Going concern purchaser is entitled to Corporate Debtor’s bank balances, subject to admitted gratuity dues.

The Appellant is the successful auction purchaser of the Corporate Debtor (CD), M/s. Gemini Communication Ltd., which was sold as a going concern.

The sale certificate was issued on 15.10.2021.

The Appellant filed an interlocutory application before the NCLT Chennai seeking the transfer of various funds, including mutual fund proceeds (Rs. 4,39,771/-) and bank balances (Rs. 26,00,000/-) held by the CD.

While the Appellant withdrew prayers regarding certain diverted funds and auction proceeds, the NCLT dismissed the remaining reliefs.

During the appeal, the Appellant provided a "No-Objection" for the CD’s bank balance to be used for the discharge of gratuity dues of erstwhile employees on humanitarian grounds.

Additionally, a dispute arose regarding ongoing arbitration between the CD and BSNL; Clause 6 of the sale notice specified that any proceeds from this arbitration would go to the creditors, not the Appellant.

1. Whether the balance funds of the Corporate Debtor should be released to the Appellant or utilized for time-barred gratuity claims of erstwhile employees.

2. Whether the Liquidator is entitled to utilize the Corporate Debtor’s funds to prosecute arbitration proceedings when the Appellant is excluded from the eventual proceeds of such litigation.

The court operated under the Insolvency and Bankruptcy Code, 2016 (IBC).

It applied the principle that a Liquidator has no jurisdiction to accept claims filed beyond the prescribed time limit unless directed by the Adjudicating Authority.

Furthermore, the court upheld the contractual and procedural sanctity of the Sale Notice (specifically Clause 6), which governs the distribution of litigation proceeds and the Liquidator's right to utilize CD funds to maximize value for stakeholders.

Regarding the first issue, the court observed that the Liquidator had already rejected the workers' gratuity claims as they were significantly time-barred.

However, acknowledging the Appellant’s "No-Objection," the court reasoned that while the Liquidator cannot admit these claims unilaterally, if the NCLT subsequently directs the acceptance of these belated claims, the funds should be used for such payments.

If the claims remain unadmitted, the funds must revert to the Appellant as the owner of the going concern.

On the second issue, the Appellant argued that since they have no interest in the BSNL arbitration proceeds, the CD's funds should not be used to finance it.

The court rejected this, analyzing Clause 6 of the sale notice which stipulates that proceeds are for the creditors.

The court concluded that the Liquidator or Stakeholder Consultation Committee is not prohibited from using the CD's funds to prosecute litigation that ultimately benefits the creditors under the liquidation framework.

The court further held that the Liquidator is permitted to utilize the CD’s funds for the BSNL arbitration as the proceeds are designated for the creditors.

The appeal was disposed of with these specific modifications to the NCLT's order.