Shree Saibaba Sugars Limited vs Mr. Sachin Shriniwas Bhattad

Per: Anil Raj Chellan, Member (Technical)

This Application was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (the Code) read with Rule 11 of the National Company Law Tribunal Rules, 2016 (NCLT Rules) by the successful bidder in the e-auction conducted by the liquidator of Rudrani Health Care Services Limited (Corporate Debtor). The Applicant, being the purchaser of the Corporate Debtor as a going concern, seeks certain reliefs, concessions, and exceptions for keeping the Corporate Debtor as a going concern.

The Corporate Debtor was incorporated on 14.11.2008 and was involved in the business of healthcare activities. However, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP) pursuant to an order dated 07.09.2021 passed by this Tribunal. Mr. Sachin Shriniwas Bhattad, the Respondent, was appointed as the Interim Resolution Professional and later confirmed as the Resolution Professional by the Committee of Creditors (CoC).

Subsequently, the Respondent filed an application under section 33 of the Code for the initiation of liquidation of the Corporate Debtor. While allowing the said application on 27.01.2023, the Tribunal ordered that the Corporate Debtor be liquidated as a going concern for the first attempt, and if it fails, then sale by other methods should be tried. By the same order, the Respondent was appointed as the liquidator of the Corporate Debtor.

Accordingly, the Respondent published on 08.09.2023 an auction notice for the sale of the Corporate Debtor as a going concern i.e., a company with all the assets and without any liabilities on “as is where is basis”, “as is what is basis”, and “no recourse basis”. The auction process document was published on 08.09.2023, and an addendum was also issued on 30.09.2023.

The Applicant submitted an Expression of Interest (EOI) on 18.09.2023 to participate in the process of auction and also furnished an EMD of Rs. 1,00,00,000/- on 30.10.2023 as per the process document.

The e-auction for the sale of the Corporate Debtor as a going concern was held on 06.10.2023, and the bid of Rs 15,36,92,375/- submitted by the Applicant was accepted by the liquidator. Thus, the Applicant becomes the successful bidder. The Letter of Intent (LOI) was issued by the liquidator on 07.10.2023, which was accepted unconditionally by the Applicant.

Subsequently, the Applicant paid the full sale consideration as contemplated under the auction process document as follows:

On receipt of the sale consideration, the liquidator executed a registered certificate of sale dated 30.11.2023 for transferring the Corporate Debtor as a going concern with all the assets and without any liabilities to the Applicant. In pursuance of the above sale certificate, the liquidator handed over the assets of the Corporate Debtor to the Applicant, and a letter of handover of possession dated 14.12.2023 was issued in favour of the Applicant.

It is submitted by the Applicant that the sale of the Corporate Debtor as a going concern in liquidation under the Code entails acquisition of the Corporate Debtor and its assets without any encumbrance or charge and free from action of creditors or other statutory liabilities. It is further submitted that all liabilities of creditors, including statutory liabilities, stand extinguished from the date of issuance of the Sale Certificate dated 30.11.2023. In support of the above, the Applicant placed reliance on the decision of the Hon’ble NCLAT in Shiv Shakti Inter Globe Exports Pvt. Ltd. v. KTC Foods Private Limited and Ors [Company Appeal (AT) (Insolvency) No. 650 of 2020].

It is further submitted that, in order to ensure the smooth running of the business of the Corporate Debtor, it is imperative that certain reliefs, concessions and permissions are provided to the Applicant. Without these reliefs/ concessions, the purchase of the Corporate Debtor as a going concern is of no use to the Applicant. Further, the purpose of achieving the value maximisation as envisaged under the Code and the allied regulations will be possible only if the reliefs, exemptions, and concessions sought in the application are granted. The Applicant placed reliance on the decision of the Hon’ble NCLAT in Jasamrit Designers Pvt. Ltd. v. Mr. Gian Chand Narang, Liquidator of Apex Buildsys Ltd. [Company Appeal (AT) (Insolvency) No. 258 of 2023].

