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Judgment
ORDER
Per: Balraj Joshi, Member (Technical)
This Court convened through hybrid mode.
The I.A. has been filed by Modern Achiinfrastructure Private Limited represented Mr. Shashindra Singh authorized by a Board Resolution dated 23 May 2023, under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“Code”) read with rule 11 of the National Company Law Tribunal Rules, 2016, seeking the following reliefs:
a. An Order(s) be passed granting reliefs and concessions as prayed for an outlined in paragraph 7 in connection with the sale of the Corporate Debtor as a going concern in favour of the Applicant;
b. Ad-interim orders in terms of prayer above;
c. Costs of and incidental to this application to be paid by the Respondent;
d. Pass such other order(s) and/or grant further reliefs as this Hon’ble Tribunal may deem fit and proper.
Brief facts of the I.A.
The Corporate Debtor was ordered to go under Corporate Insolvency Resolution Process (“CIRP”) by this Adjudicating Authority on a Petition made by Vinnarasi Industries on 28 February 2020. The Corporate Debtor was ordered to be liquidated by an order dated 30 March 2022.
In accordance with regulation 12 of the Liquidation Regulations, the Liquidator issued Public Announcement in Form B on 23 April 2022 in Financial Express (English) (Kolkata and Delhi editions) and Ek Din (Bengali) (Kolkata edition) and Jansatta (Hindi) (Delhi edition).
The Applicant submitted a bid for Rs.25,02,520/- (Rupees Twenty Five Lakh Two Thousand Five Hundred and Twenty only) in the auction process and was declared as the successful bidder for taking over the Corporate Debtor as a going concern and given the Letter of Intent vide letter dated 16 August 2022.
Upon payment of the entire consideration money, the Liquidator issued the Sale Certificate dated 06 April 2023 in favour of the Applicant under clause 1(13) of the Liquidation Regulations.
Learned Counsel appearing on behalf of the Applicant submitted that the Applicant purchased the Corporate Debtor as a going concern, rather than on piecemeal asset’s basis, and to purchase the Corporate Debtor on a “Clean Slate Theory” has sought for certain waivers and concessions. Hence, the Applicant has sought for the following reliefs, concessions and relaxation which will enable the Applicant to ensure effective revival and operation of the Corporate Debtor:
Sl. No. | Reliefs, concessions and relaxations sought |
|---|---|
| Compliance under Companies Act, 2013 and other applicable laws and the applicable rules thereunder for corporate actions envisaged. | |
| 1. | The completion of the acquisition of the Corporate Debtor on the Acquisition Date i.e. April 6, 2023 (Date of issuance of sale certificate) shall be deemed to have waived all the procedural requirements in terms of Section 66, Section 42 and Section 62(1)(c) of Companies Act, 2013 and the NCLT (Procedure for Reduction of Share Capital) Rules, 2016 and accordingly, no approval or consent shall be necessary from existing shareholder of Corporate Debtor or any other Person/Governmental Authority in relation to any action under any agreement, the constitution documents of the Corporate Debtor or under any applicable law. In the case of any Capital Reduction, the requirement of adding “and reduced’ in the name of the Corporate Debtor be dispensed with (on account of any reduction of share capital of the Corporate Debtor). |
| 2. | All the existing shares of the Corporate Debtor be extinguished including share application money received, if any, without any consideration, and rights and liabilities arising out of the same shall also be extinguished and the Liquidator shall make necessary entries of such extinguishment in the Register of Members of Corporate Debtor as maintained under the provisions of the Companies Act. No approval/consent shall be necessary from any person or persons under any agreement, the constitutional documents of the Corporate Debtor or any applicable law in relation to any of the above acts and for all actions and purposes including (a) cancellation of he existing share capital of the Corporate Debtor in terms of Section 66 and other provisions of the Companies Act, 2013 and other Applicable Laws; and (b) for issuance of new equity shares in terms of the Companies Act, 2013 and other applicable laws; |
| No action by creditors | |
| 3. | On and from the Acquisition Date, no Financial Creditor or Operational Creditors or Security Depositor or Creditor shall be entitled to take, initiate, institute or continue any suits, steps or proceedings against the Corporate Debtor or its assets (whether by way of demand, legal proceedings, alternative determination process including arbitration or an expert determination process), the levying of distress, execution of judgment, decree or order, or otherwise) in any court of law, tribunal, arbitration panel or other authority in any jurisdiction whatsoever (including taking any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property (including any action under SARFAESI )for the purpose of obtaining payment of any liability or performance of any act(s) or obligation(s) (including for recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor); |
