Selling Corporate Debtor As Going Concern - An Acquirer’s Stake

  • Amir Bavani & Rishika Kumar
  • 02:46 PM, 24 Sep 2021

Read Time: 20 minutes

“Sale as a going concern”, is relatively a new concept while the Company is undergoing liquidation, introduced by the Legislature under the Insolvency & Bankruptcy Code, 2016 (IBC/ Code’) via amendment to Regulation 32 of Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (‘Liquidation Regulations’) vide 28.03.2018 notification. Through this amendment the Legislature has ensured to keep intact & achieve the ultimate aim & object of the Code i.e., maximizing the value of Corporate Debtor, even after the Resolution fails and the Corporate Debtor is relegated to Liquidation.

The concept of sale as a going concern gives the Corporate Debtor a new lease of life rather than to die, which is a usual case after the Corporate Debtor goes into Liquidation. Selling the Corporate Debtor as a going concern means sale of business of the Corporate Debtor along with all its assets and properties, which enables to keep up the value of the Corporate Debtor even during the process of Liquidation. Such mechanism of sale is beneficial not only for the Corporate Debtor but also for the “Acquirer”, who purchases the Corporate Debtor. The Corporate Debtor would stand on its feet much quickly than while starting a new Company, as the Acquirer does not have to spend much time in setting up the basis of the Company as he can utilize readily available workers, employees, machines, etc., of the Corporate Debtor, also the intangible assets of the Corporate Debtor stay intact. Therefore, such transition of the business would help the Acquirer to focus more on running and managing the show, rather than worrying about other ancillary procedures.

In recent times several cases have come up before the Adjudicating Authority/ National Company Law Tribunals (‘NCLT / Tribunals’) wherein order to sell the Corporate Debtor as going concern has been pronounced. It is essential to note that the Tribunals with such orders have ensured that the rights of the Acquirer are protected and so directions have been granted for certain reliefs to the Acquirer time and again, which not only keeps the Acquirer motivated to invest in such transactions financially but also otherwise, thereby leading to a smooth and peaceful transition of the Corporate Debtor’s business. 

In the matter of Gaurav Jain v. Sanjay Gupta, Liquidator of Topworth Pipes & Tubes Private Limited [IA No.2264 of 2020 in CP(IB) No.1239/MB/2018], the Hon’ble NCLT, Mumbai Bench has clarified the concept of sale as going concern, since there is no definition as such for “going concern” either in the Code or in the Liquidation Regulations, its benefits and treatment of liabilities in such a distinct type of transaction. The Bench specifically stated that sale of Corporate Debtor as a going concern will not dissolve the Corporate Debtor but only the ownership is transferred along with the assets, so the Corporate Debtor as a legal entity remains intact. The Tribunal further stated that the crux of such type of sale is that the equity shareholding of the Corporate Debtor is extinguished and the Acquirer takes over the undertaking with the assets, licenses, entitlements, etc. Such an undertaking includes the business of the Corporate Debtor, assets, properties and rights etc., excluding the liabilities. Thus, the Hon’ble Bench held that:

“In normal parlance “going concern” sale is transfer of assets along with the liabilities. However, as far as the ‘going concern’ sale in liquidation is concerned, there is a clear difference that only assets are transferred and the liabilities of the Corporate Debtor has to be settled in accordance with Section 53 of the Code and hence the purchaser of this assets takes over the assets without any encumbrance or charge and free from the action of the Creditors.”

Thus, in this case the Bench stated that sale of Corporate Debtor as going concern is advantageous as:

  • The entity itself gets transferred;
  • The equity shareholding gets transferred or extinguished and new shares are issued;
  • The Acquirer is expected to carry on the business of the Corporate Debtor after the sale of assets is confirmed; and,
  • The existing employees will have a chance to continue in their employment.

  Further, in a similar case of IFCI v. KSK Energy Ventures Ltd. [CP (IB) No.675/7/HDB/2018], the NCLT, Hyderabad Bench while relying upon the Supreme Court’s judgment in the matter of Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta & Ors. ordered the sale of the Corporate Debtor as a going concern and thereafter granted reliefs in favour of the Acquirer, wherein not only claims, liabilities or obligations payable by the Corporate Debtor and pending proceedings against the Corporate Debtor were extinguished but the Tribunal also exempted the Corporate Debtor to comply with SEBI regulations, as otherwise would be required by the Acquirer while taking control over the management of the Corporate Debtor. For easy facilitation of such transaction of takeover, the Tribunal also directed that all the Intellectual Property Rights belonging to the Corporate Debtor shall remain vested with the Corporate Debtor and the existing or erstwhile promoters/guarantors, or any member in association with earlier management is restrained from doing any business directly or indirectly in connection with the products and services offered by the Corporate Debtor. Thus, paving a protective layer for the Acquirer to acquire the business without any further obstacles or hesitation.

