Haryana State Industrial and Infrastructure Development Corporation Ltd. Vs. M/s. AAR AAR Technoplast Pvt. Ltd. - We are of the considered view that once the Liquidation sale has been completed and the Certificate of Sale has been executed followed by handing over possession to the Auction Purchaser, any claim relating to such property for dues prior to the Auction cannot be raised against the Auction Purchaser.

 NCLAT (06.09.2022) in Haryana State Industrial and Infrastructure Development Corporation Ltd. Vs. M/s. AAR AAR Technoplast Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 606 of 2021] held that;

• We are of the considered view that once the Liquidation sale has been completed and the Certificate of Sale has been executed followed by handing over possession to the Auction Purchaser, any claim relating to such property for dues prior to the Auction cannot be raised against the Auction Purchaser

Excerpts of the order;

# 1. Aggrieved by the Order dated 12.11.2020 in IA 3169/2020 in C.P. (IB) No.- 201/PB/2019 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Court IV, New Delhi), the Appellant M/s. Haryana State Industrial and Infrastructure Development Corporation Limited preferred this Appeal under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘The Code’) seeking to set aside the Impugned Order, wherein the Adjudicating Authority has allowed the Application IA 3169/2020 preferred by the Applicant/M/s. AAR AAR Technoplast Private Limited/the Auction Purchaser seeking a direction to the Appellant herein to acknowledge and record the transfer of ownership in the name of the Auction Purchaser.

 

# 2. Succinctly put, the facts in brief are that the CIRP was initiated against M/s. Neosis Industries Ltd./the ‘Corporate Debtor’ vide Order dated 28.09.2018 and Mr. Yogender Kumar Gupta was appointed as the IRP who was later confirmed as the RP. Subsequently, the ‘Corporate Debtor’ went into Liquidation vide Order dated 28.11.2019 and the RP was also appointed as the Liquidator of the ‘Corporate Debtor’. The Liquidator published the sale of notice on 05.03.2020 for e-Auction of the property admeasuring 4050 sq. mts. and the constructed building of 2552 sq. mts. at Sector 8, IMT, Manesar District Haryana, fixing 17.03.2020 as the e-Auction date and Rs.6,50,00,000/- as the Minimum Reserve Price for the said property. While so, the applicant was declared as the ‘Successful Bidder’ and a letter of intent dated 18.03.2020 was issued in his name. The Liquidator, on receiving full consideration of the property, issued a possession letter dated 08.06.2020 and a Sale Deed dated 09.06.2020 was duly registered with the Sub-Registrar, Manesar. A Sale Certificate was also issued showing the manner of payment of sale consideration. Subsequently, the applicant sent a Letter dated 10.06.2022 to the Appellant/Haryana State Industrial Infrastructure Development Corporation Limited intimating the Auction and purchase of the property through the Liquidator. In response to the said Letter, the Appellant herein issued a Letter dated 19.06.2020 raising payment of Rs.4,46,35,445/– towards water, storage charges and additional interest. Hence, the Auction Purchaser preferred IA 3169/2020 before the Adjudicating Authority which has allowed the Application.

 

# 3. Learned Counsel for the Appellant submitted that the subject plot was allotted to M/s. Media Video Private Limited, whose name was later changed to M/s. Neosis Industrial Ltd./(the ‘Corporate Debtor’); permission to mortgage was granted vide Letter dated 24.06.2011, wherein the Appellant was having first charge on the plot against any outstanding recoverable dues; subsequent to the Liquidation Order dated 28.11.2019, the Liquidator published a notice for sale of the subject plot on an ‘as is where is basis’; and ‘nonrecourse basis’; the asset was being sold with all existing and future encumbrances and therefore the Successful Bidder was required to discharge all the liabilities of the ‘Corporate Debtor’; a Sale Deed dated 09.06.2020 was registered in favour of the Auction Purchaser who approached the Appellant seeking mutation in its favour; as per Section 55(4)(b) of the Transfer of Property Act, the Appellant asked the Auction Purchaser for Liquidating the unpaid sale consideration in respect of the subject plot; it is open for the Liquidator to conduct any Auction on any asset on ‘as is where is basis’ and the Auction Purchaser is bound by the terms of such sale and the concept of ‘clean slate’ is not applicable in this case as the asset has not passed to the Auction Purchaser in pursuance of Successful Resolution, but in fact it has passed on to him on account of Liquidation of the ‘Corporate Debtor’.

