IBC Digest by AVM Resolution Professionals LLP.

IBC Digest by AVM Resolution Professionals LLP.

NCLT JUDGEMENTS

1.Sale of CD as a going concern means sale of assets and liabilities of the CD on “as is where is basis” basis.

The National Company Law Tribunal- Division Bench II- Chennai in the matter of M.S Viswanathan v. Pixtronic Global Technologies Pvt. Ltd. (CP/699/IB/2017) approved the application filed by the Applicant herein the Liquidator of Gemini Communications Ltd. regarding the sale of Corporate Debtor (CD) as a going concern.

The Corporate Insolvency Resolution Process (CIRP) was ordered by the Tribunal vide order dated 20.06.2018 and since no Resolution Plan was received by the Resolution Professional, the Tribunal vide order dated 26.02.2019 passed an order for Liquidation of the CD and appointed S. Kasi Viswanathan asthe Liquidator after which, due to the expressinability of Mr. Kasi to continue, the Applicant was appointed as the Liquidator.

It has been contended that an advertisement in 'Business Standards' and 'Makkal Kural' was published on 22.02.2021 for the sale of CD as a going concern and an e-auction was conducted on 10.03.2021, however, no bidders participated. It was further submitted that another notice was published on 30.03.2021 where the date for e-auction was fixed as 16.04.2021, wherein, the Respondent participated as a sole bidder and was successful.

The respondent deposited 255 of the bid amount on 19.04.2021 and filed an application under Regulation 47A of the IBBI (Liquidation Process) Regulation, 2016 for an extension of time for the remaining payment, which was duly approved by the NCLT vide order dated 14.09.2021 and granted 90 days extension for the payment of balance amount. It was submitted that the Respondent paid the balance amount in the allocated time, where after, a sale certificate was issued to the Respondent. Furthermore, the bid amount is lying in the Liquidation account of CD which will be dispersed as per Section 53 of the IBC.

It is also submitted that an application under Section 66 of IBC which was filed by the RP is pending before the Tribunal. Thus, this application has been filed under Regulation 32(e) of the IBBI (Liquidation Process) Regulations, 2016, seeking approval for the sale of CD as a going concern.

The Tribunal defined 'going concern' as all such assets and the liabilities, which constitute an integral business or the Corporate Debtor, that must be transferred together, and the consideration must be for the business or the CD.

The Tribunal further drew the difference between the sale of 'CD as a going concern' and sale of 'business of CD as a going concern' which are provided under Regulation 32(e) and Regulation 32(f)of IBBI (Liquidation Process ) Regulations, 2016, respectively. Concerning Regulation 32(e), the CD will not be dissolved and only the interests and rights will be transferred to the acquirer. The existing shares of the Corporate Debtor will not be transferred and shall be extinguished.

Whereas with respect to Regulation 32(f), everything is transferred except the CD, thus, the CD is dissolved. It was concluded by the Tribunal that the Sale as a 'Going Concern' means a sale of assets as well as liabilities and not assets sans liabilities. Therefore, the sale of a Company as a 'Going Concern' means a sale of both assets and liabilities, if it is stated on 'as is where is basis'. Thus, the Tribunal allowed the application filed by the Applicant for the sale of CD as a going concern. It was further held that, after distributing the proceeds to the stakeholders as per Section 53 of IBC, 2016 the applicant may file an application under Regulation 45(3) of the IBBI (Liquidation Process) Regulations, 2016 for closure of the Liquidation process.

2.Successful Bidder in Liquidation can be granting Relief, Concession, and Waiver.

The National Company Law Tribunal, Kolkata Bench, in the matter of Dekon Enterprises Pvt. Ltd. Vs. Anil Anchalia, approved the interim application filed by the Respondent, Liquidator of Crystal Cable Industries Limited ('Corporate Debtor'), seeking relief and concessions to ensure the smooth running of the business of Corporate Debtor (CD).

The Corporate Insolvency Resolution Process (CIRP) was initiated against the CD wherein the Adjudicating Authority (AA) passed an order for liquidation and the respondent was appointed as liquidator. The offers for sale of assets of the CD as a going concern were fixed at Rs. 18.39.00,000/- only. The applicant participated in the auction and was declared a successful bidder as he was the sole bidder. A Letter of Intent was issued by the Liquidator on 27.09.2021. Subsequently, the possession assets of the CD were handed over to the applicant. The applicant requested the respondent for issuance of fresh shares and reconstitution of the board along with the grant of certain reliefs and concessions for a smooth transition. The respondent conveyed to the applicant that they can approach AA as per sub-clause (g) of clause (l) on page no. 22 of the Process Information Document for any specific relief.

The applicant contended that they have already paid the full consideration amount to Liquidator and acquitted CD as a going concern and reliefs sought are necessary as only the purchase of CD as a 'going concern' is insufficient to run the operations of the CD. It was further contended that the reliefs sought are for the successful running of operations of CD.

The reliance was also put on Maithan Alloys Limited v. Samir Kumar Bhattacharya, Liquidator of Impex Metal & Ferro Alloys Limited wherein the AA granted reliefs and concessions and waivers in the context of the sale of a corporate debtor as a going concern under the Liquidation Process Regulations.

There were no objections raised by the respondent. Hence, the AA in this particular matter approved the reliefs and concessions and waivers, that was sought by the applicant.

3.IRP of CD cannot act as IP of the personal guarantor of the concerned CD.

The National Company Law Tribunal – Chennai Bench, in the matter of S.S Premkumar & Anr. (CP(IB)/80(CHE)/2021) held that Interim Resolution Professional who is appointed in respect of the Corporate Debtor (CD) cannot ac as Insolvency Professional (IP) of Personal Guarantor of the concerned CD.