Very recently, the similar Bench in the matter of SREI Equipment Finance Ltd. v. M/s. Vishwa Infrastructures and Services Private Ltd. [CP (IB) 329/7/HDB of 2018],  has provided the similar reliefs to the Acquirer and also directed the Liquidator, who is an extended arm of the judiciary to provide support and assistance to the Acquirer and ensure completion of pending filings with the Registrar of Companies, Income Tax Authorities and any other Government/Statutory Authorities for further ease in doing business and smooth completion of the acquisition. The Tribunal also entitled the Corporate Debtor to get the benefits of brought forward losses, if any, subject to the approval of the appropriate authority under the Income Tax Act, 1961 and allowed reliefs pertaining to issuance/renewal of all kinds of licenses/permissions/approvals required, subject to payment of renewal fees, if any. Thus, for a smooth transmission of the business the Acquirer gets all the rights, title and interest over whole or every part of the Corporate Debtor including and not limited to contracts free from security interest, encumbrances, claim, counter claim or any demur.

Therefore, from the above judgments, it is evident that the Tribunals have granted several reliefs to the Acquirers for keeping up with the aim of the Code and protecting the Corporate Debtor’s value. Thus, it won’t be wrong to state that the Tribunals have very well conceptualized the idea that in the well-being of the Acquirer lies the development and enhancement of the Corporate Debtors. It is pertinent to mention that the judiciary has ascertained that Acquirer is not merely given away the Corporate Debtor as a going concern and left vulnerable to make it a profitable one, but is also be provided with relevant and sufficient safeguards in the form of reliefs to run the Corporate Debtor successfully and ensure that the Corporate Debtor is kept ongoing.   

Several reliefs and concessions are provided by the Adjudicating Authority in the spirit of the Code to ensure that the Corporate Debtor sold as a going concern under Liquidation enjoys similar benefits as available to an approved Resolution Plan in the CIRP. But the situation as it stands today is that, none of the statute addresses the concerns with respect to reliefs and concessions that are to be provided to the successful bidder under the ‘sale as a going concern’ regime. All the benefits are being passed on to the Resolution Applicant while the Corporate Debtor is at Corporate Insolvency Resolution Process (‘CIRP’) stage but when the same  Corporate Debtor is relegated to Liquidation, the said benefits are missing for the successful bidder who would want to take over the Corporate Debtor as on ‘sale as a going concern’ basis. Now is the time for the Legislature to address this pressing issue to encourage the prospective bidders of such sick companies, else the object of the Code seems to be diminishing as in absence of any such encouragement the Corporate Debtor is likely to be liquidated which will result in the demise of such Corporate Debtor. Hence, the acceptance of reliefs by the concerned Statutory Authorities and implementing them through relevant statutes will not only motivate more and more Acquirers to takeover and level up the business of Corporate Debtor under Liquidation, but would save the Corporate Debtor from simply bleeding to death under the Liquidation process.     


Author's descriptions -

Amir Bavani is a Principal Associate with Dhir & Dhir Associates. He is a post graduate in MBA from ICFAI University and completed his LLB and LLM from Osmania University. His core expertise lies in Dispute Resolution especially involving Insolvency & Bankruptcy Code 2016, Banking Laws and General Corporate. He regularly appears before various judicial/quasi-judicial authorities including High Court, Debt Recovery Tribunal and National Company Law Tribunal. He advises significant number of companies, creditors, other stakeholders to identify and adopt the most suitable approach to deal with a complex web of possible outcomes and legal strategies to effectively deal with the aspects of corporate insolvency and restructuring process.


Rishika Kumar is an Associate with Dhir & Dhir Associates. Her expertise lies in Insolvency and Restructuring laws. She has been actively advising and representing Creditors, Corporate Debtors, Insolvency Professionals and investors, bidders in relation to the resolution, liquidation and restructuring process under the Insolvency and Bankruptcy Code, 2016.