Conversion Of Public Company To Private Can't Be Denied Due To Pending Investigations: NCLT
Conversion of Public Company to Private Can't Be Denied Due to Pending Investigations: NCLT
The National Company Law Tribunal (NCLT), Mumbai Bench, 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.
Factual Background
The applicant, Sterling Biotech Limited, was acquired through a resolution plan approved by the NCLT. The applicant sought conversion from a public limited company to a private limited company. However, the Registrar of Companies (ROC) raised objections, citing pending SFIO investigations.
Procedural Background
The NCLT considered an application filed under Section 60(5) of the Insolvency and Bankruptcy Code (IBC) seeking a declaration that Rule 41 of the Companies Incorporation Rules, 2014 does not apply to the applicant.
Issues
- Whether pending SFIO investigations can be a ground for rejecting conversion of a company from public to private limited?
- Whether the NCLT can direct the ROC to consider a conversion application despite pending investigations?
Contentions of the Parties
- Applicant's Contention: The applicant argued that the approved resolution plan has attained finality, and the NCLT's order cannot be reviewed under Rule 11 of the NCLT Rules. It was further argued that Section 32A of the IBC protects the corporate debtor from liability for offences committed prior to the commencement of the insolvency process.
- ROC's Contention: The ROC objected to the conversion, relying on pending SFIO investigations.
Reasoning and Analysis
The bench of Sh. Prabhat Kumar (Technical Member) and Sh. Sushil Mahadeorao Kochey (Judicial Member) observed that the approved resolution plan has attained finality, and the Tribunal cannot review its own order or re-examine its merits.
The Tribunal further noted that under Section 32A of the IBC, all pending prosecutions or SFIO investigations against the corporate debtor abate upon approval of the resolution plan, except where the acquirer is disqualified. Since that was not the case here, the proceedings could not be a valid ground for rejecting conversion.
Accordingly, the NCLT held that such proceedings cannot be a ground to reject the conversion application.
Implications
This judgment clarifies that pending SFIO investigations cannot prevent conversion of a corporate debtor from public to private limited company once a resolution plan has been approved. It reinforces the principle of a “clean slate” acquisition under the IBC and provides much-needed certainty for resolution applicants.
Outcome
The NCLT directed the ROC to decide the conversion application notwithstanding pending investigations and pass a reasoned order within 30 days. Accordingly, the application was allowed.
Case Title: Andhra Bank v. Sterling Biotech Limited
Case Number: IA(I.B.C)/2216(MB)2025 in C.P. (IB)/490(MB)2018
Order Date: 29/07/2025
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