The National Company Law Appellate Tribunal has held that the clean slate theory established in Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. extends to purchasers of a corporate debtor as a going concern during liquidation proceedings. The Tribunal set aside the NCLT Mumbai order denying Section 32A protection for the period between liquidation commencement and sale certificate issuance, ruling that such immunity is a legal consequence of the going concern sale rather than a discretionary waiver.
Background & Facts
The Dispute
The appellants - Mr. Amitkumar Rishi Kumar Bhabhda, Mr. Amol Virendra Aggarwal, and Mr. Nitin Murlidhar Agrawal - purchased Seam Industries Limited (the Corporate Debtor) as a going concern in liquidation proceedings. The liquidation commenced on 30.06.2021 pursuant to an order of the Adjudicating Authority (NCLT, Mumbai Bench). A sale certificate was issued to the appellants on 07.08.2023. Subsequently, the appellants filed I.A. No. 5599 of 2023 seeking concessions, waivers, and protection under Section 32A of the Insolvency and Bankruptcy Code, 2016 for liabilities arising during the liquidation period.
Key Facts
- Liquidation proceedings commenced on 30.06.2021 under Section 33 of the IBC
- The appellants purchased the Corporate Debtor as a going concern through e-auction
- Sale certificate issued on 07.08.2023
- The Process Information Document stated that liabilities of the Corporate Debtor would be "settled, paid and extinguished" by the liquidator per Section 53 of the Code
- The appellants sought protection from past liabilities, immunity for past actions, and bar on investigations for pre-NCLT order period
- The Adjudicating Authority allowed relief regarding settlement of claims per Section 53 but declined immunity for past actions and bar on investigations
Procedural History
- 30.06.2021: NCLT Mumbai passed order directing liquidation of Seam Industries Limited (C.P. (IB) No. 1620 of 2017)
- 07.08.2023: Sale certificate issued to appellants as successful bidders
- 2023: Appellants filed I.A. No. 5599 of 2023 seeking concessions and Section 32A protection
- 12.12.2025: NCLT Mumbai passed impugned order allowing partial relief but declining items 5 and 6 (immunity for past actions and bar on investigations)
- 2026: Present appeal filed before NCLAT Principal Bench (Company Appeal (AT) (Insolvency) No. 221 of 2026)
- 09.09.2026: NCLAT pronounced judgment allowing the appeal
The Parties' Positions
The appellants contended that the clean slate theory recognized in Ghanshyam Mishra and followed in Shiv Shakti Inter Globe Exports Pvt. Ltd. v. KTC Foods Private Limited and Paschimanchal Vidyut Vitran Nigam Ltd. v. HSA Traders extends Section 32A protection to going concern sales during liquidation. The respondents (Liquidator, Income Tax Department, Registrar of Companies) did not appear.
Relief Sought
The appellants sought: (1) setting aside the NCLT order declining items 5 and 6; (2) grant of Section 32A immunity for offences committed prior to CIRP commencement; (3) bar on all inquiries, investigations, and proceedings for pre-NCLT order period; (4) protection from liability for non-compliances under applicable laws prior to NCLT order date.
The Legal Issue
The central question was whether Section 32A of the IBC - which provides immunity from liability for offences committed prior to CIRP commencement upon approval of a resolution plan or sale of liquidation assets - extends to the period between liquidation commencement date and the date of sale certificate issuance when the corporate debtor is sold as a going concern during liquidation proceedings.
Arguments Presented
For the Appellants
Counsel relied on Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. [(2021) SCC OnLine SC 313] where the Supreme Court propounded the clean slate theory for resolution plans. They cited M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. v. M/s KTC Foods Private Limited [Comp. App. (AT) (Ins.) No. 650 of 2020] and Paschimanchal Vidyut Vitran Nigam Ltd. v. HSA Traders [Comp. App. (AT) (Ins.) No. 527 of 2023] where this Tribunal recognized entitlement to Section 32A protection even during liquidation period for going concern sales. They argued that the statutory scheme contemplates sale as going concern as the primary objective of CIRP, and the clean slate theory must apply equally to liquidation going concern sales to ensure meaningful transfer.
