NCLAT Overturns Adjudicating Authority's Concession; Upholds Financial Creditor's Rights

Successful Auction Purchaser's bid to reclassify Corporate Debtor's accounts as standard denied, protecting creditor's rights against personal guarantors.

In a significant ruling by the National Company Law Appellate Tribunal (NCLAT) on October 31, 2025, the Principal Bench in New Delhi set aside a blanket concession order previously granted by the Adjudicating Authority in favor of a Successful Auction Purchaser in the liquidation proceedings of Silver Stallion Ltd. The appeal was filed by IDBI Bank Ltd., a financial creditor, which had advanced loans amounting to approximately Rs. 428 Crores to Silver Stallion Ltd., the Corporate Debtor (CD) now facing liquidation.

The case revolved around IDBI Bank's challenge to a list of 21 concessions sought by the Successful Auction Purchaser, with particular emphasis on the reclassification of the Corporate Debtor's accounts from Non-Performing Assets (NPA) to standard assets. This request was seen as critical as it could potentially interfere with the bank's rights against the Personal Guarantors of the Corporate Debtor.

The assets of Silver Stallion Ltd. were auctioned off as a going concern, with IDBI Bank receiving approximately Rs. 7 Crores against its claims. Subsequently, the Successful Auction Purchaser approached the Adjudicating Authority, seeking various concessions, including the reclassification of the Corporate Debtor's accounts to standard.

IDBI Bank challenged this concession, arguing that the reclassification would adversely affect its rights to proceed against the Personal Guarantors. The bank had already discharged its charge over the secured assets and issued a No Objection Certificate (NOC) dated April 19, 2025. However, the order by the Adjudicating Authority required the declassification of the account from NPA to standard, which could impede the bank's rights.

The NCLAT bench, comprising Justice N Seshasayee (Member Judicial) and Indevar Pandey (Member Technical), found merit in IDBI Bank's submissions. The tribunal held that the Successful Auction Purchaser's primary concern should be securing an encumbrance-free title to the purchased assets. The reclassification of loans in the financial creditor's books cannot interfere with the creditor's rights against the Personal Guarantors.

The bench also noted that there is no practice of partial standardization of accounts, reinforcing that the Successful Auction Purchaser cannot concern itself with the standardization of loans in the bank's books. Consequently, the appeal was allowed, and the concession granted by the Adjudicating Authority regarding the reclassification was set aside.

This ruling underscores the NCLAT's commitment to preserving the rights of financial creditors in liquidation proceedings, particularly when it involves actions against Personal Guarantors. The decision serves as a precedent in safeguarding creditor rights amidst complexities in liquidation auctions.

Bottom Line:

Successful Auction Purchaser of a Corporate Debtor's assets cannot seek standardization of loan accounts in the books of the Financial Creditor, especially where such reclassification interferes with the Financial Creditor's rights against the Personal Guarantors.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016

IDBI Bank Ltd. v. Silver Stallion Ltd., (NCLAT)(Principal Bench, New Delhi) : Law Finder Doc Id # 2810140