| 4. | The security/securities created in favour of the secured creditors shall stand released and/or extinguished and all the financing and security documents shall terminate without any further act of the Corporate Debtor and the secured creditors shall return all the title deeds and documents deposited with the respective secured creditors to the Corporate Debtor/ Applicant forthwith and also to file necessary charge satisfaction forms with the Registrar of Companies. |
| Related to Licenses/Approvals/Contractual Rights and Benefits | |
| 5. | Direct that the sale of the assets of the Corporate Debtor as a going concern shall be binding on all stakeholders including the utility providers and all the utility providers shall continue to supply the utilities as may be required for survival of the Corporate Debtor as a going concern; |
| 6. | All the existing contracts and arrangements, if any, with the Existing Promoters/ Directors and Related Parties of the Corporate Debtor shall stand terminated on and from the Acquisition Date. |
| 7. | That the Corporate debtor shall have a right to review and terminate any contract that was entered into prior to the Acquisition Date without any penalty, charges, fees, fines, liabilities, damages in relation thereto. Save and except the contracts and arrangements which shall be terminated by the Corporate Debtor/Applicant, all other contracts and arrangements shall remain in existence on the same terms and conditions unless the Applicant/Corporate debtor terminates the said contracts as its sole discretion without assigning any reasons thereof. |
| 8. | All consents, exemptions, licenses, approvals, rights, entitlements, benefits and privileges whether under law, contract, lease or license, granted in favour of the Corporate Debtor or to which the Corporate Debtor is entitled or accustomed to, which have expired as of the Acquisition Date, shall be deemed to continue without disruption for the benefit of the Corporate Debtor for a period of 12 months or until renewed by the relevant authorities, whichever is later. Without any liability for the non-compliance during the time specified above, the Applicant undertakes to cause the Corporate Debtor to expeditiously identify such expired consents, licenses, approvals, rights, entitlements,, benefits and privileges whether under law, contract, lease or license granted in favour of the Corporate debtor or to which the Corporate Debtor is entitled or accustomed to, evaluate the steps required to address the same and take steps to remedy the same to the extent practically possible. |
| 9. | The Corporate Debtor shall be deemed to be eligible to receive all consents, licenses, exemptions, approvals, rights, entitlements, extensions, waivers, benefits and privileges whether under law, contract, lease or license, which includes without limitation permissions for change of land use by the concerned Governmental and /or Regulatory Authorities as may be required by the Corporate Debtor, waiver and regularization of breach of lease deed, if any, or extension from concerned Governmental and/or Regulatory Authorities without payment of any penalties or charges or damages etc. which are essential for the purpose of running the Corporate Debtor as a going concern; |
| Related to Taxes | |
| 10. | It is prayed that any change in the shareholding of the Corporate Debtor pursuant to the sale and transfer of the Corporate Debtor as going concern shall not (a) result in lapse of any carry forward accumulated Tax losses of the Corporate Debtor in view of the specific provisions under Section 79 of the income Tax Act for change in shareholding and the Corporate Debtor shall be allowed to avail the carry forward accumulated Tax loss; (b) be considered as void under Section 81 of the Central Goods and Service Tax Act, 2017 and the concerned authority shall not impose any successor liability on the Applicant and the Corporate Debtor in respect of such sale of the assets of the Corporate Debtor; |
| 11. | Direct the Liquidator to, immediately, (i) write back all the liabilities of the Corporate Debtor, including creditors, term loans, working capital loans, tax liabilities, other statutory liabilities, etc. which are not payable and reflect the total liabilities as the amount of the consideration (as reduced by the amount of insolvency resolution process costs and the liquidation cost) determined in the auction; and (ii) the assets which are not recoverable (debtors, inventories and loans and advances, etc.) should be written down to their realizable value; in the financial statements (Profit and Loss Account and the Balance Sheet0 of the corporate Debtor as on 31st March 2021). The said financial statements should be prepared and filed by the Liquidator with the relevant regulators such as Registrar of Companies, Income Tax Authorities, etc. |
| 12. | Direct that any write back/written down liabilities of the Corporate Debtor shall not be treated as taxable income of the Corporate Debtor/Applicant under the Income Tax Act, 1961. Additionally, any write-offs shall be allowed as a tax deduction in the year of such write-off; |
