Conversion Of Corporate Debtor To Private Company Can't Be Denied On Grounds Of Pending SFIO Probe After Approval Of Resolution Plan: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai Bench of Sh. Prabhat Kumar (Technical Member) and Sh. Sushil Mahadeorao Kochey (Judicial Member)has held that an application for conversion of a company from a public limited company to a private limited company under an approved resolution plan cannot be rejected on the ground that prosecutions or SFIO investigations are pending against the corporate debtor, as all such investigations abate once the plan is approved. The present application has been filed under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking a declaration that Rule 41 of the Companies Incorporation Rules, 2014 does not apply as the Applicant was acquired on a clean slate basis pursuant to an order passed by the Tribunal. It is further prayed that the respondents should be directed to convert the applicant from a public limited company to a private limited company. The Tribunal observed that it must be noted by the Respondent that the order approving the acquisition plan for the corporate debtor has attained finality. The Tribunal is barred from reviewing its order under Rule 11 of the NCLT Rules. Therefore, it cannot examine now whether the approved resolution plan contravened section 30(2) of the IBC. As the order remains and it has not been challenged on the ground of any perversity or illegality, the Tribunal cannot go into its merits as that is beyond the remit of its jurisdiction. It further observed that under section 32A of the IBC, no action can be taken against the assets of the corporate debtor for offences committed before the commencement of the insolvency process where the assets are sold in Liquidation unless the acquirer of the assets is disqualified from acquiring the assets which is not the case here. Therefore, pending prosecutions or SFIO investigations abate concerning the corporate debtor's assets after the approval of the Resolution Plan. It further observed that these proceedings cannot be a ground to reject the conversion of the applicant from a public limited company to a private limited company under Rule 47. However, such proceedings can continue against individuals other than the corporate debtor. The Tribunal is empowered to enforce its order under section 60(5) of the IBC read with section 424(3) of the Companies Act. Accordingly, the Respondent was directed to decide the conversion application notwithstanding any pending investigations and pass a reasoned order within 30 days. Accordingly, the present application was allowed. Case Title: ANDHRA BANK V/s STERLING BIOTECH LIMITED Case Number: IA(I.B.C)/2216( MB)2025 IN C.P. (IB)/490(MB)2018 Order Date: 29/07/2025 Click Here To Read/Download Order

Conversion Of Corporate Debtor To Private Company Can't Be Denied On Grounds Of Pending SFIO Probe After Approval Of Resolution Plan: NCLT Mumbai

Mohd Malik Chauhan

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