M/S Shiv Shakti Inter Globe Exports P Ltd vs M/S. K.T.C Foods Private Limited
- CitationCompany Appeal (AT) (Insolvency) No. 650 of 2020
Ratio decidendi
The rule this decision rests on
Where the sale of a corporate debtor as a going concern in liquidation is approved under Regulation 32(e) of the Liquidation Process Regulations, 2016, and the sale proceeds have been distributed in the order of priority prescribed by Section 53 of the Insolvency and Bankruptcy Code, 2016, no creditor, including a Government entity, may claim past unpaid or outstanding dues against the purchaser; claims not submitted in the prescribed form during the CIRP or liquidation stage cannot be foisted upon the purchaser, which is to start on a clean slate. The corporate debtor, having been sold as a going concern in such liquidation, is not to be burdened by its past or remaining unpaid outstanding liabilities after distribution of the sale proceeds under Section 53, and the direction extinguishing such past or remaining liabilities, including contingent liabilities, is therefore to be granted as a consequential relief.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
[Arising out of orders dated 18.05.2020 in CA No. 1189/2019 & IA No. 132/2020 in CP(IB) No. 136/Chd/Hry/2018 passed by the Ld. Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, Chandigarh.]
IN THE MATTER OF: M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Through its Authorised Representative, Registered Office at: 578/11, Link Road, Taraori, Karnal, Haryana-132116. ...... Appellant.
Versus
1. M/s KTC Foods Private Limited Through Liquidator, Mr. Anup Kumar Singh Having Registered Office at 5 Milestone, Karnal Road, Nissing, Haryana-132024. ..... Respondent No. 1. (Corporate Debtor)
2. Anup Kumar Singh, (Liquidator) Having office at: Ideal Plaza, S-405, 4th Floor, South Block, 11/1, Sarat Bose Road, Kolkata-700020 ....... Respondent No. 2.
Present:
For Appellant: Mr. Vijay K. Singh, Advocate. For Respondents: Mr. Krishnendu Datta, Sr. Advocate with Mr. Anup Kumar Singh, Mr. Debarshi Dutta, Mr. Aayush Kevlani, Ms. Mehak Khurana, Advocates for R-2. 2
JUDGMENT
(25th February, 2022)
Justice Anant Bijay Singh;
This Appeal has been preferred by the Appellant - 'M/s Shiv Shakti
Inter Globe Exports (P) Ltd.' limited being aggrieved by the order dated
18.05.2020 passed by the Ld. Adjudicating Authority in CA No. 1189/2019
in C.P. No. IB-136/Chd/Hry/2018 whereby and where under the Ld.
Adjudicating was pleased to partially allow CA No. 1189/2019 filed by the
Liquidator. The Ld. Adjudicating Authority, while partially allowing the said
CA 1189/2019 had inter alia directed closure of liquidation process of the
Corporate Debtor K.T.C. Foods Private Limited without dissolution of K.T.C.
Foods Private Limited. The Appellant is aggrieved by the impugned order as
much as the Ld. Adjudicating Authority has denied the sale of the Corporate
Debtor as a going concern to the Appellant without any liabilities including
contingent liabilities and with immunity from existing litigations, if any,
against the Corporate Debtor. The Ld. Adjudicating Authority has also denied
the 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 (for short IBC) as well as waiver from all the past
non-compliances of the Corporate Debtor under applicable laws for the period
prior to the e-auction.
2. The facts giving rise to this Appeal are as follows:
Company Appeal (AT) (Insolvency) No. 650 of 2020 3
i) The Appellant - 'M/s Shiv Shakti Inter Globe Exports (P) Ltd.' is a
company registered under the provisions of the Companies Act, 1956 and was
incorporated on 10.10.2012. The Operational Creditor namely M/s Ashok
Kumar & Brother filed an Application under Section 9 of the IBC for initiating
Corporate Insolvency Resolution Process (for short CIRP) against the
Corporate Debtor before the Ld. Adjudicating Authority.
ii) The Ld. Adjudicating Authority vide order dated 29.08.2018 was
pleased to admit the aforesaid application and commenced the CIRP against
the Corporate Debtor namely K.T.C. Foods Pvt. Ltd. and Mr. Mastram Chechi
was appointed Interim Resolution Professional on 07.09.2018 However, in the
second meeting, the Committee of Creditors approved the appointment of Mr.
