Sale as a 'Going Concern' in Liquidation Grants 'Clean Slate' Protections Similar to a Resolution Plan: NCLT Kolkata - 2025-08-21

NCLT Kolkata Affirms 'Clean Slate' for Buyers in Liquidation, Extends Resolution Plan Protections to 'Going Concern' Sales

Kolkata, August 12, 2025 – In a significant ruling that reinforces the objective of corporate revival under the Insolvency and Bankruptcy Code, 2016 (IBC), the National Company Law Tribunal (NCLT), Kolkata Bench, has held that a successful bidder acquiring a company "as a going concern" during liquidation is entitled to the same "clean slate" protections as a successful resolution applicant.

The bench, comprising Hon’ble Member (Judicial) Smt. Bidisha Banerjee and Hon’ble Member (Technical) Cmde Siddharth Mishra, granted a wide array of reliefs, including the extinguishment of all past liabilities, to M/s Pashupati Corporation, which acquired Gouri Iron and Steel Private Limited. The Tribunal reasoned that the goal of revival is common to both resolution plans and going concern sales, necessitating comparable concessions to ensure the new management is not burdened by the past.

Case Background

The matter arose from an application filed by M/s Pashupati Corporation, the successful bidder for Gouri Iron and Steel Private Limited (the Corporate Debtor). Gouri Iron had entered liquidation on November 24, 2022, after its Corporate Insolvency Resolution Process (CIRP) failed.

The liquidator, Mr. Uttam Tekriwal, conducted an e-auction to sell the company as a going concern. M/s Pashupati Corporation emerged as the successful bidder with a bid of ₹23,25,000, completed the payment, and received a Sale Certificate on January 10, 2025. Subsequently, the firm approached the NCLT under Section 60(5) of the IBC, seeking numerous reliefs crucial for the operational revival of the acquired company.

Applicant's Arguments

The applicant, M/s Pashupati Corporation, contended that for a 'going concern' sale to be successful and for the corporate debtor's business to be truly revived, the new management must start on a fresh slate. They argued that the acquisition should be treated akin to a resolution plan, granting them immunity from past liabilities, statutory dues, and pending litigations that arose before the acquisition.

Legal Principles and Precedents Applied

The NCLT heavily relied on the landmark Supreme Court judgment in Ghanashyam Mishra and Sons Pvt Ltd v Edelweiss Asset Reconstruction Company Ltd , which firmly established the "clean slate" doctrine. The Apex Court held that once a resolution plan is approved, all past claims not included in the plan are extinguished, preventing "surprise claims" from popping up and jeopardizing the company's revival.

The Tribunal extended this rationale to the present case, observing:

"It is to be noted that the primary goal of a resolution plan as well as the sale of a Corporate Debtor as a going concern remains the same i.e revival of the Corporate Debtor’s business. The struggles faced by the purchaser during the sale of a Corporate Debtor as a ‘going concern’ and that of the Successful Resolution Applicant are similar, if not the same. As such, comparable reliefs and concessions ought to be granted in both cases. As such, the law laid down in Ghanashyam Mishra (Supra) ought to be made applicable to cases in which the Corporate Debtor has been sold as ‘going concern’."

The bench also cited the NCLAT's decision in Jasamrit Designers Pvt. Ltd. vs. Mr. Gian Chand Narang & Anr , which permits a successful bidder to seek reliefs necessary for the operationalization of the corporate debtor.

Key Reliefs Granted by the NCLT

In a comprehensive order, the NCLT granted a majority of the reliefs sought by M/s Pashupati Corporation, which include: * Protection from Past Liabilities: All outstanding claims of financial creditors, operational creditors, employees, and statutory bodies prior to the acquisition stand extinguished. * Immunity under Section 32A: The new management and assets are granted immunity from prosecution for offences committed by the previous management. * Termination of Encumbrances: All charges and encumbrances over the company's assets are deemed satisfied and vacated. * Cancellation of Old Shares: The existing share capital of Gouri Iron was cancelled, with new shares to be allotted to the successful bidder. * Termination of Old Proceedings: All pending legal and statutory proceedings against the company for the pre-acquisition period stand terminated. * Change of Status: The Registrar of Companies (ROC) was directed to change the company's status on the MCA portal from "liquidation" to "Active."

The Tribunal, however, directed the applicant to approach the relevant income tax authorities for specific tax-related waivers, stating the authorities would consider such requests under the Income Tax Act.

Implications of the Judgment

This order provides much-needed clarity and confidence to potential bidders looking to acquire companies as going concerns during liquidation. By equating the protections with those under a resolution plan, the NCLT has strengthened the 'going concern sale' mechanism as a viable tool for corporate revival, ensuring that purchasers are not ambushed by historical liabilities. This decision promotes value maximization of assets and encourages the rescue of distressed but viable businesses, even after the failure of a CIRP.