The present interim application was by the applicant who is the Creditor of the CD for rectification of the order passed by the Adjudicating Authority (AA) on 04.02.2022.

It was contended that vide order dated 04.02.2022, Mr. Amier Hasma Ali Abbas was appointed as the Resolution Professional (RP). Explanation to Regulation 4(1) of the Insolvency and Bankruptcy Board of India (Insolvency Regulation Process for Personal Guarantor to Corporate Debtor) states that Interim Resolution Professional who is appointed in respect of the CD cannot ac as IP of Personal Guarantor of the concerned CD and hence it was contended to replace the RP by another IP. Further, it was contended that an error was committed by the Applicant while filling in Part-IV of Form-C. It was further submitted that paragraph 4 stated that the company petition was filed by IP whereas, it was filed by the applicant and thus, it was an inadvertent error.

The Tribunal in this case held that an application filed under Section 95 of IBC is to be filed in accordance with Rule 7(2) of Insolvency & Bankruptcy (Application to the Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) wherein it has been stated that the Part-IV of Form-C is required to be filled only when the Application is filled via IP.

Since in the present case the applicant filled the part-IV also, the AA observed that the petition was filed by the IP.

The filling of Part -IV of Form C by the applicant made it superfluous. As per Rule 154 of NCLT Rules which empowers the Tribunal to rectify its orders, the AA rectified the order and clarified that the company petition was filed by the creditor and not the IP.

Furthermore, concerning the replacement of RP, it was held that RP in respect of Personal Guarantor violates IBBI Regulation and not the provisions of IBC, hence the order is not to be recalled as IBBI Regulations act as a guideline and not as a mandatory provision and the AA under Rule 154 rectified the error and appointed G. Ramachandran as IP for the Personal Guarantor of the CD.

4.Suspended BOD not barred from objecting to the act of Resolution Professional

The National Company Law Tribunal-Kolkata Bench in the matter of Anand Kariwala Vs. Mr. Partha Pratim Ghosh, Resolution Professional held that suspended BOD can object to the act of the Resolution Professional (RP) if the act of RP is anyway prejudicial to CD or in violation of the procedural requirement.

The interim application was filed by the suspended member of the Board of Directors (BOD) under Section 60(5) of IBC. The CD was admitted into CIRP vide order dated 24.10.2019 by the AA.

It was contended by the applicant that hereceived only three notices for the meeting of CoC and not any further. The applicant submitted that it came to his knowledge about the conduction of several meetings of CoC when he received a notice for handing over the vehicle of CD.

The applicant came to know about the Resolution Plan being under consideration before CoC and the Respondent 1 denied the applicant to share the Resolution Plan thereafter when the applicant approached the AA, he was provided with the Resolution Plan. It is further submitted that Resolution Plan has not in any way maximized the value of the assets of the CD and also did not balance the interests of all shareholders. Also, it was submitted that the Resolution Applicant has no prior knowledge of the business of CD.

Respondent 1 contended that the Applicant's son attended the first CoC meeting and since he was not a member of suspended BOD, he was not permitted to attend the same.

It was also contended that the notices were duly sent to other suspended BOD and also to the registered email address of the CD. Concerning the sharing of the Resolution Plan, it was contended that as soon as the Non-Disclosure Agreement was submitted by the applicant, the Resolution Plan was shared.

It was further contended that Resolution Plan need not match the liquidation value as was contended by the applicant.

Respondent 2 submitted that since the Resolution Plan was approved by the CoC, the commercial wisdom of the CoC cannot be questioned by the applicant. That the notices of the meetings of CoC were given to the suspended BOD and the applicant himself chose not to attend the same. Furter the email address provided was of Applicant's son who was not a member of the BOD and hence the notice was not sent to him. Reliance was placed on Burdwan Central Cooperative Bank & Anr. v. Asim Chatterjee & Ors, wherein it has been held that unless a person is deprived of his rights the principle of natural justice is not violated. Furthermore, with regards to insufficient prior knowledge of the business of CD with the Resolution Applicant, it was contended that CD was a trading and retailing unit of sarees and no technical expertise was required.

The AA held that the suspended BOD can object to the act of the Resolution Professional (RP) if the act of RP is anyway prejudicial to CD or in violation of the procedural requirement.

As soon as the CD is admitted to CIRP, the rein of the company is transferred to Interim Resolution Professional (IRP) as envisaged in section 17(1)(b) of IBC for management of the CD, and the functions of suspended BOD is limited to assisting and cooperating with the IRP/RP for the smooth functioning of the CD.

The BOD under its limited function is empowered to question the act of RP if it is prejudicial to the CD. Furthermore, the AA held that the commercial wisdom of the CoC cannot be questioned. Also, the Resolution Plan was held to comply with Section 30(2) of IBC and hence it was approved. It was further held by the AA that the main objective of the IBC is to provide new lease of life to the CD and is not only limited to the maximization of the asset of the CD. That is why the stress is given to reviving the Corporate Debtor as a going concern, if possible and the liquidation followed by the dissolution is supposed to be the last resort.

About AVM- Insolvency Professionals LLP

AVM- Insolvency Professionals LLP is a registered Insolvency Professional Entity (IPE) by The Insolvency and Bankruptcy Board of India (IBBI).(Registration number: IBBI/IPE/0099) ( The partners of IPE are Registered Insolvency Professionals (IP) under Insolvency and Bankruptcy Code, 2016 (IBC) having expertise and rich experience to advise on / carry out all aspects of Insolvency Resolution, Restructuring, Bankruptcy & Liquidation.

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