NCLT Kochi Holds Suspended Management Has No Locus After Liquidation, Rejects Auction Challenge

On 1 June, the Kochi Bench of the National Company Law Tribunal (NCLT), held that suspended directors cannot institute or pursue proceedings in the name of a corporate debtor after commencement of liquidation and that authorities cannot reopen a concluded liquidation auction in the absence of fraud, collusion or material irregularity.

Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy imposed costs of Rs.1 lakh on the signatory to the application and directed its deposit with the National Defence Fund. The Bench held:

“In view of the aforesaid statutory provision, upon commencement of liquidation proceedings, the authority to represent the Corporate Debtor in legal proceedings vests exclusively with the Liquidator, and the erstwhile suspended directors cease to have any power to institute or pursue proceedings in the name of the Corporate Debtor, except with the approval or authorisation of the Liquidator.”

Sree Bhadra Parks & Resorts Ltd availed credit facilities of about Rs.9.70 crore from Federal Bank in 2008. After the company defaulted, authorities initiated recovery proceedings and later assigned the debt to Phoenix ARC Private Limited.

Authorities later initiated insolvency proceedings against the corporate debtor. Although the parties initially settled the dispute, the settlement failed, and the Tribunal admitted the insolvency proceedings in 2021. It subsequently placed the company under liquidation in February 2022.

The suspended management then moved the Tribunal and sought to set aside a July 2023 e-auction conducted by the liquidator, under which the liquidator sold about 7.58 acres of land and buildings for approximately Rs.23.51 crore.

The applicants claimed that the assets carried a value of over Rs.100 crore and alleged undervaluation and procedural irregularities. They also sought permission to settle stakeholder dues and revive the corporate debtor as a going concern.

The liquidator and Phoenix ARC opposed the application and contended that the suspended management lacked locus since liquidation had already commenced. They further argued that the applicants raised the challenge more than two and a half years after the auction and sale certificate, and failed to establish any material irregularity.

“Though suspended directors may, in limited circumstances, invoke the jurisdiction of this Adjudicating Authority under Section 60(5) of the Code as aggrieved stakeholders, such right does not extend to reopening a concluded auction sale conducted during liquidation proceedings after crystallisation of third-party rights, particularly in the absence of cogent material establishing fraud, collusion, mala fide conduct, or substantial procedural illegality.”

The Tribunal noted that the liquidator conducted the auction in July 2023 and issued the sale certificate in October 2023, while the applicants filed the challenge only in 2026. It emphasised that insolvency proceedings require finality and certainty.

“The insolvency and liquidation framework under the Code is a strict time-bound mechanism intended to ensure certainty, finality, and expeditious completion of proceedings. Once an auction sale has attained finality and sale certificates have been issued, interference at a belated stage would seriously prejudice the sanctity and credibility of the liquidation mechanism and would unsettle vested third-party rights acquired through a statutory process.”

The Bench also recorded that the liquidator undertook multiple auction attempts, obtained valuations from registered valuers, and fixed reserve prices after consulting the Stakeholders' Consultation Committee. It rejected the allegation of undervaluation and held that a subsequent private valuation report could not invalidate a completed statutory auction process.

Accordingly, the NCLT dismissed the application and imposed costs of Rs.1 lakh on the signatory.

For Petitioner: Advocate Aswathi

For Respondents: Advocates Vinod P.V, Parameswaran Nair and Kevin Thomas