NCLAT Delhi: Clean Slate Protection Under Section 32A IBC Extends to Liquidation Buyers

The National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi, has ruled that buyers who acquire a corporate debtor as a going concern during liquidation are entitled to the "clean slate" immunity under Section 32A of the Insolvency and Bankruptcy Code (IBC).

A bench comprising Justice N. Seshasayee (Judicial Member) and Arun Baroka (Technical Member) allowed an appeal by Amitkumar Rishi Kumar Bhabhda and others, who had purchased Seam Industries Ltd. (the corporate debtor) as a going concern in liquidation proceedings. The tribunal set aside a part of the National Company Law Tribunal (NCLT) Mumbai order that had denied such protection for liabilities arising during the liquidation period.

Background: The Liquidation of Seam Industries

Seam Industries Ltd. entered liquidation on 30 June 2021. The appellants emerged as successful bidders in an auction to purchase the company as a going concern, and a sale certificate was issued on 7 August 2023. Subsequently, they filed an application before the NCLT seeking various reliefs and concessions, including immunity under Section 32A IBC from past liabilities and pending proceedings.

In its order dated 12 December 2025, the NCLT Mumbai granted certain reliefs but declined two specific categories: (1) the withdrawal or dismissal of all inquiries, investigations, and proceedings (civil or criminal) relating to the period before the NCLT order, and (2) a direction that governmental authorities shall not initiate any actions for non-compliance with applicable laws during the pre-order period. The tribunal reasoned that the clean slate theory, recognized for resolution plans in the Supreme Court's Ghanshyam Mishra & Sons v. Edelweiss ARC decision, could not be extended to cover the liquidation period up to the sale date.

Arguments: Extending the Clean Slate to Liquidation

Challenging the NCLT's order, the appellants argued that the protection under Section 32A is available even during the liquidation period. They relied on earlier NCLAT decisions in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. v. M/s KTC Foods Private Limited and Paschimanchal Vidyut Vitran Nigam Ltd. v. HSA Traders , which recognized that Section 32A immunity applies to sales of the corporate debtor as a going concern during liquidation. They contended that the clean slate principle is a legal consequence of such a sale and not a discretionary concession.

Legal Analysis: Immunity as a Legal Consequence

The NCLAT found merit in the appellants' submission. It observed that when the Corporate Insolvency Resolution Process (CIRP) commences, it can either conclude with an approved resolution plan under Section 31 or proceed to liquidation under Section 33. The legislative intent in both scenarios is to sell the corporate debtor as a going concern. During CIRP, no new liabilities can be created, and any liabilities incurred are treated as CIRP costs. The clean slate theory means that past liabilities that remain unclaimed during CIRP or liquidation cannot survive after the successful completion of the process.

The tribunal emphasized that Section 32A immunity is not a mere waiver or concession but a legal consequence of the sale. It stated: "Indeed, it may not even be termed as waiver or concession stricto sensu , as it is the legal consequence when the CD is sold as a going concern either during CIRP or during liquidation." This reasoning aligns with the Supreme Court's pronouncement in Ghanshyam Mishra & Sons .

Key Observations

The NCLAT made several crucial observations:

"the clean slate theory implies that past liability, if any, of the corporate debtor, if remained unclaimed during CIRP or the liquidation cannot survive post successful completion of the CIRP or where the CD is sold as a going concern during liquidation."

"So far as Section 32A is concerned, clean slate theory as developed in the Ghanshyam Mishra and Sons Private Limited v. Edelweiss Assets Reconstruction Company Limited is available even during liquidation."

"When CIRP commences, unless the same is withdrawn in the manner contemplated under Section 12A of the Code , it may either conclude with the successful approval of a resolution plan under Sec. 31 of the Code or may proceed to liquidation under Section 33 . So far as CIRP goes, the primary intent of the legislature is to sell the CD as a going concern ."

The Decision

The NCLAT allowed the appeal and set aside the NCLT's order to the extent it declined relief for the two disputed items (items 5 and 6 in the NCLT's table). It held that the appellants are entitled to the benefit of Section 32A of the Code for these items, subject to the fulfillment of the conditions prescribed therein. The tribunal clarified that for other waivers and concessions, the appellants must approach the concerned statutory authorities.

This ruling reinforces the clean slate protection for buyers of corporate debtors in liquidation, ensuring that past liabilities do not hinder the revival of the business. It provides clarity that Section 32A immunity applies not only to resolution plans but also to going concern sales during liquidation.