| 13. | Direct that the requirement and applicability of certificate under section281 of the Income-tax Act, 1961 and provisions of taking over its predecessor’s tax liability under section 170 of the Income Tax Act, 1961shall be deemed to be compiled with on the Acquisition Date; |
| 14. | Allow setting off of losses and unabsorbed depreciation for the purpose of computation of book profit as permitted under section 115JB of Income Tax Act, 1961; |
| 15. | Exemption from any tax liability arising as a reason of acquisition of the Corporate Debtor as a going concern both in computing total income under the normal provisions of the Income Tax Act and in the computation of book profit u/s 115JB of the IT Act; |
| 16. | Allow filing return of income and/or revised return of income, for the Assessment Years prior to the Acquisition Date, i. If the said returns have not been filed within the due date of filing the said returns; or ii. Have been filed on the basis of financial statements prepared by the Corporate Debtor in violation of the provisions of Sec. 129 and Sec. 134 of the Companies act, 2013. |
| 17. | Waiver of any income-tax and Minimum Alternate Tax (MAT) liability or consequences (including interest, fine, penalty, etc) on Corporate Debtor, Applicant and its shareholder, including but not limited to liabilities if any under Section 41(1), Section 56, Section 43, Section 43B, Section 28, Section 115JB and Section 79 of the Income-tax Act, 1961, including, without limitation waiver of MAT and income tax implication arising due to write back/write off of liabilities in the books of accounts of Corporate Debtor without any impact on brought forward tax and book loss depreciation. |
Related to liability for past actions or omissions or non-compliances under applicable laws | |
| 18. | Direct that any non-compliance of provisions of any laws rules, regulations, directions, notifications, circulars, guidelines, policies, licenses, approvals, consents or permissions including any suspension, cancellation, revocation or termination, prior to the Date of Acquisition shall be deemed to be extinguished and/or regularised automatically, as the case ma be, on the Acquisition Date; |
| 19. | Direct that on and from the Date of Acquisition, all the claims or demands made by, or liabilities or obligations owned or payable to any actual or potential creditors of the Corporate Debtor including the Government Dues (including but not limited to liabilities, interest and penalties, duties, etc. on account of income-tax, tax deduction at source,, tax collection at source, goods and services tax, custom duty,, value added tax, service tax, wealth-tax, cess, DGFT dues, entry tax, EPCG, FEMA, professional tax, provident fund, gratuity sales tax, customs, excise, Fringe Benefit Tax authorities, Wealth tax authorities and any other liabilities and/or obligations which may have a financial impact) whether direct or indirect, whether admitted or not, due or contingent, asserted or unasserted, crystallized or uncrystallized, known or unknown, secured or unsecured, disputed or undisputed in relation to any period prior to the date of acquisition will be written off in full and shall stand permanently extinguished. |
| 20. | The relevant Governmental Authorities shall not initiate any investigations, actions or proceeding in relation to any non-compliances with Applicable Law by the Corporate Debtor during the period prior to the Acquisition Date. Neither shall the Applicant, nor the Corporate Debtor, nor their respective directors, officers and employee appointed on, after and as of the Acquisition Date be liable for any violations, liabilities, penalties or fines with respect to or pursuant to the Corporate Debtor not having in place requisite licenses and approvals required to undertake its business as per applicable law, or any non-compliances of applicable law by the Corporate Debtor. Further, the relevant Governmental Authorities will provide a reasonable period of time after the Acquisition Date, for the Applicant to assess the status of any non-compliances under the applicable law (including with respect to applicable environmental laws, directions or orders by the Ministry of Environment and Forest, permits clearances and forest related clearances) and to procure that the Corporate Debtor regularizes such non-compliances under the applicable law existing prior to the Acquisition Date without however the requirement of payment of any fees, charges, penalties or fines as if all such payments have been taken care of under the Sale Consideration and specifically extinguished at NIL value. The Applicant and the Corporate Debtor shall have immunity from any actions and penalties (of any nature) for any non-compliance in relation to the Corporate Debtor or by the Corporate Debtor; |
| 21. | Any Non-Compliance(s) of the Corporate Debtor under the Companies Act, 1956 and/or Companies Act, 2013 and/or the notifications, circulars, rules and regulations enacted/notified thereunder, prior to the Acquisition Date shall stand compounded without imposition of any additional obligation on the Corporate Debtor to pay any penalty, fees, etc. to the Regional Director and/or Registrar of Companies and/or Ministry of Corporate Affairs and/or any other regulatory or judicial authority having jurisdiction with regard to the same. |