Anup Kumar Singh as the Resolution Professional.
iii) 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 the entire facts passed the
liquidation order against the Corporate Debtor and appointed the Resolution
Professional as the Liquidator.
iv) After direction of liquidation, the Liquidator has made Public
Announcement in the newspapers for inviting proof of claims from the
Stakeholders of the Corporate Debtor in the specified Forms on or before
30.06.2019 and the same was also informed to the Insolvency and
Bankruptcy Board of India.
Company Appeal (AT) (Insolvency) No. 650 of 2020 4
v) That on or before the last date for submission of claim, the Liquidator
had received one claim in Form D from Oriental Bank of Commerce, NCB
Branch, Haryana and from eight Operational Creditors and no other claims
were received in response to the said public Announcement made by the
Liquidator.
vi) That during the process, the valuation reports were obtained from two
valuers and since it came to the notice of the 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 being Crest
Capital Group Private Limited as approved by the Members of the CoC in the
third meeting of CoC on 12.03.2019. In compliance with Regulation 35(1) of
the CIRP Regulations 2016, the average of estimates of the values provided
were considered. As per the summary of the valuation the fair value is fixed
at 24.63 Crores and liquidation value at 18.45 Crores.
vii) The liquidation estate of the Corporate Debtor was formed by the
Liquidator after relinquishment of the Security Interest on the Assets by the
only secured stakeholder who submitted their claim under the process being
Oriental bank of Commerce.
viii) On 05.11.2019, the Liquidator issued sale notice for invitation of
expression of interest for e-auction of the K.T.C. Foods Private Limited as per
Regulation 32(e) Liquidation Process Regulation 2016 wherein the last date
for submission of Requisite Forms, Affidavits, Declaration etc., by prospective
Company Appeal (AT) (Insolvency) No. 650 of 2020 5
Bidders was scheduled on 11.11.2019, however, on receipt of several
enquiries from other prospective bidders, the last date was extended till
18.11.2019 which was also last date for submission of earnest money
deposits.
ix) That during the period 11.11.2019 to 18.11.2019 four Expressions of
Interest were stated to be received and all prospective bidders were found to
be in compliance under Section 29A of the Code. The Appellant herein, being
the one of the bidders, also submitted the earnest money deposit of Rs. 1
Crore along with its bid on 18.11.2019.
x) The e-auction was conducted on 19.11.2019 from 3:00 PM till 5:00 PM.
The Appellant also participated in the e-auction and successfully bid an
amount of Rs. 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 Rs. 17,42,86,646/-
after netting off the process participation deposit of Rs. 3,00,000/- and
earnest money deposit of Rs. 1,00,00,000/- accordingly.
xi) The sale certificate was issued on 26.11.2019 to the Appellant by the
Liquidator where 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. The post distribution
of funds in compliance with Section 53 of the Code, the Liquidator handed
over the possession of all assets of Corporate Debtor to the Appellant.
Company Appeal (AT) (Insolvency) No. 650 of 2020 6
xii) The Liquidator filed an Application before the Ld. Adjudicating
Authority under Regulation 45(3)(a) of Liquidation Process Regulations, for
closure of liquidation process of the Corporate Debtor as per approval of Sale
of the Corporate Debtor as a going concern to the Successful Bidder namely,
M/s Shiv Shakti Inter Globe Exports Private Limited (Appellant herein). The
following reliefs have been sought by the Liquidator in the aforesaid
Application which is hereunder;
" a. That the Hon'ble Tribunal may graciously be pleased to approve the closure of Liquidation Process of the Corporate Debtor under Regulation 53 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and sale of Corporate Debtor as a going concern to M/s Shiv Shakti Inter Globe Exports Private Limited, the highest bidder without any liabilities including contingent liabilities and with immunity from existing litigations, if any, against the Corporate Debtor by way of E-Auction at a total consideration of INR 18,45,86,646/- (Rupees Eighteen Crores Forty Five Lacs Eighty Six Thousand Six Hundred and Forty Six only);
b. That the Hon'ble Tribunal may graciously be pleased to approve the aforesaid sale of Corporate Debtor without its dissolution;
c. That the order be passed that after distribution of the proceeds of the Sale of Corporate Debtor as a Going Concern as per order of priority provided in Section 53 of the Insolvency and Bankruptcy Code, 2016, the remaining unpaid outstanding liabilities of the Corporate Debtor shall be extinguished;
Company Appeal (AT) (Insolvency) No. 650 of 2020 7
d. Extinguishment of ownership of the equity shares of the existing equity shareholders and allotment of fresh shares of the Corporate Debtor in favour of M/s Shiv Shakti Inter Globe Exports Private Limited, the Successful Bidder;
e. All consequences of past non-compliances of the Corporate Debtor under applicable laws for the period prior to this E-Auction shall be waived;
f. Any other directions which the Hon'ble National Company Law Tribunal, Kolkata Bench may deem fit in the facts and circumstances of the matter."
