by a Division Bench, as reported at (2022) SCC Online Cal 225. 16. Next placing reliance on Eastern Power Distribution Company of Andhra Pradesh Limited Vs. Maithan Alloys Limited in Company Appeal (AT) (Insolvency) No. 961 of 2021, it is submitted that the Adjudicating Authority held that as the sale is on a going concern basis, the corporate debtor is entitled to receive connection in its own name. The appellant was directed to energize the connection to the corporate debtor. Agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is submitted, has clearly proceeded on the wrong basis by following M/s. Visisth Services Limited (supra). 21. Lastly, learned counsel for the petitioners places reliance on Isha Marbles (supra) to reiterate the proposition that a genuine auction purchaser cannot be saddled with the responsibilities of previous dues. 22. By placing reliance on AI Champdany Industries Limited Vs. Official Liquidator and another [(2009) 4 SCC 486], which refers to Isha Marbles (supra), it is submitted that if previous dues were transferable, then it would give the dishonest consumers an opportunity to transfer the same to the future purchaser. Further, dues of the Municipality would also not even otherwise come within the purview of crown debt , which can only be discharged after the secured creditors stand discharged. Hence, it is submitted that in the present case, the petitioners cannot be penalized for past dues of respondent no.3 and cannot give an upper hand to the respondent no.1 for claiming its dues when it has already submitted its claim to the liquidator, which was admitted. 23. Learned counsel for the respondent no.1-Distribution Licensee submits that the electricity suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idation process, on January 4, 2022 an order was passed by the Tribunal in an application under Section 60(5) of the IBC, granting certain concessions and reliefs to the petitioners. 29. It is thus argued by the respondent no.1 that the question which acquires relevance is whether sale as a going concern in liquidation extinguishes past dues. In Dollar Industries (supra) of the Madras High Court, insofar as properties are concerned, they are two-fold the properties of ongoing concern along with business sold, in other words, the transfer of business or taking over of sick industry or revival of the closed industry, or continuing the same business. Such continuance involves employees, plant and machinery, benefit of tax exemption or concession, goodwill and also the old and new customers. In such case, by the transfer or revival or taking over, the business, as such, is continued with its advantages and disadvantages, the profits and liabilities going with the benefits and goodwill of the business. 30. Learned counsel for the respondent no.1 stresses the expression going concern on as is where is basis in the said notice to argue that all liability of the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, which is nothing but merely a recommendation for new enactment or amendment for implementation of the IBC. 36. Relying on M/s. Visisth Services Limited (supra), it is argued that the sale of company in liquidation as going concern means sale of assets as well as liabilities and not assets sans liabilities. The petitioner no.1 places reliance on Gujarat Urja Vikash Limited Vs. Amit Gupta and others [(2021) 7 SCC 209], Embassy Property Developments Private Limited Vs. State of Karnataka and others [(2020) 13 SCC 308] and Tata Consultancy Services Limited Vs. Vishal Gishul Jain [(2022) 2 SCC 583]. 37. It is submitted that the application for grant of reliefs and concessions and the order dated January 4, 2022 on the same happened upon suppression of material facts and misrepresentation with regard to liabilities of the petitioner. 38. It is contended that the submissions of the petitioner in respect of approval of resolution plan and its effects are totally different from liquidation proceedings and the judgments cited thereon are not relevant in the present proceedings. In respect of the liquidation process, in the Regulation of 2016, Regulation 32A(3) clearly introdu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on July 25, 2019. Thus, the said judgment is not attracted to the present case. The respondent no.1, thus, seeks to distinguish the judgments cited by the petitioner on the above score. 45. The IBC is a self-sufficient Code and provides a complete mechanism in respect of Corporate Insolvency Resolution and Liquidation. 46. Liquidation, as envisaged in the IBC, is not a mere isolated offshoot of Insolvency Resolution proceeding but is one of the logical conclusions of a resolution proceeding. The procedure as contemplated in the IBC is an integrated continuum. 47. In order to examine the scheme of liquidation under the IBC in such context, Section 5(18) of IBC is required to be considered first. The said sub-section provides that liquidator means of an insolvency professional appointed as a Liquidator in accordance with the provisions of Chapter III or Chapter V of Part-II, as the case may be. Section 5(20) stipulates that operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. Section 5(21), on the other hand, defines operational debt as a claim in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liquidation assets. The sixth category in such pecking order is Section 53(1)(f), any remaining debts and dues . Clause (f) is the only provision in Section 53 which confers rights on the operational creditors to recover their dues. 53. As such, Section 53 is the culmination of the entire endeavour of the Liquidator and the order of priority given therein cannot be overridden by any of the operational creditors of the corporate debtor by jumping the queue in contravention of the priorities enumerated in Section 53. 54. What is next relevant is Regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The different types of sale of asset have been enumerated therein. Up to Clause (d) of Regulation 32, sale of assets is dealt with. Clause (e) provides for sale of the corporate debtor as a going concern. Again, Clause (f) contemplates the business of the corporate debtor being sold as a going concern. 55. Regulation 32-A of the said Regulations provides for sale as a going concern. Sub-regulation (2) of Rule 32-A stipulates that for the purpose of sale under Sub-regulation (1), the group of assets and liabilities of the corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. (2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator. (3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. Explanation .- For the purpose of this section- (i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients , if the proceeds are insufficient to meet the debts in full; and class of recipients, if the proceeds are insufficient to meet the debts in full; and class off recipients, if the proceeds are insufficient to meet the debts in full ..... X X X X Extracts X X X X X X X X Extracts X X X X
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