2025 (6) TMI 198 - AT - IBC

Seeking a dissolution under Section 54 of the IBC 2016 - sale of assets of the corporate debtor (CD) was made as a slump sale or as a sale of assets individually - HELD THAT - When the statute requires endeavour to sell the CD as a going concern and adjudicating authority has observed that decision of the stakeholder s consultation committee to sale as slump sale was against the objective of the IBC by making which observation the adjudicating authority has rejected the application for dissolution of the CD filed by the liquidator no exception can be taken to the order of the Adjudicating Authority. In the facts of the present case the orders passed by adjudicating authority rejecting the dissolution application as well as application for liquidator to recall the order granting relief and concession thus need no interference in the exercise of appellate jurisdiction by this Tribunal. Conclusion - The purchaser s entitlement to reliefs and concessions stands the sale is effectively a going concern sale and the liquidator s applications for dissolution and recall of reliefs are rightly rejected. The order of the adjudicating authority affirmed - appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the sale of assets of the corporate debtor (CD) was made as a slump sale or as a sale of assets individually, and the legal consequences thereof.

- Whether the successful auction purchaser is entitled to reliefs and concessions typically granted when a corporate debtor is sold as a going concern.

- Whether the liquidator was justified in filing applications for dissolution of the corporate debtor post-sale and for recalling the order granting reliefs and concessions to the purchaser.

- Whether the adjudicating authority erred in rejecting the liquidator's applications and allowing the purchaser to run the corporate debtor as a going concern.

- The applicability of the objectives and provisions of the Insolvency and Bankruptcy Code, 2016 (IBC), particularly regarding sale of corporate debtor as a going concern and the role of the Stakeholders' Consultation Committee (SCC) in deciding the mode of sale.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Nature of Sale - Slump Sale vs. Sale of Assets

Relevant Legal Framework and Precedents: The IBC mandates that the corporate debtor should be sold preferably as a going concern to maximize value and protect employment. Regulation 32(d) and 32(e) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, provide for sale of the corporate debtor as a going concern. The distinction between slump sale and sale of assets individually is significant for entitlement to reliefs and concessions.

Court's Interpretation and Reasoning: The adjudicating authority examined the sale notice and found that the sale was conducted on "as is where is basis", "as is what is basis", "whatever there is basis", and "no recourse basis". The advertisement included the entire factory - land, buildings, plant and machinery - but did not explicitly state that it was a slump sale or sale as a going concern. The liquidator admitted that the plant had not been functioning for six years, but did not dispute that the entire plant and machinery were sold.

The adjudicating authority reasoned that since the entire factory was sold, it was open for the purchaser to treat the sale as a going concern, especially since the purchaser could decide whether to refurbish and run the company. The tribunal noted that the SCC's decision to sell the CD as a slump sale without exploring other options under Regulations 32(d) and 32(e) was against the objectives of the Code.

Key Evidence and Findings: The sale notice and agreement did not mention slump sale or going concern explicitly. The purchaser paid Rs. 70 Crores and obtained possession of the entire plant and machinery. There was no allegation of misuse of reliefs or intention not to run the company.

Application of Law to Facts: The tribunal applied the principle that the sale of the entire factory assets can be treated as sale as a going concern, even if the sale notice does not explicitly state so. The failure of the SCC to explore statutory options for sale as a going concern was found contrary to the IBC's objectives.

Treatment of Competing Arguments: The liquidator argued the sale was only of assets, not as a going concern, and hence the purchaser was not entitled to reliefs. The purchaser contended that the entire plant was bought and revived, aligning with the Code's objectives. The tribunal sided with the purchaser, emphasizing the practical effect of the sale over the technical description.

Conclusions: The sale was effectively a sale as a going concern, entitling the purchaser to reliefs and concessions. The liquidator's contention that no going concern sale was made was rejected.

Issue 2: Entitlement to Reliefs and Concessions by the Successful Auction Purchaser

Relevant Legal Framework and Precedents: Reliefs and concessions are generally granted to purchasers when the corporate debtor is sold as a going concern, to facilitate revival and protect employment. The IBC aims to maximize value and enable revival where possible.

