NCLAT Permits Major Shareholders to Buy Company Property as Directors Breached Interim Order Restraining Sale of Immovable Asset [Read Order]
The Appellate Tribunal noted that the appellant’s violation of the undertaking was against the best interest of the company
The Principal Bench of the National Company Law Appellate Tribunal (NCLAT) at New Delhi bench recently upheld an order passed by the National Company Law Tribunal (NCLT), permitting majority shareholders of a company that was facing proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), to purchase the sole immovable property owned by the company upon noting that the directors had breached an interim order restraining alienation of the asset.
The issue arose when Ashok Kumar Jain and his group of directors who together held 36.69% shares in the company M/s. Vardhman Roller Flour Mills Pvt. Ltd., attempted to sell the company’s only immovable property located in Meerut to Arihant Roller Flour Mills, later assigning rights to Hotage India.
Such an attempt to sell was done in violation of an interim NCLT order dated 28 February 2023 which restrained the creation of third-party interests. The majority shareholders, who held 52.66% shares, challenged the transaction as illegal and convened an extraordinary general meeting (EOGM) to remove Ashok Jain from the board.
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In an order dated 5 February 2024, the NCLT noted that the directors had violated the undertaking given by them to the Tribunal and proceeded with negotiations and payments for the sale of immovable property without seeking permission. The NCLT rejected Jain’s plea to modify the interim order and instead allowed the majority shareholders to purchase the asset for ₹16.75 crore, of which ₹15.75 crore would be adjusted towards a One-Time Settlement (OTS) with Punjab National Bank and ₹1 crore infused into the company.
The NCLT decision was appealed by Ashok Kumar Jain before the NCLAT. Mohit Chaudhary and Raghav Dikshit, appearing for the appellant submitted that the Applicant has taken steps and negotiated with the prospective buyer of the property in question despite giving an undertaking and that the prospective purchaser, Hotage India, had already paid an amount of ₹7 Crores to the Bank.
A bench of Justice Yogesh Khanna - Member (Judicial) and Ajai Das Mehrotra - Member (Technical) held that the appellant’s actions were contrary to his undertaking and detrimental to the interests of the company. The appellate tribunal emphasized that the prospective purchaser had no vested right in the property since no NCLT approval was obtained as required under the OTS sanction letter.
Furthermore, Hostage India had withdrawn its ₹7 crores from the bank after the passing of the Impugned Order. Accordingly, the NCLAT dismissed both appeals filed by Ashok Kumar Jain and Hotage India.
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