xiii) Vide order dated 18.05.2020, the Ld. Adjudicating Authority has held
which is hereunder;
" Therefore, reading Section 54 of the Code with Regulation 32(e) of the Liquidation Process Regulations 2016, we consider it fit to direct closure of the liquidation process of K.T.C. Foods where it is being sold a going concern without directing dissolution of K.T.C. Foods."
Hence this Appeal.
Submissions on behalf of the Appellant
3. The Learned Counsel for the Appellant during the course of argument
and in his memo of Appeal along with Written Submissions submitted that
the Appellant being aggrieved by the order dated 18.05.2020 passed by the
Ld. Adjudicating Authority, Chandigarh Bench in C.A. No. 1189/2020 in C.P.
(IB) No. 136/CHD/HRY/2018 wherein the Ld. Adjudicating Authority while
partly allowing the Application (I.A. No. 1189/2020) has inter alia directed
closure of the Liquidation process of the Corporate Debtor i.e. KTC Foods
Company Appeal (AT) (Insolvency) No. 650 of 2020 8
Private Limited. However, prayer (c) and (e) of the IA No. 1189/2020 was
rejected.
4. It is further submitted that the emergent cause of action to approach
this Appellate Tribunal is the letter dated 18.06.2021 (at page 143-144 of the
Appeal) issued by Uttar Haryana Bijli Vitran Nigam wherein the Appellant has
been informed that an amount of Rs. 81,34,157/- is overdue against KTC
Foods Private Limited (Respondent No. 1).
5. It is further submitted that the Appellant was never informed during
the liquidation process about any liability of Uttar Haryana Bijili Vitran Nigam
or any other liability on the Respondent No. 1 / Corporate Debtor. The e-
auction process was conducted on 19.11.2019 and the Appellant successfully
bid an amount of Rs. 18,45,86,646/-. The letter of intent was issued to the
Appellant on 21.11.2019 (at page 84 to 122 of the Appeal) and further sale
certificate was issued on 26.11.2019 (at page 123 to 124 of the Appeal). The
post distribution of funds in compliance with Section 53 of the Code, the
Liquidator handed over the possession of all assets to the Appellant being the
successful bidder.
6. It is further submitted that while passing the impugned order the
Adjudicating Authority completely ignored the principle that any liabilities
including contingent liabilities with immunity from existing litigation if any
against the Corporate Debtor stands extinguished. The impugned order erred
by not giving any finding about extinguishment of prior liability and also by
not giving any finding about the extinguishment of remaining unpaid
liabilities of Corporate debtor after distribution of proceeds of the sale of
Company Appeal (AT) (Insolvency) No. 650 of 2020 9
Corporate Debtor as a going concern as per the Order of priority provided in
Section 53 of the Code.
7. It is further submitted that the Ld. Adjudicating Authority has failed to
appreciate that a going concern sale in liquidation has to be distinguished
from a going concern sale in general. In a going concern sale in liquidation,
there cannot be a question of liabilities being a part of the undertaking, as
that will be a case of business transfer and not a case of liquidation.
8. It is further submitted that it has never been the intention of the Code
that the purchaser of the Corporate Debtor as a going concern would be liable
to the past or contingent liabilities of the Corporate Debtor. Without prejudice,
if the contention is accepted, then it would mean that the Corporate debtor
after completing the cycle, from CIRP to liquidation, would still be at the same
position.
