The Corporate Debtor as a Going Concern – By Mr. Abhimanyu Chattree

The Corporate Debtor as a Going Concern

– By Mr. Abhimanyu Chattree,
(Final Year Student at Amity Law School, Delhi (Affiliated to Guru Gobind Singh Indraprastha University, Delhi)


With the Amendment dated 28.03.2018, in the Liquidation Process Regulations, an addition was made to Regulation 33 of the said Regulations, which permitted the Liquidator to sell the Corporate Debtor as a “Going Concern”. With respect to the said Amendment, the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, was amended on 01.04.2018 and later on 22.10.2018 to make way for the Liquidator to sell the Corporate Debtor as a going Concern. Furthermore, the IBBI (Liquidation Process) (First Amendment) Regulations, 2018, was made to introduce the concept of “sale of the business of the Corporate Debtor as a Going Concern”.

The essential viewpoint or the reason for the said amendments was that the value of a company under the burden of debt may be more to sell as a whole or preserved than selling of the assets in a piecemeal.

The said Amendment in the Liquidation Process Regulations adds a Clause (e) to Regulation 32 of the same Regulations. The same has been reproduced hereunder:

“32. Sale of Assets, etc.–The Liquidator may sell:

     (a) an asset on a standalone basis; or

    (b) the assets in a slump sale,

    (c) a set of assets collectively, or

    (d) the assets in a parcel;

    (e) Sell the Corporate Debtor as a going concern; or

    (f) the business(s) of the Corporate debtor as a going concern.”

To further the purpose of Regulation 32, on 25.07.2019, Regulation 32A was added to the said Regulations. The relevant sub-regulations have been reproduced hereunder:

“32A. Sale as a going concern. – (1) where the committee of creditors has recommended sale under Clause (e) or (f) of the Regulation 32 or where the Liquidator is of the opinion that sale under Clause (e) or (f) of Regulation 32 shall maximise the value of the corporate Debtor, he shall endeavour to first sell under the said Clauses.

(4) if the Liquidator is unable to sell the corporate Debtor or its business under Clause (e) or (f) of Regulation 32 within 90 days from the liquidation commencement date, he shall proceed to sell the assets of the Corporate Debtor under Clauses (a) to (d).”

Selling as a Going Concern under the Code

Although the Code now recognises the selling of the Corporate Debtor as a continuing issue, the term “Going Concern” does not include a description. The word is also left to be completely understood by the courts. The “going concern scheme” means selling on “as is where is basis” that allows the Liquidator, including all assets and properties, to sell the business of the company under Liquidation. Before the Amendment, the Liquidator had limited options when the Corporate Debtor went into Liquidation. However, after the inclusion on Clause (e), the liquidator has options to sell the company with all its assets, i.e., selling the company as a whole including all the assets and the liabilities.

Looking retrospectively, the purpose of the Code was to ensure speedy recoveries of the debt as well as the Corporate Debtor. But due to the delay, that was usually not possible, however, with the advent of the Amendment, all the constituents of the Corporate Debtor, including the assets, employees etc. will be better utilised as the company would be sold as a going concern. Another viewpoint of the inclusion of the new clause is that if the company is sold as a going concern, then the question of selling the assets of the company as a piecemeal or in a slump would not arise, rendering Section 53 of the Code non-applicable. The company would therefore, survive “as is” and the ownership of the Corporate Debtor would be transferred from the Liquidator to the Acquirer.

Judicial Pronouncements

  • After the advent of Insolvency and Bankruptcy Code, 2016, the issue of selling of Corporate Debtor as a going concern was first discussed in the case of Gujarat NRE Coke, wherein, the Kolkata Bench of NCLT, on 11.01.2018, ordered the sale of the Corporate Debtor as a going concern with the purpose of saving the employment of 1178 employees and workmen w.r.t Regulation 32(b)(i) of IBBI (CIRP Regulations), 2016 which provides for sale of assets in a slump sale.
  • In the case of First Global Finance Pvt. Ltd. Vs. IVRCL & Anr. vide its Order dated 29.07.2019, where more than Rs. 1400 Crores were owed to financial creditors and other creditors, since the Resolution Plans were not accepted due to delayed submissions and deviations in the EMDs, NCLT Hyderabad, ordered that the Company shall be sold as a going concern.

The same was challenged in the NCLAT, where it was decided that the option of utilising Sections 230-232 of the Companies Act, 2013 is open only when they are eligible under the Code too. Therefore, it was decided to not set aside the Order of the NCLT.

  • In a very significant case for the issue of Liquidation, Calcutta High Court, in the National Tannery Case Co. Case in 1991, where the High Court ordered that the company be sold on going concern basis under liquidation. This case holds a significant place, as a committee of management was formed to run the company until it was sold as a going concern and later, it was acquired by the Government of West Bengal on a going concern basis, and the payment of wages of the employees was also agreed upon.
  • In the Supreme Court ruling in the case of Allahabad Bank Vs. ARC Holding, dated 26.09.2000, it was decided that, when a company has been shut for some amount of time, the option of selling the company on a going concern would only be efficient if it was run for a considerable amount of time, and then transferred as a going concern.

   But subsequent order directs sale of the entire assets of the company as a ‘going concern’. This means to revive the company first to make it operational, re-employ its employees, which would involve huge investment by the prospective buyer, a Herculean task, making execution practically infructuous.

  • In the Mumbai Bench of NCLT, in the matter of Gupta Global Resources Pvt. Ltd., dated 12.03.2019 the Bench stated that:

“Ld. Counsel appearing on behalf of the Liquidator submitted that the meaning of “going concern” is not at all clear in the Liquidation Regulations. Different meanings have emerged in the context of accounting standards, GST law and from several rulings. “Going Concern” means all the assets, tangibles or intangibles and resources needed to continue to operate independently a business activity which may be whole or a part of the business of the Corporate Debtor without values being assigned to the individual asset or resource. It is pertinent to mention that when the business of the Corporate Debtor is being sold on going concern basis, then it has a presumption that sale will be with assets and liabilities.”

  • In the matter of Edelweiss Asset Reconstruction Company Ltd. Vs. Bharati Defence and Infrastructure Ltd. (2017) 26 NCLT, in the Order dated 14.01.2019, NCLT Mumbai held that, if the ultimate object of the Resolution Plan is to sell the company, then it can be achieved by allowing sale as a going concern during the liquidation process. It was further advised to the IBBI to frame stricter guidelines to prevent malafide applicants and bidders from entering the Insolvency process. Finally, it was ordered that Corporate Debtor be liquidated as per provisions of Regulation 32 (b) & (e) of the IIBI (Liquidation Process) Regulations, 2016 which provides for assets in a slump sale, the corporate debtor as a going concern.

Advantages of Selling a Company on Going Concern Basis

One of the basic components of a Company is its “perpetual succession”. This means that even if there is bankruptcy, or a change in ownership, the corporate entity stays alive. Selling of the company provides a second life to the Corporate Debtor’s Corporate status.

Other benefits of selling of the corporate debtor as a going concern are:

Preservation of intangible Assets; Smooth transition of undertaking; Collective value of assets;

Retaining workers and employees; and Time bound process.


Selling of the Corporate Debtor can be considered to be a route to expediate the process of liquidation. This would also ensure the retaining of the employees and maintaining employability. A company, if sold as a going concern, provides the acquirer an opportunity to revive the company without it being non-existent.

However, it can also be stated that since, the term “Going Concern” has not been defined in the Code, this leaves an enormous amount of burden on the Adjudicating Authorities as they are the ones to interpret the term from case to case.


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