NCLAT: Successful Auction Purchaser Cannot Evade Statutory ‘True-Up’ Charges After Sale of Corporate Debtor as Going Concern
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan, and Naresh Salecha (Technical Member) has held that a successful auction purchaser who acquires a corporate debtor on a going-concern basis is bound to bear statutory liabilities, including “true-up” charges, once a sale certificate is issued by the liquidator.
Background
The dispute arose out of liquidation proceedings of the corporate debtor, where the appellant emerged as the successful auction purchaser on a going-concern basis. After issuance of the sale certificate, deductions were made from the appellant’s security deposit of Rs. 4.9 crore towards true-up charges for the period 2014–2019.
The appellant challenged these deductions before the NCLT, Kolkata, which upheld the adjustment made by the electricity distribution company. Aggrieved, the appellant filed the present appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC).
Appellant’s Contentions
The appellant argued that the deduction of Rs. 3,16,08,440/- as true-up charges was contrary to the Andhra Pradesh Electricity Regulatory Commission (APERC)’s common order dated 30.03.2022 as well as the order of the Appellate Tribunal. It claimed that imposing liability for pre-CIRP and CIRP dues upon the purchaser was against the mandate of Section 53 of the IBC, which lays down the distribution waterfall in insolvency proceedings.
The appellant further submitted that the corporate debtor’s liabilities prior to its acquisition stood extinguished upon sale as a going concern, and that retention from its deposit was an illegal adjustment. It sought reversal of the impugned order and refund of Rs. 20,72,74,635/- after adjusting already refunded sums.
Respondent’s Stand
The respondent contended that the true-up charges were levied strictly in compliance with the APERC’s order, and were calculated through monthly electricity bills from July 2022 to June 2023, each bill amounting to Rs. 26,34,036.63. It was pointed out that the deduction from the appellant’s security deposit was not arbitrary but a lawful adjustment of dues payable by the corporate debtor.
The respondent emphasized that once the appellant had acquired the corporate debtor on a going-concern basis, it was bound to discharge such statutory obligations, as liabilities of the corporate debtor do not vanish merely by virtue of sale.
NCLAT’s Findings
The Tribunal observed that the appellant’s liability arose under the IBBI (Liquidation Process) Regulations, 2016, and not under the CIRP Regulations. Hence, the case was not governed by the framework of Section 53 of the IBC as claimed by the appellant.
The bench noted that once a purchaser acquires the corporate debtor as a going concern and a sale certificate is issued, the purchaser steps into the shoes of the corporate debtor and is responsible for all liabilities that arise thereafter. It categorically rejected the appellant’s reliance on Rule 470(5) of the APERC’s order, observing that such provisions cannot absolve a purchaser of obligations imposed by law.
The NCLAT further highlighted that true-up charges, being statutory in nature, are unavoidable and must be discharged by the entity carrying on the business. Since the appellant had taken over the corporate debtor on a going-concern basis, the liability to pay these charges fell squarely on it.
The NCLAT upheld the NCLT’s order and dismissed the appeal, affirming that the purchaser was liable to bear the true-up charges of Rs. 3,16,08,440/-. The bench reiterated that a successful auction purchaser cannot evade statutory dues of the corporate debtor once it assumes control on a going-concern basis. The Tribunal concluded that the plea to exempt the appellant from paying true-up charges was untenable in law, and accordingly dismissed the appeal.
Appearance
For Appellant: Mr. Rishav Banerjee, Ms. Madhuja Burman, Ms. Anoushka Dey, Advocates.
For Respondents: Mr. Joy Saha, Sr. Advocate with Mr. Sidhartha Sharma, Mr. Arjun Asthana, Mr. Aditya Mishra, Advocates.
Cause Title: Maithan Alloys Limited V. Easter Power Distribution Company
Case No: Comp. App. (AT) (Ins) No. 1514 of 2024 & I.A. No. 5492, 5493 of 2024
Coram: Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan, Mr. Naresh Salecha (Technical Member)