9. The Ld. Counsel for the Appellant relied on a judgment in the case of
"State of Gujrat Vs. OL of kengold (India) Ltd. reported in
MANU/GJ/0353/2008" which is held as under:
" 37 ..... In view of this discussion and applying the law to the questions posed before the Court, the Court in its humble opinion takes the view that the applicants - auction purchasers and the Official Liquidator are right in their perception that the auction purchasers are not liable to discharge any of the liabilities pertaining to the pre- liquidation period of the Company in liquidation and all these attachments which are made on the assets of the Company in liquidation are required to be removed and the auction purchasers are entitled to get absolutely clear and
Company Appeal (AT) (Insolvency) No. 650 of 2020 10
marketable title, free from all encumbrances of the pre- liquidation period of the Company in liquidation."
10. It is further submitted that based on these submissions the impugned
based is fit to be set aside and the Appeal be allowed.
Submissions on behalf of the Respondent No. 2
11. The Learned Sr. Counsel for the Respondent No. 2 during the course of
argument and in his Reply Affidavit along with Written Submissions
submitted that on 05.11.2019, the Respondent No. 2 issued a sale notice for
invitation of expression of interest for e-auction of Respondent No. 1 company
to be sold as a going concern per Regulation 32(e) of the Insolvency and
Bankruptcy Board of India (Liquidation Process) Regulation, 2016. The e-
auction was conducted on 19.11.2019 in which Shiv Shakti Inter Globe
Exports Private Limited was the highest bidder of INR 18,45,86,646 (being
100% of the reserve price) and thus was declared successful in the e-auction
process for Respondent No. 1 company's sale as a going concern.
12. It is further submitted that the sale proceeds were released on
25.11.2019 and sale certificate dated 26.11.2019 was issued to Shiv Shakti
Inter Globe Exports Private Limited. The sale proceeds were then distributed
in accordance with section 53 of the IBC. Accordingly, the entire amount of
INR 18,45,86,646 was paid towards 13.17% of the admitted debt of
Respondent No. 1 sole Financial Creditor, Oriental Bank of Commerce after
its relinquishment of security interest over Respondent No. 1 fixed, current
and non-current assets, through its email dated 05.10.2019 sent to
Respondent No. 2.
Company Appeal (AT) (Insolvency) No. 650 of 2020 11
13. It is further submitted that it is settled law that when the sale proceeds
of a Corporate Debtor are duly distributed in the order of priority and in the
manner prescribed by Section 53 of the IBC, no creditor of the Corporate
Debtor can claim any share in such proceeds contrary to its rank in the order
of priority under Section 53 of the IBC. Therefore, after distribution of sale
proceeds in accordance with Section 53 of the IZBC, no other person or entity,
including any Government entity, can claim any past unpaid or outstanding
dues against the Corporate Debtor's purchaser as a going concern inasmuch
as all such past unpaid or outstanding liabilities stand extinguished.
14. It is further submitted that in order to achieve effective revival of the
Corporate Debtor after its sale as a going concern, the details of all its assets
and liabilities are required to be included in the information memorandum so
that its prospective purchasers are aware of the liabilities that they may have
to face and provide for. In the present case, the Appellant is aggrieved by
belated claims made against the Appellant after purchasing Respondent No.
1 company as a going concern, pertaining to Respondent No. 1 purported
liabilities prior to its sale, when these claims were not even submitted with
Respondent No. 2 in the prescribed form either during Respondent No. 1's
CIRP or at the liquidation stage. The Respondent No. 2 respectfully submits
that these claims cannot be foisted upon the Appellant. This is in view of the
legislative intent to freeze/extinguish all claims so that the liquidation
purchaser starts on a "clean slate" and is "not flung with any surprise claims",
as held by the Hon'ble Supreme Court in the case of "Ghanashyam Mishra
and Sons Private Limited Vs. Edelweiss Assets Reconstruction Company
Company Appeal (AT) (Insolvency) No. 650 of 2020 12
Limited in Civil Appeal No. 8129 of 2019" at paragraphs 60, 61 and 86. As
such, the doctrine of fresh/clean slate propounded by the Hon'ble Supreme
Court in Committee of "Creditors of Essar Steel India Limited Vs. Satish
Kumar Gupta & Ors., (2020) 8 SCC 531" is equally applicable not only to
the CIRP stage but also to sale as a going concern at the liquidation stage.