| 22. | Actions taken pursuant to the sale and transfer of the Corporate Debtor as the going concern shall be exempt from compliance with applicable laws, including without limitation, the SEBI circular dated March 10,2017 on Schemes of Arrangement by Listed Entities and Relaxation of the Securities Contracts (Regulation) Rules, 1957; |
| 23. | Direct that all the liabilities of the Corporate Debtor in relation to the employees, workmen, workers, either in full time employment or contractual, including but not limited to the dues in respect to the salary and wages, employees state insurance, provident fund, gratuity, etc shall stand extinguished on the Acquisition Date; |
| 24. | Any bond, surety, guarantee, power of attorney, undertaking issued by the Corporate Debtor to any person, either in India or outside India before the Acquisition Date shall stand cancelled and permanently revoked. |
| Litigations, liabilities, inquiries, investigations etc. | |
| 25. | Direct that all inquiries, investigations, assessments, notices, causes of action, suits, claims, disputes, litigations, arbitration, or other judicial, regulatory or administrative proceedings against, or in relation to, or in connection with the Corporate Debtor or the affairs of the Corporate Debtor (other than against the Erstwhile Promoters or former members of the management including Directors, of the Corporate Debtor), pending or threatened, present or future, in relation to any period prior to the Date of Acquisition or arising on account of the acquisition shall be deemed to be withdrawn or dismissed without any cost and/or causing injury financially or otherwise to the Corporate Debtors or Applicant and interim order(s) if any, passed during such arbitration, or judicial, regulatory, or administrative proceedings be deemed to be immediately vacated; |
| 26. | All liabilities (including without limitation, for any penalty, interest, fines or fees) or obligations of the Corporate Debtor, in relation to: (A) any investigation, inquiry or show-cause, whether civil or criminal; (B) any non-compliance of provisions of any laws, rules, regulations, directions, notifications, circulars, guidelines, policies,, licenses, approvals, consents or permissions; (C) change of control, transfer charges, unearned increase, compensation, or any other such liability whatsoever under any contract, agreement, lease, license, approval, consent, privilege or permissions to which the Corporate Debtor or its subsidiaries, joint ventures or associates are entitled; (D) any leasehold rights or freehold rights to movable or immovable properties in the possession of the Corporate Debtor; (E) any contracts, agreements or commitments made by the Corporate Debtor, whether admitted or not, due or contingent, asserted or unasserted, crystalized or uncrystallized, known or unknown, secured or unsecured, disputed or undisputed, present or future, whether or not set out in the Balance Sheet or the profit and loss account statements of the Corporate Debtor, in relation to any period prior to the Acquisition Date or arising on account of the acquisition of control by the Applicant over the Corporate Debtor pursuant to the acquisition, shall be written off in full and shall stand permanently extinguished on Acquisition Date and the Corporate Debtor shall at no point of time be, directly or indirectly, held responsible or liable in relation thereto. |
| Property related reliefs | |
| 27. | Each asset (including properties, whether freehold, leasehold or license basis) of the Corporate Debtor shall be vested in the Corporate Debtor free and clear of all Encumbrances from the Acquisition Date; |
| 28. | Waiver of any property tax, whether or not claimed, whether or not filed, whether or not crystallized, whether or not accrued, whether or not admitted, whether or not notional, whether or not known, whether due or contingent, whether or not disputed, present or future, whether or not being adjudicated in any proceedings, whether or not decreed, whether or not being adjudicated in any proceedings, whether or not decreed, whether or not reflected in the financial statements of the Corporate Debtor, or whether or not reflected in any record, document, statement, statutory or otherwise, arising prior to the Acquisition Date shall be deemed to have been irrecoverably waived and permanently extinguished and written off in full with effect from the Acquisition Date; |
| Others | |
| 29. | Direct that on and from the Date of Acquisition, the status of the Corporate Debtor in the records of the Registrar of Companies should be reflected as ‘active’ from the status of ‘liquidation’; |
| 30. | All powers of attorney or authorities executed by the Board of the Corporate Debtor on or prior to the Acquisition Date shall stand revoked, cancelled and shall be void; |
| 31. | On and from the Acquisition Date, all accounts of the Corporate Debtor shall stand regularized and their asset classification shall be “standard” for the purposes of all applicable laws; |
