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Difference Between Sale Of 'Corporate Debtor As A Going Concern' And Sale Of 'Business Of The Corporate Debtor As A Going Concern'

Citation : M.S. Viswanathan, Liquidator of Gemini Communication Limited vs Pixtronic Global Technologies Pvt. Ltd,  IA/1215/CHE/2021 in CP/699/IB/2017

Date of Judgment/Order : 15/2/22

Court/Tribunal : National Company Law Tribunal, Division Bench I, Chennai

Corum: R. Sucharitha, Member (Judicial), Sameer Kakar, Member (Technical)

Background

Application was filed by the Liquidator under Regulation 32(e) of the IBBI (Liquidation Process) Regulations, 2016 seeking approval from the Tribunal for sale of the Corporate Debtor as a going concern.

Order

Allowing the application, the NCLT went into an elaborate but useful explanation of the entire law behind the term 'Going Concern'.

NCLT observed that  the term 'going concern' means 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 Corporate Debtor. The buyer of the assets and liabilities should be able to run business without any disruption. 

There are two going concern sales defined under Regulation 32 of IBBI (Liquidation Process) Regulations, 2016. The first one pertains to Sale of "Corporate Debtor as a going concern" under Regulation 32(e) and sale of "Business of Corporate Debtor as a going concern" under Regulation 32(f).

In the sale of "Corporate Debtor as a going concern" under Regulation 32(e) of IBBI (Liquidation Process) Regulations, 2016 the Corporate Debtor will not be dissolved. In this part of sale, the entire business, assets and liabilities, including all contracts, licenses, concessions, agreements, benefits, privileges, rights or interests of the Corporate Debtor will be transferred to the acquirer. The existing shares of the Corporate Debtor will not be transferred and shall be extinguished.

In the sale of "Business of Corporate Debtor as a going concern" under Regulation 32(f) of IBBI (Liquidation Process) Regulations, 2016, the entire business(s) along with assets and liabilities, including intangibles, will be transferred as a going concern to the acquirer, without transfer of the Corporate Debtor, and therefore, the Corporate Debtor will be dissolved. The existing shares will be extinguished. The remaining assets, other than those sold as part of business will be sold and the proceeds thereof will be used to meet the claims under Section 53 of IBC, 2016 

Sale of a Company as a 'Going Concern' means sale of both assets and liabilities, if it is stated on 'as is where is basis'. The Hon'ble NCLAT in the matter of M/s. Visisth Services Ltd. Vs. Mr. S. V. Ramani, Liquidator of United Chloro-Paraffins Pvt. Ltd. Company Appeal (AT)(Ins) No. 896 of 2020 held that as per Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016, the Sale as a 'Going Concern' means sale of assets as well as liabilities and not assets sans liabilities. 

NCLT concluded that Sale of a Company as a 'Going Concern' means sale of both assets and liabilities, if it is stated on 'as is where is basis'.

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