Court's Interpretation and Reasoning: The adjudicating authority observed that the purchaser intended to run the corporate debtor as a going concern and had taken possession of the entire plant. There was no evidence that the purchaser intended to misuse the reliefs or concessions. The tribunal held that the purchaser's application for reliefs and concessions was rightly allowed by the adjudicating authority.

Key Evidence and Findings: The purchaser's payment of full consideration and possession, and the expressed intention to revive the company and generate employment, supported entitlement to reliefs.

Application of Law to Facts: The tribunal applied the principle that reliefs and concessions are consistent with the objective of the IBC to revive viable businesses. Since the purchaser was running the company as a going concern, the reliefs were justified.

Treatment of Competing Arguments: The liquidator argued that the purchaser was not entitled to such reliefs as the sale was not as a going concern. The tribunal rejected this technical objection and upheld the purchaser's entitlement.

Conclusions: The purchaser was entitled to reliefs and concessions as the sale was effectively a going concern sale and the purchaser was reviving the business.

Issue 3: Liquidator's Application for Dissolution of the Corporate Debtor and Recall of Reliefs Granted

Relevant Legal Framework and Precedents: Section 54 of the IBC provides for dissolution of the corporate debtor after completion of liquidation. However, dissolution should not be premature if the corporate debtor is being revived or operated as a going concern.

Court's Interpretation and Reasoning: The adjudicating authority rejected the liquidator's application for dissolution on the ground that the purchaser was running the corporate debtor as a going concern. The tribunal affirmed this view, noting that the liquidator's attempt to dissolve the CD was contrary to the objectives of the Code and the factual circumstances.

Key Evidence and Findings: The purchaser's revival of the company and the absence of any misuse or failure to run the company were critical factors. The adjudicating authority also noted that the SCC's decision to sell as a slump sale without exploring other options was flawed.

Application of Law to Facts: The tribunal applied the principle that dissolution should not be ordered where the corporate debtor is effectively revived and operational. The liquidator's applications were found to be premature and without merit.

Treatment of Competing Arguments: The liquidator contended that the sale was not as a going concern and hence dissolution was appropriate. The tribunal rejected this, emphasizing the purchaser's revival efforts.

Conclusions: The liquidator's applications for dissolution and recall of reliefs were rightly rejected. The corporate debtor was to continue as a going concern under the purchaser's management.

3. SIGNIFICANT HOLDINGS

"We find from the sale notice published the corporate debtor was to be sold 'as is where is basis', 'as is what is basis', 'whatever there is basis' and 'no recourse basis'. The advertisement includes land, buildings, plant and machinery of the corporate debtor in its entirety. The advertisement has neither indicated that it is a slump sale or sale as a going concern."

"It is open for the auction purchaser to treat the sale on going concern basis, particularly when the entire plant, along with land, buildings, machineries has been sold. It is the successful auction purchaser who is in a position to decide whether he will be in a position to run the Company as a going concern or not with or without carrying out necessary repairs/refurbishing."

"We see no allegation from the liquidator that the Successful Auction Purchaser (Respondent) is planning to misuse the reliefs and concession or not going to run the company as a going concern."

"The Stakeholders' Consultation Committee decision to sell the corporate debtor as a slump sale basis without exploring the options provided in Regulation 32(d) and 32(e) is against the objectives of the Code."

"When the statute requires endeavour to sell the CD as a going concern and adjudicating authority has observed that decision of the stakeholder's consultation committee to sell as slump sale was against the objective of the IBC, by making which observation the adjudicating authority has rejected the application for dissolution of the CD filed by the liquidator, no exception can be taken to the order of the Adjudicating Authority."

Core principles established include the primacy of the IBC's objective to revive corporate debtors as going concerns wherever possible, the permissibility of purchasers treating a sale of entire assets as a going concern even if the sale notice does not explicitly state so, and the inadmissibility of premature dissolution where revival efforts are ongoing.

Final determinations on each issue affirm that the purchaser's entitlement to reliefs and concessions stands, the sale is effectively a going concern sale, and the liquidator's applications for dissolution and recall of reliefs are rightly rejected. The order of the adjudicating authority is upheld in entirety.