NCLAT: Sale of Company’s Sole Asset Without Tribunal Nod Invalid, Majority Shareholders to Complete OTS
- REEDLAW
- Aug 18
- 4 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT) held that the sale of a company’s sole immovable asset, executed under a one-time settlement (OTS) with the Bank, was invalid in the absence of prior approval from the Tribunal and consent of the majority shareholders. Upholding the NCLT’s findings, the Appellate Tribunal directed the majority shareholders to complete the OTS in the larger interest of the company, thereby reinforcing the principle that any transfer of a company’s critical assets must be subjected to judicial scrutiny and shareholder approval.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), adjudicated a batch of two Company Appeals along with connected Interlocutory Applications. The Tribunal categorically held that any sale of the company’s sole immovable property in furtherance of an OTS arrangement with the Bank, without the sanction of the Tribunal and the approval of the majority shareholders, stood invalid. It consequently affirmed the NCLT’s direction requiring the majority shareholders to complete the OTS settlement to safeguard the company’s interests and ensure fairness in the management of its affairs.
The appeals arose from disputes concerning the validity of agreements and settlements entered into by the management of Vardhman Roller Flour Mills Pvt. Ltd. in relation to a One-Time Settlement (OTS) with Punjab National Bank (PNB). Three borrower companies, including Vardhman Roller Flour Mills Pvt. Ltd., had defaulted on loans taken from PNB, following which measures under the SARFAESI Act were initiated. After several rounds of negotiations, an OTS dated 28.09.2022 was finalised, under which the borrowers were required to deposit ₹58.50 crores by 27.12.2022. However, disputes arose when the appellants, led by Ashok Jain, sought to proceed with the sale of the company’s immovable property in favour of M/s Arihant Roller Flour Mills, later assigned to M/s Hotage India, without the approval of the majority shareholders and in violation of an interim order dated 28.02.2023 of the NCLT, which restrained creation of third-party rights.
The majority shareholders, holding a 52.66% stake, objected to these transactions and convened an EOGM to remove Ashok Jain as a director, citing his attempts to alienate the company’s only immovable property without their consent. Parallelly, writ petitions were filed before the Delhi High Court, and though settlements under revised OTS terms dated 28.11.2023 were recorded, the issue remained pending before the NCLT. The Tribunal found that the appellants had acted contrary to their own undertaking by negotiating and accepting payments from prospective purchasers without prior leave of the Tribunal. It held that the conduct of Ashok Jain Group and M/s Hotage India, acting in concert, amounted to a violation of the interim order.
The NCLT, therefore, declined to modify its earlier order and instead directed the majority shareholders, who had offered ₹16.75 crores, to be given an opportunity to purchase the property, since such action was deemed in the larger interest of the company. It noted that the respondents had already deposited ₹15.75 crores with PNB under the OTS and proposed to infuse an additional ₹1 crore for the company’s benefit, whereas M/s Hotage India had withdrawn its deposit of ₹7 crores.
The NCLAT, on appeal, upheld the NCLT’s reasoning, observing that the appellants could not claim equities in their favour after violating the Tribunal’s interim order and attempting to conceal material facts before judicial forums. The Appellate Tribunal rejected the plea that Section 242(2)(f) of the Companies Act, 2013 was applicable, as no valid tripartite agreement had ever been placed before the NCLT for approval. Considering that the majority shareholders had already fulfilled the OTS obligations and infused additional funds in the company’s interest, the NCLAT found no reason to interfere with the impugned order dated 05.02.2024. Consequently, both appeals were dismissed along with pending applications.
Mr. Mohit Chaudhary and Mr Raghav Dikshit, Advocates, represented the Appellant.
Mr. Rakesh Kumar, Ms. Priti Kashyap, Mr. Ankit Sharma, Ms. Nishi Choudhary and Ms. Yashartha Gupta, Advocates, appeared for the Respondents.
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