Auction Purchaser Of CoC Member Company Cannot Represent It Until Sale Completion: NCLT Kolkata

The National Company Law Tribunal (NCLT), Kolkata Bench, has recently held that a successful auction purchaser of a company that is a committee of creditors (CoC) member in another insolvency process cannot participate in that other company's CoC meetings until the acquisition is legally completed. It held that mere purchase through auction does not by itself confer that right.

The bench of Judicial Member Bidisha Banerjee, and Technical Member Siddharth Mishra held that the liquidator would continue to represent the CoC member until ownership effectively passes.

“Accordingly, the Liquidator is the sole lawful representative of the CoC member until the Successful Auction Bidder acquires effective ownership. Once the existing shares are extinguished and then reissued, the right to represent the CoC Member at the meetings would pass on to the Successful Auction Bidder. Until then, any representation by the Successful Auction Bidder in the CoC meetings of the Corporate Debtor is illegal and unauthorized.”, it held.

The ruling came in disputes arising from the corporate insolvency resolution process of Chaitanya Alloys Private Limited. Gouri Iron & Steel Private Limited held a 96.97% voting share in its CoC. Gouri Iron was itself undergoing liquidation.

During Gouri Iron's liquidation, Pashupati Corporation was declared the successful bidder in the going-concern sale. A sale certificate dated January 10, 2025 was stated to have been issued in its favour.

The Resolution Professional of Chaitanya Alloys challenged Pashupati's claim to exercise voting rights in the CoC. The RP argued that ownership transfer had not attained finality because Gouri Iron's existing shares had not been extinguished and fresh shares had not been issued.

The Tribunal agreed. It held that mere issuance of a sale certificate in a going-concern sale does not by itself confer ownership upon the successful bidder.

“Until the extinguishment and reissuance of fresh shares, the management of the Company would continue to vest in the Liquidator. Therefore, the Liquidator is duty bound to protect and preserve the interests of the Company, including participating and voting as a representative of Gori Iron & Steel Private Limited in the CoC meetings of the Corporate Debtor.”

Referring to earlier NCLT rulings, including Dharmendra Kumar Bhasin (Liquidator) v. Bombay Stock Exchange, the Bench held that extinguishment of the existing share capital and issuance of fresh shares to the acquirer is indispensable to complete such a sale.

It held that since fresh shares had not yet been issued, the sale remained incomplete. Management of Gouri Iron therefore continued to vest with the liquidator.

“Until then, any representation by the Successful Auction Bidder in the CoC meetings of the Corporate Debtor is illegal and unauthorized.”

Accordingly, the tribunal directed that Pashupati Corporation shall not participate, attend or vote in the CoC meetings of Chaitanya Alloys. It said the Liquidator of Gouri Iron & Steel would continue to represent the company until effective transfer of ownership is completed.

For Pashupati Corporation in IA 1141/KB/2025: Advocate Rahul Parasrampuria; Advocate Dheeraj Garg.

For Resolution Professional: Advocate Avik Chaudhuri; Advocate Shruti Majumdar; Resolution Professional Rakesh Dugar (in person).

For Respondent in IA 1025/KB/2025: Advocate Udit Agarwal.