 

# 4. It is further submitted by the Learned Counsel for the Appellant that the dispute in hand does not pertain to determination of hierarchy of disbursement and there is no question of attraction of Section 238 of the Code. Learned Counsel placed reliance on the Judgement of the Hon’ble Supreme Court in ‘Municipal Corporation of Greater Mumbai’ Vs. ‘Abhilash Lal & Ors.’, (2020) 13 SCC 234 and also relied on the ratio of the Hon’ble Apex Court in the Judgement of ‘Telangana State Southern Power Distribution Company Ltd.’ Vs. ‘Srigdhaa Beverage’, (2020) 6 SCC 4040, wherein the Hon’ble Apex Court has observed as follows:

• “It was noted by the Hon’ble Supreme Court that as an auction purchaser bidding in an “as is where is, whatever, there is an without recourse basis”, the purchaser would have inspected the premises and made inquiries about the dues in all respects and as there is a specific mention of electricity dues as liability of the purchaser the purchaser was clearly put to notice in this behalf. Hence it was held that the liability to pay electricity dues exists on the purchaser.”

 

# 5. Learned Counsel for the first Respondent/Auction Purchaser submitted that pursuant to the Order dated 12.11.2020, the first Respondent had addressed letters dated 05/01/2021, 25/01/2021 and 01.03.2021 to the Appellant to comply with the directions of the Adjudicating Authority and transfer the said property in the name of the first Respondent Company, but there was no response. Subsequently, vide Order dated 16.08.2021 the Adjudicating Authority directed the Appellant to transfer the said property in the name of the first Respondent within seven days, which was informed to the Appellant herein on the very next date. Learned Counsel drew our attention to the relevant para of the Order dated 16.08.2021, which is reproduced here for ready reference:

• “Learned Counsel along with the HOD Legal, make a joint statement that letter with respect to the transfer will be issued with one week without any further condition”. Appeal against the said order is pending and is listed on 27.08.2021. Mr. Nagesh, Learned Senior Counsel further states that the appeal is barred by limitation, hence no notice is still issued. On perusal of advance Copy Mr. Nagesh states that there is gross delay and the appeal is required to be dismissed at threshold. In view of the same the letter as undertaken by the Learned Counsel along with the HOD legal is required to be issued and this order be complied.”

 

# 6. It is submitted that the Appellant had intentionally delayed in filing the present Appeal and is only seeking to delay the proceedings further.

 

# 7. It is submitted that the first Respondent is a bona fide purchaser and now cannot be fastened with the liabilities relating to pre-sale confirmation; that the Order dated 12.11.2020 passed by the Adjudicating Authority conforms with the Principles of Doctrine of clean slate; that it is a settled law that post Admission of the Liquidation, the Auction Purchaser is not liable to discharge the dues relating to the property. Once the sale is confirmed, prior dues of the Municipal Authorities are to be discharged by the Liquidator out of the sale proceeds and the Auction Purchaser cannot be settled for any further liability.

 

# 8. The dues of the Appellant have already been dealt with by the Liquidator in accordance with Section 53 of the Code and therefore is estopped from raising any claims which have already been dealt with during the Liquidation Process.

 

Assessment:

# 9. The main point which falls for consideration in this Appeal is whether the Successful Bidder in an Auction conducted on ‘as is where is basis’ is liable to pay prior dues attached to such Auction property, when the Company is in Liquidation and the dues were claimed under ‘Operational Debt’ before the Liquidator?

 

# 10. At the outset, it is relevant to see the terms of the Auction sale relied upon by the Learned Counsel for the Appellant:

 

# 11. It is the case of the Appellant that as the Auction was held on an ‘as is where is basis’ and on a ‘non-recourse basis’, it is stated that the assets of the ‘Corporate Debtor’ have been sold with all the existing and future encumbrances, ‘the Auction Purchaser’ is liable to pay the dues outstanding with the Appellant. It is seen from the record that the Company went into Liquidation on 28.11.2019 and the Successful Auction Purchaser, on paying the full sale consideration was issued a Sale Certificate subsequent to executing a Sale Deed for the subject property on 09.06.2020.

