2026 (3) TMI 475 - AT - Companies Law

Undertaking as going concern: isolated asset sale not requiring special resolution; SARFAESI sale upheld and purchaser deemed bona fide.

Disposal of the Saakar Bungalow was held to be sale of an individual asset, not an 'undertaking' requiring a special resolution under Section 180(1)(a); ... Sale carried out during the pendency of Company Appeal - Disposal of the Property - non-compliance of Section 180(1)(a) read with Explanation to the section - 'Undertaking' within the meaning of Section 180(1)(a) of the Companies Act, 2013 - requirement of a special resolution for its sale - good faith purchaser - distress sale under SARFAESI - lack of good faith of the purchaser or undervaluation - Judicial discretion in interlocutory relief. Undertaking - Whether the sale of the Saakar Bungalow Property constituted disposal of an 'undertaking' within the meaning of Section 180(1)(a) read with the Explanation, thereby requiring consent by special resolution. - HELD THAT:- The Tribunal upheld the NCLT's conclusion that 'undertaking' denotes a business as a going concern - an organised profit making activity integrated with its assets - and is not synonymous with an individual asset. The 20% quantitative threshold in the Explanation to Section 180(1)(a) applies only after the subject matter is first qualitatively found to be an 'undertaking.' A comparative reading of the 1956 and 2013 Acts and Section 2(16) (which uses the disjunctive 'assets or undertaking') supports a legislative distinction between assets and undertakings. Saakar Bungalow was held to be a passive, non revenue generating mortgaged property acquired in 2017, not part of the operational business; its sale was therefore disposal of an isolated asset and not of an undertaking, so the requirement of a special resolution under Section 180(1)(a) did not arise. [Paras 12, 13, 14, 15, 16] Sale of the Saakar Bungalow Property was disposal of an individual asset, not an undertaking, and Section 180(1)(a) did not require a special resolution. Good faith purchaser - Whether the purchaser of the property was a bona fide purchaser whose title is protected under Section 180(3)(a). - HELD THAT:- The Tribunal agreed with the NCLT that the transaction was essentially a distress sale arising from SARFAESI proceedings initiated by Axis Bank after the company's loan account was declared NPA. The appellants had themselves participated in related litigation and had not pleaded mala fide conduct by the purchaser; the sale consideration was applied to the bank dues. The sale deed disclosed the existence and vacation of interim orders and the purchaser was not a related party. On these facts, the purchaser's good faith could not be impugned. [Paras 16, 17, 19, 21, 23] The purchaser was a bona fide purchaser in good faith; Section 180(3)(a) protection applied and the purchaser's title could not be set aside on the grounds urged. Sale at undervalue - judicial discretion in interlocutory relief - HELD THAT: - The Tribunal endorsed the NCLT's findings that valuation considerations (including exclusion of contingent potential FSI/TDR) were adequately explained and that the sale was conducted on an 'as is where is' basis following valuation by independent valuers. The Tribunal reiterated the settled principle that appellate courts may not ordinarily substitute their own discretion for that of the trial court unless the discretion was exercised perversely, arbitrarily or in disregard of settled legal principles. The appellants failed to demonstrate such perversity or arbitrariness in the NCLT's decision to vacate interim status and to uphold the sale. [Paras 25, 26, 58, 59, 60] Alleged undervaluation did not vitiate the sale and there was no ground for appellate interference with the NCLT's discretionary orders. Final Conclusion: The Tribunal dismissed the appeals: the sale was of an individual asset (not an 'undertaking') and did not require a special resolution; the purchaser was in good faith; the valuation did not warrant interference and there was no perversity in the NCLT's exercise of discretion. Issues: (i) Whether disposal of the Saakar Bungalow Property amounted to disposal of an 'undertaking' within the meaning of Section 180(1)(a) of the Companies Act, 2013 requiring a special resolution; (ii) Whether the sale could be set aside on grounds of lack of good faith of the purchaser or undervaluation.Issue (i): Whether the subject property qualified as an 'undertaking' under the Explanation to Section 180(1)(a) of the Companies Act, 2013 thereby triggering the requirement of a special resolution for its sale.Analysis: The statutory text and precedent distinguish an 'undertaking' as a business or unit forming an integrated profit-making activity from isolated assets which are tools of business. The quantitative 20% threshold in the Explanation operates only after the subject matter is first found to be an 'undertaking.' The legislative use of disjunctive language in Section 2(16) further indicates that 'assets' and 'undertakings' are not synonymous. The facts show the bungalow was a mortgaged, passive, non-revenue-generating asset acquired in 2017 and not an integral operational unit or going concern.Conclusion: The sale was disposal of an individual asset and not of an 'undertaking' within Section 180(1)(a); the special resolution requirement under Section 180(1)(a) did not apply.Issue (ii): Whether the sale should be set aside because the purchaser was not bona fide or the property was undervalued.Analysis: The sale occurred in the context of bank enforcement under the SARFAESI regime to recover outstanding dues. The applicants did not plead mala fide conduct by the purchaser; allegations targeted company management. The sale deed disclosed pendency and vacation of interim orders, the purchaser paid part consideration before execution, and valuation explanations (including exclusion of contingent potential FSI/TDR) were supported by findings. Appellate interference with discretionary interlocutory orders is limited and requires proof of perversity, arbitrariness, or disregard of settled principles.Conclusion: There is no basis to set aside the sale for lack of bona fide or on the ground of undervaluation; purchaser's good faith and the valuation process are upheld.Final Conclusion: The appeals are without merit and are dismissed; the impugned orders upholding the sale and refusing relief are sustained.Ratio Decidendi: For Section 180(1)(a) purposes an 'undertaking' denotes a business or going concern (an organized profit-generating unit), not an isolated asset; the 20% quantitative threshold in the Explanation applies only after a qualitative determination that the subject is an 'undertaking.'