Mr. Ashok Kumar vs KTC Foods Private Limited & Ors.

Justice Anant Bijay Singh;

This Appeal has been preferred by the Appellant (Operational Creditor) being aggrieved and dissatisfied by the order dated 18.05.2020 passed by the Ld. Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, Chandigarh in CA No. 1189/2019 & IA No. 132/2020 in CP(IB) No. 136/Chd/Hry/2018 whereby and where under the Application filed by Mr. Anup Kumar Singh (Respondent No. 3 herein) through Liquidator in the matter of K.T.C. Foods Pvt. Ltd (Respondent No. 1 herein) to approve the closure of the liquidation process of K.T.C. Foods Pvt. Ltd. under Regulation 45 (3)(a) read with Regulation 32A and 33(1) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 whereby the prayer made in the Application was for directions to Respondent No. 2 to make the payment of claim. The said Application was rejected.

The facts giving rise to this Appeal are as follows:

The Learned Counsel for the Appellant during the course of argument and in his memo of Appeal along with Written Submissions submitted that the Liquidator in its Application i.e. C.A. No. 1189 of 2018 had sought the closure of the liquidation process and sought the sale of the Corporate Debtor as a going concern without any liabilities.

It is further submitted that the Liquidation Process Amendment Regulation, 2019 was notified on 25.07.2019. In reference to IBBI Circular No. IBBI/LIQ/024/2019 dated 26.08.2019 clarifying, that the process of Liquidation Process Amendment Regulation, 2019 is not applicable to Liquidation Process before 25.07.2019. The date of Liquidation order in the present matter was passed on 31.05.2019.

It is further submitted that in terms of new amended regulation, if the assets and liabilities are going to be sold as a going concern, it is needed to be identified by the consultation committee. The consultation committee in the present matter was not formed. So, the observation was made by the Ld. Adjudicating Authority that despite, the non-constitution of the Stakeholders Committee, the going concern sale process in the present matter can be followed under Regulation 45(3) (a) with Regulation 32A and 33(1) of the Liquidation Process Regulation, 2016.

It is further submitted that since the Corporate Debtor has been sold as a going concern, therefore, it should own both of its assets and liabilities. The Ld. Adjudicating Authority relied decision on the Bank of India Vs. Southern Online Biotechnologies Ltd. has observed that any liability prior to E-auction during the liquidation process would not be applicable to the person who is purchasing the Corporate Debtor as a going concern.

It is further submitted that in the present case no stakeholders committee was formed and the Ld. Adjudicating Authority on its own had allowed the sale of Corporate Debtor as a going concern in the terms of amended regulations. When the auction purchaser is taking benefit of purchasing the Corporate Debtor as going concern, its assets and liabilities should also be owned by it.

The Learned Counsel for the Appellant further in the additional Written Submissions submitted that the Ld. Adjudicating Authority has completely overlooked Regulation 39C of the CIRP Regulations; 32 and 32A of the Liquidation Process, Regulation 2016 by passing the impugned order.

It is further submitted that the Liquidator (Respondent No. 3) was completely at default of following the mandated statutory procedure provided under the IBC and the Ld. Adjudicating Authority has completely overlooked the said aspect by passing the impugned order. Therefore, based on these submissions the impugned order is liable to be set aside.

The Learned Counsel for the Respondent No. 1 during the course of argument and in his Reply Affidavit along with Written Submissions submitted that since no resolution plan was received during the CIRP Period, the Corporate Debtor was ordered to be liquidated vide an order dated 31.05.2019. The Liquidator conducted the liquidation process as prescribed under the law. In response to the public advertisement, the Appellant lodged its claim and the same was duly admitted by the Liquidator.

It is further submitted that the liquidation process progressed in compliance with the IBBI (Liquidation Process) Regulations, 2016 and further summary of Valuation Reports received during the CIRP Period reflected the Fair Value at 24.63 crores and Liquidation Value at 18.45 crores. The Liquidator conducted an E-auction sale and accordingly a company named Shiv Shakti Inter Globe Exports Pvt. Ltd. (Respondent No. 2) participated in the e-auction and was declared as the highest bidder for its successful bid for an amount of Rs. 18,45,86,646/- being 100% of the reserve price. So, in view of the same, the sale was completed and accordingly proceeds were distributed as stipulated under Section 53 of the IBC.