The Ld. Counsel for the Respondent/Liquidator appeared but did not file any reply to this IA. Hence, we perused all the documents available on record and heard the Ld. Counsel for the Applicant.

It is noticed that the Corporate Debtor was sold as a going concern in the liquidation process initiated under the Code in an e-auction conducted on 06.10.2023. The Applicant emerged as the successful bidder. After payment of the entire sale consideration, the liquidator issued sale certificate dated 30.11.2023 and handed over possession on 14.12.2023. The Applicant is now seeking certain reliefs and concessions to keep the Corporate Debtor as a going concern.

Before delving into the submissions of the Ld. Counsel for the Applicant and the prayers in the application, it will be useful to notice the legal position of a ‘going concern sale’ under the Code and allied Regulations.

The Code, read with the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Process Regulations) framed thereunder, envisages three modes of revival of corporate debtor:

The reason for incorporating modes (b) and (c) referred herein above is obvious, that liquidation is a matter of last resort, and sale as a going concern is likely to fetch better value for all stakeholders. If the assets of the corporate debtor are sold separately or enforced by the secured creditors, many intangibles forming part of a business such as contracts, leases, licenses, concessions, operational assets, manpower, technology, etc., would be lost in the process as these assets either may not be transferable at all or may require third-party concurrence/approval for each such transfer.

The present case is in the liquidation, so we focus our examination on the sale of the corporate debtor as a going concern in the liquidation process. Section 35(1)(f) of the Code lays down the powers and duties of the liquidator, one of which is, to sell the immovable and movable properties and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, to sell the same in parcels in such manner as may be specified.

Regulation 32 of the Liquidation Process Regulations further provides as under:

Thus, in Regulation 32 of the Liquidation Process Regulations, two modes are contemplated for the sale of the corporate debtor as a going concern. The distinguishing factor between the sale of the corporate debtor as a going concern as per subclause (e) and the sale of the business of the corporate debtor as a going concern as per subclause (f) appears to be that in the former situation, the corporate entity will continue without any dissolution.

While the Liquidation Process Regulations explicitly recognise ‘sale as going concern’ as one of the methods of sale, neither the Code nor the Liquidation Process Regulations provides the definition of ‘going concern’. In one of the round tables of IBBI with stakeholders held on 21.05.2018 to understand difficulties in selling corporate debtor as a going concern described ‘going concern’ as under:

Although the above description of ‘going concern’ may not be of much relevance, it is apparent that the central aim of selling a corporate debtor as a going concern under the liquidation process is to preserve the corporate entity as a functional business to save employment while maximising the returns for stakeholders. In other words, the ownership of the corporate debtor is transferred to the acquirer for operationalisation of the corporate debtor on certain terms and conditions as contained in the process document.

Bearing in mind the general objective of going concern sale, it would be apposite to deal with reliefs sought in the application:

It is noticed that the auction process document dated 08.09.2023, published by the liquidator, stipulates as under:

In an auction sale, the process document issued by the liquidator sets out the terms and conditions under which the sale will occur. This document serves as the definitive guide for all participants, making it binding not only on the acquirer, liquidator, and creditors but also on the public, including potential bidders, unless the terms contradict existing laws or violate public policy.

The Hon’ble NCLAT, in the case of Shantech International Pvt. Ltd. v. Devendra Singh, Liquidator of Venus Rolling Mills Pvt. Ltd followed the principle that the waiver of liabilities with regard to dues of the corporate debtor should be dealt with according to the terms of the e-auction. In the present case, the process document states that the liabilities of the Corporate Debtor would be settled by the liquidator as per the provisions of the Code and the buyer would not be liable for such prior liabilities.

In view of the above, we hold that the Applicant is not liable for past liabilities of the Corporate Debtor.