 

# 12. The material on record establishes that the Appellant herein had filed their Form-C on 09.03.2020 which was defective and the Liquidator vide email dated 09.03.2020 pointed out the deficiency and sought clarifications on the information provided. A reminder was also sent on 12.03.2020 to consider the claim of the Appellant herein as an ‘Operational Creditor’. Subsequent to the e-Auction conducted and the receipt of the sale consideration, the Liquidator allocated the funds in accordance with Section 53 of the Code in a waterfall mechanism. The Liquidator submitted in his Reply Affidavit before the Adjudicating Authority that the 

• ‘dues of the Secured Financial Creditors against the ‘Corporate Debtor’ was much higher than the proceeds from the sale of Liquidation Assets of the ‘Corporate Debtor’ and therefore the dues of the Appellant herein could not be paid by the Liquidator under the Liquidation Process’. 

 

The same was also communicated to the Appellant herein vide email dated 19.06.2020. The relevant portion of the said email is reproduced as hereunder:

• “The sale proceeds were insufficient even to meet the claims of the secured creditors. Since your claim has been raised as an operational creditor, so even after an assuming such claim to be in Order there is no amount left for the payment to any operational creditor and hence your claim has not been paid”.

 

# 13. Having regard to the fact that the Appellant herein has already submitted his ‘Claim’ in Form-B as an ‘Operational Creditor’ when the ‘Corporate Debtor Company’ was in Liquidation and the Liquidator has already distributed the proceeds as per Section 53 of the Code, the contention of the Learned Counsel for the Appellant that the dues raised prior to the Auction are liable to be paid by the Auction Purchaser, has to be examined on the touchstone of the ratio of the Hon’ble Apex Court in the Judgement of ‘Committee of Creditors Essar Steels Standard Chartered Bank’ Vs. ‘Satish Kumar Gupta’, 2019 SCC OnLine 388, in which it was held as follows:

• “107. For the same reason, the impugned NCLAT judgement [Standard Chartered Bank Vs. Satish Kumar Gupta, 2019 SCC OnLine 388] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” all claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution application knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does not on a fresh slate, as has been pointed out by us hereinabove. For these reasons, NCLAT judgement must also be set aside on this count.”

 

# 14. We also find it relevant to place reliance on the principle laid down by the Hon’ble Supreme Court in ‘Ghanshyam Mishra and Sons Private Limited’ Vs. ‘Edelweiss Asset Reconstruction Company Limited’ (2021) SCC OnLine 313, wherein the Hon’ble Apex Court has observed as follows:

• “61. All these details are required to be contained in the information memorandum so that the resolution applicant is aware, as to what are the liabilities, that he may have to face and provide for a plan, which apart from satisfying a part of such liabilities would also ensure that the Corporate Debtor is revived and made a running establishment. The legislative intent of making the resolution plan binding on all the stakeholders after it gets the seal of approval from the Adjudicating Authority upon its satisfaction that the resolution plan approved by CoC meets the requirement as referred to in sub-section (2) of Section 30 is, that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is that he should start with fresh slate on the basis of the resolution plan approved.”

 

# 15. The Judgement in ‘Telangana State Southern Power Distribution Company Ltd.’ (Supra), relied upon by the Learned Counsel for the Appellant is not applicable to the facts of this case as under the provisions of the Code, the Appellant had claimed the amount as an ‘Operational Creditor’, though his claim was rejected. The principle of ‘clean slate’ laid down in the Judgement of the Hon’ble Apex Court in ‘Committee of Creditors Essar Steels Standard Chartered Bank’ is applicable to the facts of this case, though it pertains to a successful Resolution Applicant. The scope and purpose of this Code and the ratio of the Judgement is to be interpreted in its truest sense, i.e., not to saddle the ‘purchaser’ with any ‘hydra head’ popping up.

 

# 16. We are of the considered view that once the Liquidation sale has been completed and the Certificate of Sale has been executed followed by handing over possession to the Auction Purchaser, any claim relating to such property for dues prior to the Auction cannot be raised against the Auction Purchaser specifically when the Company is in Liquidation and the dues were already claimed by the said party as an ‘Operational Creditor’, during the CIRP process as the Company was in Liquidation and the Appellant had already approached the Liquidator by filing a Form-B and the Liquidator has intimated to the Appellant that there is no amount left for the payment to any ‘Operational Creditor’, we are of the earnest view that the Auction Purchaser cannot be made liable for any dues arising on the property before the purchase of the said property in this case.

 

# 17. Hence, we do not see any illegality or infirmity in the Order of the Adjudicating Authority and hence this Appeal fails and is accordingly dismissed. No order as to costs.

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