| 32. | The Adjudicating Authority shall be pleased to pass necessary order/directions to the effect that the compliances under the applicable law for all the statutory appointments of the Corporate Debtor including but not limited to the appointment of statutory auditors company secretary, etc, will be complied with a period of 12 (Twelve) months from the Acquisition Date and the non-compliance within the period shall be deemed to be waived off/condoned; |
| 33. | The Corporate Debtor shall be allowed to participate in auction sale/tenders/offers/proposals of all department/ authorities/ public sector undertakings for a period of 3 (Three) years from the Acquisition Date without having to submit the details on the past revenue, profitability records, net worth etc.; |
| 34. | On and from the Acquisition Date, the Applicant have the liberty to restructure.re-align/ re-locate/ merge/ demerge/ amalgamate the business operations/ units of the Corporate Debtor in the interest of successful revival of business of the Corporate Debtor; |
| 35. | The Applicant/ Corporate Debtor shall be at liberty to rationalise the employee strength of the Corporate Debtor in order to keep it as a going concern. |
| 36. | Direct the Liquidator to provide audited financial statement of the Corporate Debtor for the period 01.04.2021 till Acquisition Date within 60 days of issue of Sale Certificate. |
Analysis and Findings
We have heard the Ld. Counsel appearing on behalf of the Applicant and perused the reliefs, waivers and concessions as sought and as given in at Paragraph 7 of the Application. While some of the reliefs, waivers and concessions sought by the Successful Bidder come within the purview of the Code and the Companies Act 2013, while many others fall under the power and jurisdiction of different government authorities/departments. This Adjudicating Authority has power to grant reliefs, waivers and concessions only with respect to the reliefs, waivers and concessions that are directly in relation to the Code and the Companies Act, 2013 (within the powers of the NCLT). The reliefs, waivers and concessions that pertain to other governmental authorities/departments shall be dealt with the respective competent authorities/forums/offices, Government or Semi Government of the State or Central Government with regard to the respective reliefs, waivers and concession. The competent authorities including the Appellate authorities may consider grant such reliefs, waivers and concessions keeping in view the spirit of the code (IBC 2016) .
The reliefs, waivers and concessions shall be consistent with extant law. Further since this is a ‘Going concern sale’ , the Successful Bidder shall make necessary applications to the concerned regulatory or statutory authorities for renewal of business permits and supply of essential services, if required, and all necessary forms along with filing fees etc. and such authority shall also consider granting the same keeping in mind the objectives of the Code which is concerned with resolving of the insolvency of the Corporate Debtor. However the liability for offences committed prior to the CIRP shall cease as provided in Section 32A of the Code (IBC 2016).
With respect to the waivers with regard to extinguishment of claims which arose Pre-CIRP and which have not been claimed are granted in terms of Ghanashyam Mishra and Sons Pvt Ltd v Edelweiss Asset Reconstruction Company Ltd1wherein the Hon'ble Supreme Court has held that once a resolution plan is duly approved by the Adjudicating Authority under sub-section (1) of section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Govt, any State Govt or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan. The Hon’ble Supreme Court also held that all the dues including the statutory dues owed to the Central Govt, any State Govt or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under section 31 could be continued.
With respect to the waivers sought in relation to guarantors, the judgment of Lalit Kumar Jain v Union of India &ors,2wherein the Hon’ble Supreme Court held in para 133 that sanction of a resolution plan and finality imparted to it by section 31 does not per se operate as a discharge of the guarantor's liability shall apply.
Now, the only question that craves answer is the applicability of the ratio of above two judgements to the present question where the Corporate Debtor has been sold as a going concern. In our opinion, the sale of the Corporate Debtor as a going concern is akin to a de-facto CIRP, and therefore the judgments are applicable in the present case of a going concern sale too, shall therefore be applicable in the present case as well.
Accordingly, the IA (IB) No. 1045/KB/2023 in CP (IB) No. 1312/KB/2019 is disposed of.
The Registry is directed to send e-mail copies of the order forthwith to all the parties and their Ld. Counsel for information and for taking necessary steps.
A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.
Footnotes
- 120.21 SCC OnLine SC 313 decided on 13.04.2021.
- 2.2021 SCC OnLine SC 396 decided on 21.05.2021.