National Company Law Appellate Tribunal, New Delhi: In a landmark Judgment related to legal position on sale of a Corporate Debtor as a going concern with a clean slate, a Division bench comprising of Ashok Bhushan*, J., and Naresh Salecha (Technical Member), held that a Successful Bidder of sale as going Concern can pray for necessary reliefs/concessions which are commensurate and in accordance with the terms and conditions of the process document before of the Adjudicating Authority in the liquidation proceedings.
Factual Matrix
In the instant matter, vide order dated 09-01-2020, the Adjudicating Authority directed for liquidation of Corporate Debtor-respondent 2 (Apex Buildsys Ltd.) and as a result e-auction Notice was issued by the Liquidator for sale of the Corporate Debtor. The appellant- Successful Bidder was selected as the highest bidder in the e-auction and on payment of sale consideration by the appellant, the Liquidator issued a Sale Certificate.
The appellant preferred an application before the Adjudicating Authority seeking certain reliefs/concessions/directions that were necessary for fulfilling and actualizing the sale of the Corporate Debtor. The Adjudicating Authority vide order dated 02-12-2022, disposed of the application without granting the prayed reliefs except giving one direction to ROC to change the status of the corporate debtor from under Liquidation to action on the application made by the applicant. The Adjudicating Authority held that the appellant will be entitled to seek appropriate relief from the respective department concerned in accordance with law.
Aggrieved by the impugned order dated 02-12-2022 passed by the Adjudicating Authority, the appellant preferred the present appeal before the NCLAT, challenging the same.
Moot Point
Whether a Successful Bidder of sale as going concern can pray for necessary directions in accord with and in consonance with the process document in the liquidation proceedings before the Adjudicating Authority?
NCLAT’s Observation
The NCLAT observed that ‘E-Auction Process Document’ on the basis of sale as a going concern plays a crucial role in determining the treatment of past liabilities. The NCLAT observed that if the process document clearly stipulates the terms and conditions of the e-auction or other consequences such as “all known or unknown, claimed or unclaimed, disclosed or undisclosed liabilities/ obligations, risks as on the cut-off date including prior claims of all creditors whether secured, unsecured, workers, employees, statutory authorities on account of Income Tax, Sales Tax, GST, Service Tax, DGFT, Excise, Customs etc.”, in accordance with Section 53 of the Insolvency and Bankruptcy Code, 2016 (IBC), then these consequences shall apply to the sale as a going concern. The NCLAT further observed that even after that if any obstacles arise for the successful bidder, the Adjudicating Authority can provide necessary directions and clarifications on an application being preferred under Section 60(5)(c) of the IBC.
While discussing about the transfer of ownership of the corporate debtor, the NCLAT observed that the process document clearly states that such transfer of ownership shall take place by way of writing off entire existing shareholding of the corporate debtor and issuance of fresh equity shares in the name of successful bidder only and not in any other name.
In the light of subsequent facts and notices brought on record by the appellant, the NCLAT opined that the appellant be granted liberty to file an application before the Adjudicating Authority claiming reliefs/concessions/directions as necessary for operationalisation of the Corporate Debtor in terms of the process document.
While observing that the prayer seeked by the appellant before the Adjudicating Authority were too elaborate, the NCLAT stated that “successful Bidder on e-Auction of the Corporate Debtor as a going concern can make only such prayers for reliefs/concessions which are commensurate and in accordance with the terms and conditions of the process document.”
NCLAT’s Verdict
While partly allowing the present appeal, the NCLAT granted liberty to the appellant to file a fresh application seeking relief/concessions/directions that needs consideration by the Adjudicating Authority, the NCLAT held that “a successful bidder who is declared as successful bidder of sale as going concern can seek access of the Adjudicating Authority and may pray for necessary directions in accord with and in consonance with the process document in the liquidation proceedings.”
[Jasamrit Designers (P) Ltd. v. Gian Chand Narang, 2023 SCC OnLine NCLAT 334, order dated 04-07-2023]
*Judgment by Justice Ashok Bhushan
Messiah of the sufferers: Bidding adieu to Justice Ashok Bhushan
Advocates who appeared in this case :
Ms. Pooja Mahajan, Ms. Arveena Sharma, Mr. Savar Mahajan, Counsel for the Appellants;
Mr. Abhishek Anand, Mr. Karan Kohli, Mr. Vaibhav Mendiratta, Mr. Sahil Chopra, Counsel for the Respondents.
