NCLT Indore Clears Path for 'Going Concern' Sale Under IBC Liquidation, Grants Wide-Ranging Reliefs

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NCLT Indore Facilitates 'Going Concern' Sale of K.S. Oils Ltd, Approves Clean Slate Transition

Indore, February 3, 2025 - The National Company Law Tribunal (NCLT), Indore Bench, comprising Hon’ble Members Chitra Ram Hankare (Judicial) and Kaushalendra Kumar Singh (Technical), has paved the way for the operational revival of K.S. Oils Ltd., a corporate debtor undergoing liquidation. In a significant order pronounced on February 3, 2025, the Tribunal partly allowed applications filed by Soy-Sar Edible Pvt Ltd and Sherisha Technologies Pvt Ltd, the successful bidders for K.S. Oils, seeking a host of directions and concessions to facilitate the acquisition of the company as a going concern.

Background: From CIRP to Liquidation and Revival

K.S. Oils Ltd., a prominent edible oil producer with brands like Kalash and Double Sher, faced corporate insolvency resolution process (CIRP) initiated in 2017 by SREI Infrastructure Finance Ltd. Despite efforts, a resolution plan couldn't materialize, leading to a liquidation order by the National Company Law Appellate Tribunal (NCLAT) in March 2021, overturning an earlier NCLT dismissal of liquidation. Subsequently, the Liquidator initiated efforts to sell the Corporate Debtor's assets, eventually succeeding in auctioning it as a going concern (excluding certain assets) to Sherisha Technologies Private Limited (STPL), which later nominated its SPV, Soy-Sar Edible Private Limited (SEPL), as the acquirer.

Applicants Seek 'Clean Slate' and Operational Smoothness

Soy-Sar Edible and Sherisha Technologies approached the NCLT under Section 60(5) of the Insolvency and Bankruptcy Code (IBC), seeking directions for a seamless transition and operational restart. Their primary requests included:

• Shareholding and Management Restructuring: Approval for new share issuance, cancellation of existing promoter shareholding, reconstitution of public shareholding, and appointment of a new Board of Directors.
• Extinguishment of Past Liabilities: A declaration that all past liabilities, claims, and demands against K.S. Oils, predating the sale certificate date, be extinguished, ensuring a 'clean slate' for the new owners.
• Reliefs and Concessions: Seeking exemptions and benefits akin to those granted to successful resolution applicants under Section 31 of the IBC, particularly concerning tax benefits, regulatory compliances, and continuation of licenses.
• Merger Approval: Endorsement for the merger of the SPV, Soy-Sar Edible Pvt Ltd, with K.S. Oils Ltd post-acquisition.
• Relisting of Shares: Directions for relisting K.S. Oils' shares on BSE and NSE, arguing that the previous delisting during moratorium was illegal.

Court's Deliberations and Key Rulings

The NCLT Bench meticulously examined the applications and submissions from both the applicants and the Liquidator. During hearings, key aspects like preferential share allotment, carry forward of losses, and merger approval were specifically deliberated upon.

Preferential Shares: The Tribunal declined the applicant's request to allot cumulative redeemable preferential shares held by financial creditors for a nominal sum. The bench reasoned that these shares, along with other liabilities, would be extinguished, contributing to capital reserves that would primarily be used to offset accumulated losses.

Carry Forward Losses: The NCLT clarified that while the applicants sought to carry forward past losses for tax benefits, the accumulated losses of K.S. Oils, exceeding ₹2720 Crores, would likely be entirely absorbed by the capital reserves created from liability extinguishment. Therefore, the relief for carry forward losses was deemed inadmissible.

Merger Scheme: The Tribunal granted in-principle approval to the merger scheme concerning K.S. Oils. However, it clarified that Soy-Sar Edible Pvt Ltd (SEPL), being a separate entity, would need to file a separate application under Sections 230-232 of the Companies Act, 2013, for merger approval concerning SEPL itself.

Reliefs Granted and Directions Issued

The NCLT, exercising its powers under Section 60(5) of the IBC, granted several crucial reliefs and issued directions to facilitate the 'going concern' sale, including:

• New Board of Directors: Approved the appointment of a new Board of Directors nominated by the applicants, replacing the existing board.
• Share Capital Restructuring: Sanctioned the proposed equity shareholding structure, with 95% held by the SPV and 5% public shareholding, facilitating the issuance of new shares and extinguishment of existing promoter and majority public shareholding (beyond the stipulated 5%).
• Relisting of Shares: Directed the applicants to apply for relisting of K.S. Oils' shares on BSE and NSE, tasking the exchanges to consider the application within the framework of IBC.
• Extinguishment of Liabilities: Declared that all past liabilities and claims predating the sale certificate stand extinguished, ensuring a clean slate for the acquired entity.
• Settlement of Security Interests: Directed that security interests over K.S. Oils' assets be released upon distribution of sale proceeds under Section 53 of IBC, and creditors issue No-Objection Certificates.
• Active Status at RoC: Ordered the Registrar of Companies (RoC) to reflect K.S. Oils' status as 'active', removing the 'liquidation' tag.

The Tribunal clarified that reliefs concerning government departments and tax authorities could be pursued by the applicants directly with the respective authorities, who are expected to act in line with the IBC's objectives.

Implications for IBC and 'Going Concern' Sales

This order underscores the NCLT's proactive role in facilitating 'going concern' sales during liquidation under the IBC. By granting wide-ranging directions and concessions, the Tribunal has aimed to provide a genuine 'clean slate' to the acquirer, fostering business revival and economic value preservation. The judgment reinforces the importance of Section 60(5) in enabling effective implementation of liquidation processes, particularly for businesses sold as going concerns. The case serves as a notable precedent for future 'going concern' acquisitions under the IBC framework. ```