IBC Section 32A Protection Extends To Going Concern Sales During Liquidation: NCLAT

The National Company Law Appellate Tribunal has fortified the 'clean slate' doctrine by ruling that the statutory immunity under Section 32A of the Insolvency and Bankruptcy Code, 2016 remains fully available to successful bidders who purchase a corporate debtor as a going concern during liquidation proceedings. This decisive intervention ensures that past liabilities cannot haunt new managements, thereby upholding the primary legislative intent of value maximization and business continuity under the insolvency framework.

Justice N. Seshasayee (Member Judicial) and Arun Baroka (Member Technical) presided over the appeal, which challenged a restrictive interpretation by the Adjudicating Authority (NCLT Mumbai) regarding the temporal scope of statutory protections for auction purchasers.

NCLAT Reverses NCLT Restrictions on Statutory Immunity

The Tribunal addressed the question of whether the protection against past liabilities and investigations extends to the period during which the company is undergoing liquidation. The Adjudicating Authority had previously declined such relief, suggesting that claims could not be extinguished up to the date of sale. However, the NCLAT clarified that the clean slate theory, as propounded in Ghanshyam Mishra and Sons Private Limited Vs Edelweiss Assets Reconstruction Company Limited, is equally applicable to liquidation sales conducted on a going concern basis.

Regarding the scope of Section 32A, the Court observed: "...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. Indeed, it may not even be termed as waiver or concession stricto sensu, as it is the legal consequence when the CD is sold as a going concern either during CIRP or during liquidation."

The Court has following directions:

"...we allow this appeal and set aside that portion of the Order of the Adjudicating Authority in I.A. No. 5599/MB/2023 in C.P. (IB) No. 1620/MB/2017, dated 12.12.2025, where it has declined concession for two items, indicated as items 5 and 6 in paragraph 3 above, and it is held that the appellants will be entitled to the benefit of Section 32A of the Code for these two items and it is accordingly granted, subject however, to the fulfilment of the conditions prescribed therein."

Background

The appellants purchased Seam Industries Limited (the Corporate Debtor) as a going concern through a liquidation auction, with a sale certificate issued on August 7, 2023. They subsequently filed an application seeking waivers and protection under Section 32A of the Insolvency and Bankruptcy Code, 2016. The NCLT Mumbai had partially allowed the application but declined to grant immunity for investigations, suits, and non-compliances for the period between the liquidation commencement (June 30, 2021) and the sale date.

Counsel for the appellants relied on M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited & another and Paschimanchal Vidyut Vitran Nigam Ltd. Vs HSA Traders Through Sole Proprietor & others to argue that Section 32A protection is a statutory right available to going concern purchasers. The NCLAT agreed, noting that the legislative intent is to sell the corporate debtor as a going concern, which necessitates a clean break from the past. The appeal was allowed, granting the appellants the requested immunity against prior inquiries and non-compliances subject to statutory conditions.

Case Details:
Case No.: Company Appeal (AT) (Insolvency) No. 221 of 2026
Case Title: Mr. Amitkumar Rishi Kumar Bhabhda & Ors. Vs. Mr. Amit Chandrashekhar Poddar & Ors.
Appearances:
For the Petitioner(s): Mr. Sandeep Bajaj, Mr. Vipul Jai, Ms. Charmi Khurana, Advocates
For the Respondent(s): None

Source: 2026 CaseBase(NCLAT) 547