NCLAT Overturns NCLT's Decision on Auction Purchaser's Shareholding Restructuring

Appellate Tribunal Upholds Auction Purchaser's Autonomy, Citing Jurisdictional Overreach by NCLT  

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has set aside the National Company Law Tribunal's (NCLT) decision concerning the restructuring of shareholding in the case of "Abhay Kumar Jitendra Shah v. Sanjay B. Shah." The judgment, delivered by Justice Mohd. Faiz Alam Khan and Arun Baroka, emphasized the limited supervisory role of the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.

The appeal challenged the NCLT Ahmedabad Bench's order dated 05.05.2025, which had directed the appellant, the successful auction purchaser of Accent Packaging Private Limited, to modify its proposed share capital structure. The NCLT had intervened to adjust the share capital and debt distribution, asserting it was necessary for running the corporate debtor as a going concern without burdening it with excessive debt.

The NCLAT, however, found that the NCLT had overstepped its jurisdiction. The Appellate Tribunal clarified that once the auction process is concluded and the sale is confirmed, the commercial autonomy of the auction purchaser should be respected, provided it does not contravene any legal provisions. It was emphasized that the adjudicating authority's role is restricted to ensuring compliance with legal provisions during liquidation and does not extend to dictating commercial decisions post-auction.

The judgment pointed out that the restructuring proposal had not been opposed by the Stakeholders Consultation Committee or the liquidator, and there was no legal violation in the proposed shareholding structure. Consequently, the NCLAT allowed the appeal, setting aside the NCLT's modifications to the share capital restructuring. The matter has been remanded back to the NCLT for fresh adjudication, with instructions to provide an opportunity for the parties to be heard.

This decision reinforces the principle that post-auction, the purchaser has the autonomy to manage the corporate debtor's affairs, including its shareholding structure, unless it contravenes statutory mandates. The ruling is expected to have significant implications for future insolvency proceedings and the autonomy of auction purchasers.

Bottom Line:

Insolvency and Bankruptcy Code - Sale of Corporate Debtor as a Going Concern - Adjudicating Authority's power to modify commercial decisions of auction purchaser limited to ensuring compliance with legal provisions and cannot impose ex post facto conditions or dictate commercial wisdom of the purchaser.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 35(1)(f), Section 53, Section 61

Abhay Kumar Jitendra Shah v. Sanjay B. Shah, (NCLAT)(Principal Bench: New Delhi) : Law Finder Doc Id # 2811565