It is the contention of the Applicant that the sale of the corporate debtor as a going concern has all the same attributes and characteristics of a resolution plan sanctioned under Section 31 of the Code. Consequently, whatever benefits and rigors apply to the resolution plan under Section 31 of the Code must equally apply to the sale as a going concern in the liquidation process. Against this backdrop, it becomes necessary to notice that approval of the resolution plan involves multi-stakeholder consultations and application of mind in planning the future viability of the corporate debtor and takes place within the institutional framework of the Code. Further, a resolution plan once approved by the Adjudicating Authority is binding on all stakeholders as per the explicit provisions of the Code, and as a result, the stakeholders are bound to take the exercise of restructuring carefully and pragmatically. On the contrary, sale as a going concern is a mere sale instead of restructuring. Most of the stringent provisions that apply to the resolution plan are conspicuously absent in the case of sale as a going concern. The viability and feasibility of keeping the corporate concern are never a consideration, and the decision is left to the liquidator, requiring no approval from the Adjudicating Authority.

If the acquisition through the liquidation route provided the same level of reliefs and concessions as a resolution plan, the applicants might circumvent the resolution process entirely, choosing the liquidation sale for its simplicity and fewer procedural requirements. This would undermine the Code’s structured approach, which prioritizes collective creditor involvement and consensus in restructuring efforts.

Thus, although both modes aim to revive the corporate debtor, in our opinion, both are different, not comparable, and belong to distinctly different categories under the Code.

In the case of Gujarat Urja Vikas Nigam Limited v. Mr. Amit Gupta & Ors, the Hon’ble Supreme Court observed as under:

Thus, it is well settled that the Tribunal cannot exercise jurisdiction over matters dehors the insolvency proceedings. The Tribunal cannot clothe itself with jurisdiction unless it is expressly conferred on it by the provisions of the Code or the allied rules and regulations, or unless such matters are directly connected to the insolvency proceedings.

Section 32A of the Code provides that the liability of a corporate debtor, for offences committed prior to the commencement of the Corporate Insolvency Resolution Process, will stand extinguished from the date a resolution plan is approved by the adjudicating authority or sale of liquidation assets, subject to certain conditions being fulfilled. This immunity under Section 32A is applicable once the approved resolution plan mandates a change in the management of the corporate debtor if such persons (1) were not directly or indirectly related to the old management of the corporate debtor; or (2) have not abetted or conspired for the commission of such an offence committed by the corporate debtor. Sub-section (2) seeks to extend the warranty in respect of the properties of the corporate debtor upon approval of the resolution plan or sale of liquidation assets, while providing assurance against liability. Lastly, sub-section (3) obligates any such persons to aid any enforcement authority investigating under any applicable law.

It is pertinent to observe that the immunity provided under Section 32A of the Code is premised on various conditions being fulfilled. Subject to those conditions, the immunity can be extended for the sale of liquidation assets.

A plain reading of Section 31 of the Code emphasises the need to obtain approvals required under the applicable laws even after a resolution plan is sanctioned. Thus, the scheme of the Code is not to dispense with the approvals and licenses required under the various laws but insists that the same be obtained within a timeframe. However, certain procedural dispensations are permitted under the Code for reduction and cancellation of whole or part of the equity share capital, and reconstitution of the Board of Directors for taking over the corporate debtor.

Similarly, the terms of a contract cannot be unilaterally changed, except through legislative intervention, to strike the appropriate balance between contractual freedom on the one hand and corporate rescue on the other. Thus, we are of the view that the contracts with the corporate debtor cannot be unilaterally altered or terminated without even hearing the other party.

On account of the above, the Tribunal cannot grant a revival of license, approval, or alter the terms of the contract.

As a result of the above detailed discussions, we consider it appropriate to partly allow the application as specified hereunder. All other reliefs, concessions, or prayers shall be deemed to have been rejected. However, the Applicant shall be at liberty to approach the concerned authorities for the reliefs not granted by this Tribunal. The specific findings on the reliefs, exemptions, and concessions are tabulated as under:

each, aggregating to INR 1,00,000/- to the Applicant and its nominees.

Thus, prayer (a) is partly allowed, and others are not granted. IA No. 3463/2024 stands disposed of with no order as to costs.