15. It is further submitted that while approving Respondent No. 1's sale as
a going concern, inter alia, the impugned order erred in disallowing
Respondent No. 2's prayer for extinguishment of Respondent No. 1's
remaining unpaid outstanding (past) liabilities (including contingent
liabilities) after distribution of the sale proceeds in accordance with section
53 of the IBC.
16. It is further submitted that if the remaining past liabilities of a
Corporate Debtor are not allowed to be extinguished even after its sale as a
going concern and distribution of the sale proceeds in accordance with
Section 53 of the IBC, its revival as a running establishment and a going
concern cannot be achieved. It is no longer res integra that while approving a
Corporate Debtor's sale as a going concern in liquidation proceedings without
its dissolution in terms of Regulation 32(e) of the Liquidation Process
Regulations, it is essential to grant the necessary consequential reliefs,
especially including:
a) extinguishment of the Corporate Debtor's past/any remaining unpaid
outstanding liabilities, prior to the corporate debtor's sale as a going concern,
after payment of sale proceeds distributed in accordance with Section 53 of
the IBC; and
Company Appeal (AT) (Insolvency) No. 650 of 2020 13
b) waiver of all past non-compliances of the corporate debtor under
applicable laws, for the period prior to the corporate debtor's sale as a going
concern;
So as to prevent the corporate debtor's purchaser from being saddled
with unlimited and unforeseeable liabilities after purchasing the corporate
debtor as a going concern and payment of the sale proceeds.
17. It is further submitted that the settled position of law on
extinguishment of a corporate debtor's past liabilities after its sale as a going
concern is also noted in the impugned order itself, which has relied on the
decision of the Hon'ble NCLT, Hyderabad in Bank of India vs. Southern Online
Biotechnologies Limited in IA No. 1038/2019 in CP (IB) No. 343/7/HDB/2018
(at page 71 of the Appeal), albeit without granting the necessary consequential
reliefs as prayed for by Respondent No. 2. This positon of law is echoed in
various other decisions including the Hon'ble NCLT, Mumbai's orders in
Gaurav Jain Vs. Sanjay Gupta in IA No. 2264 of 2020 in CP (IB)
1239/MB/2018 and in M/s. Elecon Engineering Company Limited Vs. M/s.
Enviiro Bulkk Handling Systems Private Limited in IA No. 741 of 2021 in CP
(IB) No. 1319/MB/2017. Even so, the impugned order has erroneously
disallowed Respondent No. 2's prayer for extinguishment of Respondent No.
1's past liabilities and other consequential reliefs in the present case, which
is essential to ensure its effective revival as a going concern.
18. It is further submitted that in the above Appeal of the Appellant
deserves and ought to be allowed by this Hon'ble Tribunal and Respondent
No. 1's sale as a going concern ought to be upheld with the necessary
Company Appeal (AT) (Insolvency) No. 650 of 2020 14
consequential directions (sought as prayers (c) and (e) in C.A. No. 1189 of
2019 in the Company Petition) for extinguishment of Respondent No. 1's
past/remaining unpaid outstanding liabilities (including contingent
liabilities) prior to its sale as a going concern, after payment of sale proceeds
distributed in accordance with Section 53 of the IBC and waiver of all its past
non-compliances under applicable laws, for the period prior to its sale as a
going concern.
19. The Respondent No. 1 through Respondent No. 2 filed Written
Submissions and supported the case and submissions of the Respondent No.
2.
FINDINGS
20. After hearing the parties and having gone through the pleadings made
on behalf of the parties, we are of the considered view that the following facts
are admitted in the instant Appeal.
The Operational Creditor namely M/s Ashok Kumar & Brother filed an
Application under Section 9 of the IBC for initiating CIRP against the
Corporate Debtor before the Ld. Adjudicating Authority.
The Ld. Adjudicating Authority vide order dated 29.08.2018 admitted
the Application filed by the Operational Creditor and commenced the
CIRP against the Corporate Debtor namely K.T.C. Foods Pvt. Ltd. and
Mr. Mastram Chechi was appointed Interim Resolution Professional on
07.09.2018 However, in the second meeting, the Committee of Creditors
Company Appeal (AT) (Insolvency) No. 650 of 2020 15
approved the appointment of Mr. Anup Kumar Singh as the Resolution
Professional.
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 (Annexure P-3 at page 74 to
80 of the Appeal).
