Direction to Substitute Directors Premature During Pending Liquidation Where Certain Assets Remain Unsold

The Appellant, the Liquidator of the Corporate Debtor, challenged an interim order dated 18.02.2026 passed by the NCLT, Indore Bench in IA/424(MP)2025.

Respondent No. 1 (Successful Auction Purchaser) purchased the business of the Corporate Debtor as a "going concern" via auction, for which a sale certificate was issued on 05.07.2025.

While the main application regarding the transition was still pending, the Adjudicating Authority issued interim directions.

These directions included substituting the names of the Directors on the Board as proposed by the Purchaser and addressing the management of assets.

The Liquidator contended that since other assets remained unliquidated and the liquidation process was ongoing, such a substitution of Directors was premature.

Whether the Adjudicating Authority was justified in directing the substitution of the Board of Directors of the Corporate Debtor as an interim measure while the main application was still pending disposal.

Whether the control of bank accounts not included in the sale should remain with the Liquidator during the pendency of the application.

The Court applied the principles governing the sale of a Corporate Debtor as a "going concern" under the Insolvency and Bankruptcy Code, 2016, and the related Liquidation Process Regulations.

It emphasized the right of a Successful Auction Purchaser to enjoy assets and manage the business as per the Certificate of Sale.

However, it balanced this against the procedural requirement that final reliefs—such as the formal substitution of Directors or the transfer of non-sold assets—should generally be adjudicated at the final disposal of the application to ensure the integrity of the ongoing liquidation of remaining assets.

The Appellate Tribunal observed that while Respondent No. 1 is the Successful Auction Purchaser and holds a valid Sale Certificate entitled to manage the purchased assets, the NCLT’s interim order went too far by granting final reliefs before the disposal of the application.

The Tribunal reasoned that because the Liquidator is still seized of other unliquidated assets of the Corporate Debtor, the formal substitution of Directors at this interim stage was inappropriate.

Furthermore, the Tribunal identified that bank accounts not forming part of the sale must remain under the Liquidator’s control to facilitate the completion of the liquidation process.

The Court concluded that the status quo regarding the Board and specific bank accounts must be maintained until the NCLT reaches a final decision on the merits of the pending IA.

The Tribunal deleted the directions (i) to substitute the names of the Directors and (ii) those affecting bank accounts not subject to the sale.

The Tribunal held that the Purchaser is entitled to enjoy and manage the sold assets as per the Sale Certificate, but final corporate changes are subject to the outcome of the pending petition.

The Adjudicating Authority was requested to dispose of IA/424(MP)2025 expeditiously, with subsequent actions to be guided by that final order.