Clean Slate Does Not Protect Company Sold as Going Concern in Liquidation: Madras High Court

The Madras High Court refused to treat GST dues for 2021-22 as extinguished after a liquidator sold EMC Limited as a going concern, but remitted the ₹87.68 lakh demand for fresh adjudication on deposit.

The Madras High Court has held that a corporate debtor sold as a going concern in liquidation, under Regulation 32(e) read with Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016, is sold with its liabilities, so the “clean slate” principle does not extinguish GST dues arising during the insolvency process. [EMC Limited v. State Tax Officer & Ors., 2026-juristway.com-3169-HC(Madras)-GST]

Justice C. Saravanan disposed of the writ petition against a Section 73 order for 2021-22 confirming tax of ₹49,59,993 with interest, late fee and penalty, a total of ₹87,68,173.

CIRP against the petitioner was admitted in 2018, liquidation was ordered on 21 Nov 2023, and the NCLT, Kolkata approved its sale as a going concern to Salasar Techno Engineering Limited on 22 Oct 2024. The petitioner relied on Ghanshyam Mishra & Sons Vs. Edelweiss Asset Reconstruction Company Limited ((2021) 9 SCC 657) and said the department never filed its claim before the liquidator. The State argued that the clean slate theory does not cover dues arising after CIRP began.

The Court held that in a going-concern sale the corporate identity survives and the buyer takes assets and liabilities as a package, so Section 53 of the Code does not apply. The clean slate rule may apply where assets are sold under Regulation 32(a) to (d) and the company is dissolved. Liabilities incurred after the interim resolution professional took charge cannot be written off under the Code.

The Court disagreed with the Calcutta High Court in Kashvi Power & Steel Private Limited & Another Vs. West Bengal State Electricity Distribution Company Limited & Others and M/s.Rabirun Vinimay Pvt. Ltd. & another Vs. Union of India, calling that interpretation erroneous, and found the NCLT’s reference to Ghanshyam Mishra superfluous. It also pointed to the joint liability of a transferee of a business under Section 85.

As the petitioner had not filed an effective reply and might have a case under Section 85, the matter was remitted for fresh adjudication on deposit of 25% of the disputed tax within 30 days, treating the impugned order as an addendum to the show cause notice.

2026-juristway.com-3169-HC(Madras)-GST