Individual Asset Sale Below Net Worth Threshold Does Not Constitute Disposal of an "Undertaking" Under Section 180.

The Appellant, a minority shareholder and guarantor of Respondent No. 1 (MPTA Ltd), challenged the sale of the "Saakar Bungalow" property to Respondent No. 2.

While a company petition for mismanagement was pending, the company’s loan account with Axis Bank was declared an NPA.

Axis Bank initiated SARFAESI proceedings.

The NCLT Mumbai vacated a prior status quo order on August 18, 2023, to allow the sale of the mortgaged property to satisfy bank dues, provided the Appellant was given 15 days' notice to find a higher bidder.

The property was subsequently sold for ₹9.50 crores, which was used entirely to offset the ₹12.68 crore bank debt.

The Appellant contended the sale violated Section 180 of the Companies Act, 2013, as it was an "undertaking" sold without a special resolution, and that the property was undervalued.

Whether the sale of an individual mortgaged asset (Saakar Bungalow) constitutes the sale of an "undertaking" under Section 180(1)(a) of the Companies Act, 2013, thereby requiring a special resolution.

Whether the purchaser was a bona fide purchaser in good faith under Section 180(3) given the knowledge of pending litigation.

Whether the sale was liable to be set aside on the grounds of undervaluation or absence of potential FSI in the valuation report.

The Court applied Section 180(1)(a) of the Companies Act, 2013, which restricts the Board's power to dispose of the "whole or substantially the whole of the undertaking" without a special resolution.

It relied on the Explanation to Section 180, distinguishing "undertaking" (a profit-generating unit or business as a going concern) from isolated "assets".

The Court followed the precedents in P.S. Offshore Inter Land Services Pvt. Ltd. v. Bombay Offshore Suppliers Ltd. and Sree Yellamma Cotton, Woollen and Silk Mills Co., establishing that the disposal of a single inactive asset does not equate to the disposal of an undertaking.

Furthermore, it applied the principle from Wander Ltd. v. Antox India regarding the limited scope of appellate interference in discretionary orders.

The Tribunal reasoned that "undertaking" and "asset" are not synonymous under Section 2(16) and Section 180 of the Act.

Since Saakar Bungalow was a passive, non-revenue-generating mortgaged property acquired in 2017 and not part of the operational business, its sale was a disposal of an individual asset, not an undertaking; thus, the 20% net worth threshold in the Explanation was irrelevant as the qualitative test of an "undertaking" was not met.

Regarding good faith, the Tribunal found the sale was a "distress sale" necessitated by SARFAESI proceedings by Axis Bank, and the Appellant had failed to provide a higher bidder despite being given the opportunity by the NCLT.

On valuation, the Court noted the exclusion of potential FSI was justified as the company lacked the financial capacity to renew it, and a legal sale cannot be set aside solely on alleged lower market price if conducted transparently to settle secured debt.

The Court affirmed that the sale was a bona fide distress sale to satisfy bank liabilities and that the Appellant failed to demonstrate any perversity in the NCLT’s exercise of discretion.

The orders dated May 2, 2025, and August 18, 2023, were upheld.