Auction Purchaser Cannot Seek Reclassification of NPA In A Manner That Affects Creditor's Rights: NCLAT

The bench of Justice N Seshasayee and Technical Member Indevar Pandey observed,  “.. 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. Therefore, any reclassification of the loans in the accounts of the appellant cannot extend to the extent of interfering with the appellant's right to proceed against the personal guarantor.”

The case arose when IDBI Bank, which had extended a loan of Rs. 428 crore to a corporate debtor, received only around Rs. 7 crore against its claims after the debtor's assets were sold at a liquidation auction. The auction purchaser, who acquired the corporate debtor as a going concern, approached the NCLT seeking 21 concessions, including the declassification of the debtor's loan from NPA to standard which was allowed. 

The bank opposed this, arguing that it had discharged its charge over the secured assets and issued a No Objection Certificate (NOC). It contended that reclassifying the loan would hinder its ability to pursue the personal guarantors for recovery and would not affect the assets already purchased by the auction buyer.

Considering these submissions, the NCLAT held that the auction purchaser cannot enforce the standardization of the loan in the books of the financial creditor, as it would restrict the creditor's rights against the personal guarantors.

Accordingly, the NCLAT allowed the appeal by setting aside the NCLT's order.

Case Title: IDBI Bank Ltd. Vs. Silver Stallion Ltd., (Consortium with Vikasa India EIF I Fund and AIG Direct LLC) and Anr.

Case Number: Comp. App. (AT) (Ins) No. 1054 of 2025

For Appellant:  Advocates Rishi Thakural,  Prachi Johri, Dhwani Gala, Mrigangi Parul