Rights Of Auction Purchaser Are Crystallized Upon Issuance Of Sale Certificate: NCLAT Chennai

Brief Facts

The following appeal has been preferred by the Appellant who is the former managing director of the corporate debtor (Nexus Electro Steel Ltd.). The appeal is against the order of the National Company Law Tribunal (NCLT), Chennai in which the matter related to the liquidation process of the corporate debtor was adjudicated.

The corporate debtor was admitted into the process of the liquidation in the year of 2022, September. The liquidator for the purpose of realising and selling the company, initiated with three auctions to sell the corporate debtor as a going concern but ultimately failed. The company was finally successfully auctioned on piecemeal basis and the company that bought the corporate debtor was M/s Chinar Steel Segmernt Centre Private Limited.

The NCLT dismissed the application of the appellant stating that the process of auction had already concluded and the sale certificate for the auction process was already issued. The auction purchaser has full rights over the company and it will be inappropriate to declare the sale null and void.

The appellant had initially filled an application seeking to challenge the auction process which was conducted by the liquidator. The appellant thorough its application sought to declare the auction process to be null and void and requested the tribunal to condone the delay in submitting the compromise scheme under Section 230 of the Companies Act, 2013.

The court stated that the appellant's delay in filing his application and presenting a compromise scheme under Section 230 was not reasonable.

The appellant aggrieved by the order of the tribunal, filed an appeal before the National Company Law Appellate Tribunal (NCLAT), Chennai.

NCLAT Judgement

The National Company Law Appellate Tribunal, Chennai in its judgement upholding the order impugned order of the NCLT, Chennai dismissed the appeal which was challenging the liquidation process. The tribunal noted that the appellant did not challenge the auction process at the time but filed an application at a much later stage, which the NCLT also dismissed stating that the sale had already been finalised.

The appellate tribunal further also noted that the appellant had delayed in filing the appeal against the NCLT order and had also further delayed refiling the appeal by 224 days. The tribunal also rejected the contention the appellant stating that the auction process conducted was flawed and there was non-compliance of Schedule 1 (1) (1E) and Schedule 1 (1)(5) of Regulation 31A (2) of the Liquidation Regulations. The tribunal stated that the liquidator complied with the prescribed procedures and had also formed a Stakeholders Consultation Committee (SCC). Further the tribunal also stated that the appellant cannot be termed as a stakeholder under Section 2(k) of the code.

The tribunal also dismissed the contention of the petitioner that he was denied a fair opportunity to present a compromise scheme under Section 230 of the Companies Act, 2013. The tribunal highlighted the delay of appellant in filing the scheme and also stated that once a auction sale is concluded and a sale certificate is issued, the transaction attains finality.

Thus, the NCLAT upheld the auction sale and rejected the appellant's challenge stating that the liquidator had acted within his statutory authority and the sale was conducted in accordance to the code and liquidation regulations.

Case Title: Ketan C Bagadia V Radhakrishnan Dharmarajan, Liquidator of Nexus Electro Steel Ltd. Erstwhile Resolution Professional of Nexus Electro Steel Ld.

Case Number: Company Appeal (AT) (CH) (Ins)No.36/2025 (IA Nos. 127 & 128/2025)

Tribunal: National Company Law Appellate Tribunal, Chennai

Coram: Justice Sharad Kumar Sharma (Member (Judicial) and Jatindranath Swain (Member (Technical)

For Appellant: Mr. Raghav Menon, Advocate

For Respondents: Mr. T Ravichandran, Advocate for R1 Ms. Shalya Agarwal, Advocate for R2

Date of Judgement: 10^th March, 2025

Read/Download Order Here