It is further submitted that subsequently, the Liquidator (Respondent No. 1) filed an application under Regulation 45(3) (a) read with Regulation 32A and Regulation 33(1) of IBBI (Liquidation Process) Regulations, 2016 with a specific prayer to approve the sale of the Corporate Debtor as a going concern without any liabilities including contingent liabilities.

It is further submitted that vide an order dated 18.05.2020, the Ld. Adjudicating Authority approved the closure of the liquidation process of the Corporate Debtor. Subsequent to the closure of the liquidation process, the Appellant has filed an Appeal against the closure of the liquidation process claiming that he is entitled to his dues for which he has lodged his claim before the Liquidator.

It is further submitted that sale as a ‘going concern’ or ‘as is where is whatever there is’ basis can be only with assets and not liabilities. As per the Regulation 32A of IBBI (Liquidation Process) Regulations, 2016, the Liquidator is authorized to sell a company on a ‘going concern’ basis. Accordingly, the e-auction notice clearly enumerates sale of the Corporate Debtor as a ‘going concern’. In this case, the sale as a going concern basis has been further defined by the clause “as is where in whatever there is basis” which defines a going concern sale and if both are read together then it signifies a sale of only assets and not liabilities. In this context, it is well settled and has been upheld in numerous proceedings/decisions that the sale of the company as a ‘going concern’ is without previous liabilities or encumbrances. The said decisions had passed in the case of “Official Liquidator, High Court Vs. Ujjain Nagar Palika Nigam and Ors., (2009) SCC Online Cal. 322 at para 12 & 14 and Jamshedpur Cements Ltd. Vs. Adityapur Industrial Area Development Authority and Ors. (2011) SCC Online Cal 1098 : (2011) 164 Comp Cas 72 at para 26” which are as under:

It is further submitted that the sale of a company as a going concern, provides the leeway to define the company as eligible to be liquidated with its whole assets. Going by the prevailing law and terms of e-auction notice, the present owner be given a clean slate and be exempted from all pre-liquidation liabilities.

It is further submitted that claims of third parties has to be distributed in the manner stated in Section 53 of the IBC. It is submitted that allowing claims or liabilities is de hors the provisions enumerated under the Code. Commencement of Liquidation proceedings compels public advertisement to be made in compliance with the provisions of the IBC read with relevant Regulations. Duty is casted upon the Liquidator to invite submission of claims from all the stakeholders of the Corporate Debtor. The Liquidator upon receiving the claims verified and collated the same and prepared the lists of stakeholders. Subsequently, upon taking custody and control of all the assets of the Corporate Debtor, the Liquidator prepared the asset memorandum and put up the Corporate debtor on sale. Therefore, any proceeds out of sale will be governed under the provisions of Section 53 of the IBC.

It is further submitted that in the present case, the total amount of claims received from all stakeholders was 162.67 crores out of which 151.78 crores were admitted. The sale of the Corporate Debtor was for consideration of 18.45 crores and as per the waterfall mechanism prescribed under Section 53 of the Code, the same has been appropriated towards the debt of the Financial Creditors. Therefore, the Operational Creditors including the present Appellant is not entitled to any payment. Based on these submissions the Appeal is fit to be dismissed.

The Learned Counsel for the Respondent No. 2 during the course of argument and in his Reply Affidavit submitted that merely because the Respondent No. 2 purchased the Respondent No. 1/Corporate Debtor as a going concern would not entitle the Appellant to claim its alleged amount from the Respondent No. 2. The Ld. Adjudicating Authority in para 10 of the impugned order recorded that the Liquidator has sold the Corporate Debtor as a going concern and also distributed the proceeds as per Section 53 of the Code. The Ld. Adjudicating Authority did not find any illegality in the distribution of proceeds.

It is further submitted that the Code or the Regulation made thereunder does not provide that if a Corporate debtor is sold as a going concern during the liquidation process, the claim of the Financial Creditors or the Operation Creditors would be alive or will be maintainable against the Corporate Debtor (under liquidation) or the entity/purchaser of the Corporate Debtor. It is not a case where the Respondent No. 1/Corporate Debtor’s business has been sold. Thus, the prayer sought for by the Appellant claiming the amount against the Respondent No. 2 is not maintainable and as such no relief can be granted to the Appellant.

It is further submitted that Section 53 of the Code is the substantive provision which provides distribution of assets. Section 53 of the Code does not distinguish or provide different mechanism for distribution of assets when a company is sold as a going concern without dissolution or when a company is dissolved. Thus, in the absence of any statutory provisions governing distribution of assets where a company is sold as a going concern under liquidation, relief claimed by the Appellant is not maintainable. Based on these submissions the Appeal is fit to be dismissed.

