NCLAT: Auction Purchaser of Shares Bound by Transferor’s Non-Compete Obligations Under JV Agreement

April 9, 2026 : The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that a purchaser of shares through a court-monitored liquidation process is bound by the rights, obligations, and liabilities of the transferor shareholder, including non-compete obligations under a Joint Venture and Share Purchase Agreement (JVSPA).

The ruling came in a batch of appeals challenging an order of the National Company Law Tribunal, New Delhi, which had directed registration of 47% shareholding in favour of Flovel Hydro Technologies Pvt. Ltd. while holding that it was not bound by the non-compete clause. Setting aside this finding, the Appellate Tribunal clarified that such obligations continue to bind the successor-in-interest.

The Bench led by Justice Yogesh Khanna held that Articles 21, 22, and 25 of the Articles of Association impose a condition precedent requiring any transferee to agree to be bound by the rights and obligations of the transferor. The use of the term “including” in Article 22 was interpreted broadly to extend obligations beyond the Articles to related agreements such as the JVSPA.

The dispute arose from the liquidation of Mecamidi S.A., France, whose 47% stake in Mecamidi HPP India Pvt. Ltd. was auctioned under supervision of the Paris Commercial Court. Flovel emerged as the successful bidder, but the company resisted registering the transfer, citing non-compliance with non-compete obligations.

Rejecting the NCLT’s reasoning on lack of privity, the Appellate Tribunal held that a share purchaser “steps into the shoes” of the transferor and cannot claim rights independent of corresponding obligations. It further observed that shareholder agreements remain enforceable even if not incorporated into the Articles, provided they are not inconsistent with them.

On the effect of liquidation, the Tribunal relied on Article 25, which creates a legal fiction treating such transfers as if made by the shareholder itself. Accordingly, any restriction applicable to direct transfers equally applies to transfers arising out of insolvency or liquidation.

The Tribunal also emphasized that the interest of the company is paramount in proceedings under Sections 241 and 242 of the Companies Act, 2013. Given that Flovel is a direct competitor of the joint venture company, permitting it to operate without adhering to the non-compete clause would be detrimental to the company’s business.

At the same time, the Tribunal upheld Flovel’s locus to maintain proceedings, noting that it had acquired beneficial and financial interest in the shares through a court-approved sale. It also set aside the NCLT’s finding invalidating the EOGM, holding that service of notice on the official email of the liquidator was sufficient.

In conclusion, the NCLAT partly allowed the appeals, directing registration of shares in favour of Flovel while mandating compliance with the non-compete clause under the JVSPA. The Tribunal held that Flovel shall remain bound by such obligations unless it formally undertakes compliance.

Cause Title: GH Energy Pvt. Ltd. & Ors. v. Flovel Hydro Technologies Pvt. Ltd. & Anr.
Case No.: Company Appeal (AT) Nos. 87, 89, 90 & 91 of 2024
Coram: Justice Yogesh Khanna (Judicial Member), Ajai Das Mehrotra (Technical Member)