The Liquidator has made Public Announcement in the newspapers for
inviting proof of claims from the Stakeholders of the Corporate Debtor
in the specified Forms on or before 30.06.2019 and the same was also
informed to the Insolvency and Bankruptcy Board of India and that time
no claim for Rs. 81,34,157/- or for any other amount was raised by the
Uttar Haryana Bijli Vitran Nigam due against the Corporate Debtor,
only one claim received from Oriental Bank of Commerce, NCB Branch,
Haryana and from eight Operational Creditors.
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
Company Appeal (AT) (Insolvency) No. 650 of 2020 16
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 (Annexure P-4 at page 81 of the
Appeal).
On 05.11.2019, the Liquidator issued sale notice for invitation of
expression of interest for e-auction of the K.T.C. Foods Private Limited
as per Regulation 32(e) Liquidation Process Regulation 2016 wherein
the last date for submission of Requisite Forms, Affidavits, Declaration
etc., by prospective Bidders was scheduled on 11.11.2019, however, on
receipt of several enquiries from other prospective bidders, the last date
was extended till 18.11.2019 which was also last date for submission
of earnest money deposits.
During the period 11.11.2019 to 18.11.2019 four Expressions of
Interest were stated to be received during the period and all prospective
bidders were found to be in compliance under Section 29A of the Code.
The Appellant herein, being the one of the bidders, also submitted the
earnest money deposit of Rs. 1 Crore along with its bid on 18.11.2019.
The e-auction was conducted on 19.11.2019, the Appellant also
participated in the e-auction and successfully bid an amount of Rs.
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 Rs.
17,42,86,646/- after netting off the process participation deposit of Rs.
Company Appeal (AT) (Insolvency) No. 650 of 2020 17
3,00,000/- and earnest money deposit of Rs. 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 (Annexure P-7 at page 123 to 124 of the Appeal).
Post distribution of funds in compliance of Section 53 of the Code, the
Liquidator handed over the possession of all assets of Corporate Debtor
to the Appellant.
The Respondent No. 2 (Liquidator) filed an Application on 29.11.2019
(Annexure P-8 at page 125 to 142 of the Appeal) before the Ld.
Adjudicating Authority under Regulation 45(3)(a) of Liquidation Process
Regulations, for closure of liquidation process of the Corporate Debtor
namely K.T.C. Foods Private Limited.
Vide letter dated 18.06.2020 the fact that Uttar Haryana Bijili Vitran
Nigam informed the Appellant that an amount of Rs. 81,34,157/- is
overdue against the Corporate Debtor - K.T.C. Foods Private Limited
(Annexure P-9 at page 143 to 144 of the Appeal).
ORDER
21. Adverting to the contention of the Learned Counsel for the Appellant
that 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
Company Appeal (AT) (Insolvency) No. 650 of 2020 18
'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'. It is significant to mention that the
second Respondent/Liquidator has specifically submitted that even these
claims by the Uttar Haryana Bijili Vitran Nigam were not submitted in the
prescribed form either during the CIRP Process or at the Liquidation stage. We
are of the considered view that 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 'Ghanshyam
Mishra & Sons Pvt. Ltd.' Vs. 'Edelweiss Asset Reconstruction Company Ltd. &
Ors.', Civil Appeal No. 8129 of 2019 and in 'CoC of Essar Steel India Ltd.' Vs.
'Satish Gupta & Ors.' (2020) 8 SCC 531 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'.
22. 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
Company Appeal (AT) (Insolvency) No. 650 of 2020 19
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. The Impugned Order in I.A. 889 of 2020 is modified to
the extent that the sale of the first Respondent as a 'going concern' is upheld
and the direction sought for in prayer (c) & (e) in CA No. 1189 of 2019 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.
This Appel is allowed to the extent indicated above.
23. Registry to upload the Judgment on the website of this Appellate
Tribunal and send the copy of this Judgment to the Ld. Adjudicating Authority
(National Company Law Tribunal), Chandigarh Bench, Chandigarh, forthwith.
[Justice Anant Bijay Singh] Member (Judicial)
[Ms. Shreesha Merla] Member (Technical)
New Delhi 25th February, 2022 R. Nath.
Company Appeal (AT) (Insolvency) No. 650 of 2020
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