The Learned Sr. Counsel for the Respondent No. 3 during the course of argument and in his Reply Affidavit along with Written Submissions submitted that on 05.11.2019, the Respondent No. 3 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.

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.

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.

It is further submitted that Oriental Bank of Commerce was Respondent No. 1 sole Financial Creditor and confirmed relinquishment of its security interest over Respondent No. 1 fixed, current and non-current assets, by its email dated 05.10.2019 sent to Respondent No. 3. Therefore, as a secured creditor having relinquished security as per Section 52 of the IBC, the Oriental Bank of Commerce ranked higher in priority to all the 8 Operational Creditors of Respondent No. 1 including the Appellant. Consequently, none of the Operational Creditors, including the Appellant are liable to any payment from the sale proceeds. Therefore, the Appellant has no locus standi to maintain the present Appeal which is accordingly liable to be dismissed FINDINGS

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 Appellant (Operational Creditor) filed Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 before the Ld. Adjudicating Authority in which the Ld. Adjudicating Authority vide order dated 29.08.2018 initiated the Corporate Insolvency Resolution Process against the Respondent No. 1 Company.

 The Appellant submitted his proof of claims under FORM-B, being an Operational Creditor before the Interim Resolution Professional along with an affidavit and documents required to furnish to prove my claim for an amount of Rs. 5,49,73,699/- which includes Rs. 3,43,21,069/-due as Principal amount and Rs. 2,06,52,630/- due as interest on the delayed payment.

 From the perusal of the Minutes of the Second Meeting of the Committee of Creditors dated 23.10.2018 clearly admits the aforesaid claim of the Appellant/Operational.

 It is also an admitted fact that the CIRP process was being conducted, since there was no Resolution Plan received till 15.04.2019, the Committee of Creditors in its meeting held on 25.04.2019 passed resolution with 100% voting rights approving liquidation of the Respondent No. 1 Company/Corporate Debtor. The Ld. Adjudicating Authority passed the liquidation order vide its order dated 31.05.2019 (Annexure A-5 at page 83 to 89 of the Appeal).

 The valuation reports were obtained which showed the fair value at Rs.

crores and liquidation value of the Corporate Debtor/Respondent No. 1 Company at Rs. 18.45 crores.

 The Respondent No. 2 has already remitted the entire bid value of Rs.

18,45,86,646/- under e-auction process and the Respondent No. 2 has acquired all its assets and liabilities but through the impugned order dated 18.05.2020 passed by Ld. Adjudicating Authority has rejected the prayer for directions to Respondent No. 2 to make the payment of claim to the Applicant (Appellant herein).

 The sale as a ‘going concern’ or ‘as is where is whatever there is’ basis can be only with assets and not liabilities. As per the Regulation 32A of IBBI (Liquidation Process) Regulations, 2016, the Liquidator is authorized to sell a company on a ‘going concern’ basis.

 E-auction notice clearly enumerates sale of the Corporate Debtor as a ‘going concern’ is without previous liabilities or encumbrances which is supported by the decisions passed in the case of “Official Liquidator, High Court Vs. Ujjain Nagar Palika Nigam and Ors., (2009) SCC Online Cal. 322 at para 12 & 14 and Jamshedpur Cements Ltd. Vs. Adityapur Industrial Area Development Authority and Ors. (2011) SCC Online Cal 1098 : (2011) 164 Comp Cas 72 at para 26” which are quoted hereinabove.

 The Oriental Bank of Commerce is the sole Financial Creditor and confirmed relinquishment of its security interest over Respondent No. 1, current and non-current assets, by its email dated 05.10.2019 sent to Respondent No. 3 and the Oriental Bank of Commerce higher in priority to all the 8 Operational Creditors of Respondent No. 1 including the Appellant. So, they paid the entire amount of INR 18,45,86,646 towards 13.17% of the admitted debt to Respondent No. 1 sole Financial Creditor.

Taking all these facts and circumstances of the case, we have no occasion to interfere in the impugned order. The impugned order dated 18.05.2020 passed by the Ld. Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, Chandigarh in CA No. 1189/2019 & IA No. 132/2020 in CP(IB) No. 136/Chd/Hry/2018 is hereby affirmed. There is no merit in the Appeal. The Appeal is hereby dismissed. No order as to costs.

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.