NCLAT Rules, Auction Purchaser Cannot Seek Reclassification of NPA In A Manner That Affects Creditor's Rights
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that a successful auction purchaser cannot demand the reclassification of a corporate debtor’s loan account from Non-Performing Asset (NPA) to “standard” if such reclassification affects a financial creditor’s rights—particularly its right to proceed against personal guarantors. The Tribunal emphasised that an auction purchaser’s interest is restricted to obtaining an encumbrance-free title to the purchased assets, and it cannot insist on changes in the creditor’s books in a manner that compromises the creditor’s statutory recovery avenues.
The case arose from a liquidation proceeding in which IDBI Bank, the financial creditor, had extended loans of approximately ₹428 crores to the corporate debtor. Upon liquidation, the debtor’s assets were sold by auction as a going concern, and the auction purchaser received ownership of the enterprise. IDBI Bank, however, received only around ₹7 crores against its massive claim.
The successful auction purchaser subsequently approached the NCLT seeking a set of 21 concessions. Among these, a key request—numbered as concession 17—sought a direction that “all accounts of the Corporate Debtor shall stand regularised and their asset classifications shall be ‘standard’.” The NCLT allowed the concession, prompting IDBI Bank to challenge the order before the NCLAT.
Before the Appellate Tribunal, IDBI Bank argued that reclassifying the account from NPA to standard would materially impair its right to pursue the personal guarantors of the corporate debtor. The bank pointed out that it had already discharged its charge over the secured assets sold in auction and had issued a No Objection Certificate in April 2025, confirming that it did not intend to pursue the assets purchased by the auction buyer. However, the loan classification in its books remained relevant for proceedings against guarantors, who could not be absolved by an order aimed at benefiting the auction purchaser.
The Bench comprising Justice N. Seshasayee (Judicial Member) and Indevar Pandey (Technical Member) agreed with these submissions. It observed that the successful auction purchaser’s legitimate concern is confined to obtaining a clear and unencumbered title. Beyond that, the purchaser has no right to interfere with the creditor’s internal asset classification or with the creditor’s exercise of rights against guarantors. The Tribunal remarked that “the Successful Auction Purchaser of the assets of the CD can only concern itself with securing an encumbrance-free title to the asset it has purchased.”
On the issue of standardisation, the Bench noted that the auction purchaser cannot compel the financial creditor to modify the loan account classification in a manner that restricts the creditor’s statutory remedies. The Tribunal added that there is no established practice of “partial standardisation,” as admitted by counsel during the hearing.
Finding merit in the bank’s appeal, the NCLAT concluded that the concession granted by the NCLT was legally unsustainable since it interfered with the financial creditor’s rights against personal guarantors, despite the auction purchaser having no further stake in the matter beyond the assets it had acquired.
The NCLAT allowed the appeal filed by IDBI Bank and set aside the NCLT’s order granting the concession requiring reclassification of the corporate debtor’s accounts. The Tribunal held that an auction purchaser has no right to seek standardisation of loan accounts in a manner affecting the creditor’s recovery rights.
Appearance
For Appellant: Advocates Rishi Thakural, Prachi Johri, Dhwani Gala, Mrigangi Parul
Cause Title: IDBI Bank Ltd. Vs. Silver Stallion Ltd., (Consortium with Vikasa India EIF I Fund and AIG Direct LLC) and Anr.
Case No: Comp. App. (AT) (Ins) No. 1054 of 2025
Coram: Justice N. Seshasayee (Judicial Member), Indevar Pandey (Technical Member)
