Principal Bench Rules that Corporate Debtor Sold as Going Concern During Liquidation Can Avail Immunity from Past Liabilities, Subject to Statutory Conditions
In a significant judgment dated September 9, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in the case of Amitkumar Rishi Kumar Bhabhda and Others v. Amit Chandrashekhar Poddar and Others, has clarified the applicability of the “clean slate theory” under Section 32A of the Insolvency and Bankruptcy Code (IBC), 2016 during liquidation proceedings.
The appellant had purchased the corporate debtor (CD) as a going concern during the liquidation process that commenced on June 30, 2021, with the sale certificate issued on August 7, 2023. The appellant sought reliefs including concession, waiver, and immunity from past liabilities under Section 32A of the IBC. The Adjudicating Authority (NCLT Mumbai) had denied such benefits for the liquidation period prior to the sale certificate issuance, leading to the appeal before the NCLAT.
Drawing heavily from the Supreme Court’s landmark ruling in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Assets Reconstruction Company Limited (2021), the NCLAT held that the clean slate theory, which ensures that past liabilities of the corporate debtor do not survive after the sale as a going concern, applies not only during the Corporate Insolvency Resolution Process (CIRP) but also during liquidation. This immunity is not a mere waiver or concession but a statutory legal consequence once the corporate debtor is sold as a going concern.
The Tribunal clarified that Section 32A provides immunity to the new management and the corporate debtor from liabilities for offences committed prior to the commencement of CIRP, provided certain conditions are met. These include a change in management where the new management is not directly or indirectly related to the old management and has not abetted or conspired in the commission of such offences. Furthermore, the new owners must cooperate with enforcement authorities investigating any applicable laws.
However, the NCLAT emphasized that the benefit of immunity under Section 32A is subject to fulfillment of statutory conditions and does not automatically extend to all reliefs sought by the appellant. Specifically, the Tribunal allowed immunity to the extent that all claims and liabilities of creditors, whether known or unknown, crystallized or contingent, present or future, stand settled as per Section 53 of the IBC once the sale proceeds are distributed. No claims for pre-CIRP period liabilities can be enforced against the buyer, ensuring a clean slate for the corporate debtor post-sale.
The Tribunal declined reliefs that sought to bar investigations or proceedings pending or threatened before the NCLT order date or to prevent the initiation of new inquiries related to pre-sale non-compliance. It held that such reliefs are beyond the scope of Section 32A and statutory framework of liquidation regulations.
The judgment harmonizes the legislative intent of the IBC to facilitate the sale of corporate debtors as going concerns during CIRP or liquidation, ensuring smooth business continuity and investor confidence by shielding the new management from legacy liabilities.
In conclusion, the NCLAT allowed the appeal partly, setting aside portions of the NCLT order that denied immunity for investigations and proceedings related to pre-sale periods, and granted the benefit of Section 32A to the appellants, subject to conditions prescribed therein. This verdict reinforces the principle that the clean slate theory is a pivotal aspect of the insolvency resolution and liquidation regime in India.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 32A Applicability of clean slate theory during liquidation process - Benefit of Section 32A extended to the corporate debtor sold as a going concern during liquidation process, subject to fulfillment of statutory conditions.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 32A, Section 53, Section 31, Section 33, Section 14, Section 12A