For the Respondents
The respondents (Liquidator, Income Tax Department, Registrar of Companies) were represented by none. The Adjudicating Authority had relied on Shantech International Pvt. Ltd. v. Devendra Singh, Liquidator of Venus Rolling Mills Pvt. Ltd. [Company Appeal (AT)(Insolvency) No. 1520 of 2024] to hold that waiver of liabilities must follow the e-auction terms, and that extinguishment of claims up to the sale date as going concern is not consonant with the Liquidation Process Regulations.
The Court's Analysis
The Tribunal, per Justice N. Seshasayee, found considerable merit in the appellants' submissions. The Court reasoned that when CIRP commences, unless withdrawn under Section 12A, it either concludes with a resolution plan under Section 31 or proceeds to liquidation under Section 33. The primary legislative intent of CIRP is to sell the corporate debtor as a going concern.
"Reading Sec. 31 along with Sec. 14 implies that no liability can be created during the CIRP process and if at all anything is created by the Resolution Professional during the CIRP, the same is treated as part of CIRP cost. And, the clean slate theory implies that past liability, if any, of the corporate debtor, if remained unclaimed during CIRP or the liquidation cannot survive post successful completion of the CIRP or where the CD is sold as a going concern during liquidation."
The Court held that the clean slate theory is not merely a discretionary waiver or concession but a legal consequence flowing from the sale of the corporate debtor as a going concern, whether during CIRP or during liquidation. The immunity under Section 32A, subject to its prescribed conditions (change in management, no relation to old management, no abetment of offences, cooperation with enforcement authorities), applies to such sales.
The Tribunal distinguished the NCLT's reliance on Shantech International, noting that case dealt with waiver of liabilities per the e-auction terms, whereas the present appeal concerned the statutory immunity under Section 32A which operates independently of auction terms. The Court emphasized that Section 32A's conditions provide adequate safeguards against misuse.
The Verdict
The appeal was allowed. The Tribunal set aside that portion of the NCLT order dated 12.12.2025 in I.A. No. 5599/MB/2023 in C.P. (IB) No. 1620/MB/2017 where it declined items 5 and 6 (immunity for past actions and bar on investigations for pre-NCLT order period). The appellants were held entitled to the benefit of Section 32A of the IBC for these two items, subject to fulfilment of the conditions prescribed therein. No costs were awarded.
What This Means For Similar Cases
Clean Slate Theory Now Applies to Liquidation Going Concern Sales
Practitioners advising bidders in liquidation going concern sales can now confidently assert Section 32A immunity for the entire pre-sale period, including the liquidation phase. The judgment clarifies that the clean slate theory is not confined to resolution plans under Section 31 but extends to Section 33 liquidation sales, removing a significant uncertainty for purchasers.
Section 32A Conditions Remain the Gatekeeper
- The immunity is not automatic; it requires: (a) change in management; (b) new management not related to old management; (c) no abetment or conspiracy for prior offences; (d) cooperation with enforcement authorities
- Bidders must structure acquisitions to satisfy these conditions and document compliance meticulously
- The burden of proving conditions are met rests on the party claiming immunity
E-Auction Terms Cannot Override Statutory Immunity
The Tribunal's distinction of Shantech International establishes that Process Information Documents or e-auction terms cannot contract out of Section 32A protection. Where the statute grants immunity subject to conditions, auction terms imposing narrower protection yield to the statutory scheme. Practitioners should challenge any auction documents that attempt to limit Section 32A rights.
Practical Takeaways for Insolvency Professionals
- Liquidators should factor Section 32A immunity into going concern sale valuations and marketing
- Successful bidders should file Section 32A applications promptly upon sale certificate issuance
- Government authorities (tax, labour, environmental) must recognize the statutory bar on pre-sale proceedings against new management
- The judgment strengthens the going concern sale model by providing certainty on liability extinguishment
