Corporate Veil Lifted to Hold Directors Personally Liable for Unpaid BPA Consideration | Section 60(5) IBC : NCLAT

The National Company Law Appellate Tribunal has affirmed the jurisdiction of the Adjudicating Authority under Section 60(5) of the Insolvency and Bankruptcy Code to recover unpaid consideration under a Business Purchase Agreement, holding that such recovery directly augments the liquidation estate. In a significant application of the alter ego doctrine, the Tribunal lifted the corporate veil to impose personal liability on three directors of the purchaser company who exercised complete control over the corporate debtor post-acquisition, rejecting their plea of privity of contract.

Background & Facts

The Dispute

The appeal arose from an order dated 02.09.2025 passed by the National Company Law Tribunal, New Delhi (Adjudicating Authority) in I.A. No. 2902/2022 in C.P. (IB) No. 946/ND/2019. The Liquidator of M/s Wave Global Educational Services Private Limited (Corporate Debtor) sought recovery of Rs. 3,00,00,000 under a Business Purchase Agreement (BPA) dated 14.07.2017 executed between the Corporate Debtor and M/s Corsalite Educational Services Private Limited (Respondent No. 2). The Adjudicating Authority allowed the application and directed the appellants (ex-directors of Corsalite and the Corporate Debtor) along with Respondent No. 2 and Respondent No. 3 to pay the sum. The appellants challenged this direction contending they were not parties to the BPA and could not be held personally liable.

Key Facts

• 14.07.2017: Business Purchase Agreement executed between Wave Global Educational Services Pvt. Ltd. (Corporate Debtor) and Corsalite Educational Services Pvt. Ltd. (Respondent No. 2) for aggregate consideration of Rs. 3 Cr comprising Rs. 2.35 Cr towards liabilities in Appendix-A, Rs. 65 Lakhs directors' bonus, and Rs. 1 Lakh for promoter shareholding acquisition.
• 14.07.2017: 100% shareholding of Corporate Debtor transferred to Corsalite (9,999 shares) and Appellant No. 1, Mr. Subbarao Siddabattula (1 share).
• 13.07.2017: Appellant No. 1, as authorised signatory of Corporate Debtor, issued offer letters to existing promoters Rajiv Kumar Prasad (CEO) and Bimal Kumar (Director Academic) before BPA execution.
• 07.11.2017: Corsalite transferred entire shareholding to Appellants 1-3: Appellant No. 1 (5,000 shares), Appellant No. 2 (2,500 shares), Appellant No. 3 (2,500 shares).
• Subsequent period: Corporate Debtor issued 3,195 fresh equity shares including 695 to Appellant No. 4 and 2,500 to Respondent No. 3, raising approximately Rs. 4 Crores based on valuation report dated 25.01.2018 (Rs. 14,400 per share).
• 29.12.2017: Corporate Debtor acquired 70% shareholding in Axis Tutorials Pvt. Ltd. for Rs. 1,08,31,300 from its own funds; Appellant No. 3 appointed as Director.
• 25.08.2018: Appellants 1-3 resigned from Corporate Debtor directorship and transferred shareholding to Ms. Rekha Gautam via Form SH-4.
• 18.11.2019: Corporate Debtor admitted to CIRP under Section 9 IBC via C.P. (IB) No. 946/ND/2019.
• 11.08.2021: Liquidation ordered consequent to CIRP failure; Respondent No. 1 appointed Liquidator.
• 25.06.2020 & 16.09.2020: Liquidator communications to Respondent No. 2 demanding Rs. 3 Cr under BPA.
• 14.09.2021: Legal notice addressed to Respondent No. 2, Appellant Nos. 1-3; reply dated 07.10.2021 denying liability.
• 14.01.2019: Settlement Agreement between Corporate Debtor and Corsalite acknowledging receipt of Rs. 1.50 Cr (unsecured loan Rs. 1,25,46,804 + outstanding invoices Rs. 24,53,196) from Corsalite.

Procedural History

• 18.11.2019: C.P. (IB) No. 946/ND/2019 admitted under Section 9 IBC; Corporate Debtor admitted to CIRP.
• 11.08.2021: Liquidation order passed; Respondent No. 1 appointed Liquidator.
• May 2022: I.A. No. 2902/2022 filed by Liquidator before Adjudicating Authority seeking recovery of Rs. 3 Cr under BPA from Corsalite and its directors.
• 02.09.2025: Adjudicating Authority allowed application, directed appellants and Respondents 2 & 3 to pay Rs. 3 Cr.
• 2025: Company Appeal (AT) (Ins.) No. 1549 of 2025 filed before NCLAT.
• 27.10.2026: NCLAT judgment delivered.

The Parties' Positions

Appellants (Ex-Directors of Corsalite/CD): Not parties/signatories to BPA; Appellant No. 1 signed only as authorised representative of Corsalite; Appellants 4-5 and Respondent No. 3 not directors of Corsalite at relevant time; no averment for lifting corporate veil in IA; Adjudicating Authority lacked jurisdiction under Section 60(5) for disputed contractual claim; BPA Clause 2(d) made payment contingent on income generation which never materialised; Settlement Agreement dated 14.01.2019 showed Corporate Debtor owed money to Corsalite.

Respondent No. 1 (Liquidator): Impugned order well-reasoned based on documentary evidence; appellate jurisdiction under Section 61 limited to legality/jurisdictional error/perversity; Appellants assumed complete management/control post-BPA; Clause 8 BPA records "as is where is" acceptance after due diligence; Appellants acquired personal shareholding, exercised financial control, expanded business, raised Rs. 4 Cr via fresh equity; corporate veil lifting justified as Corsalite was mere vehicle for Appellants; Section 35(1)(d) and Regulation 39 empower Liquidator to recover assets.

Relief Sought

Appellants sought setting aside of impugned order dated 02.09.2025. Liquidator sought affirmation of order with recovery of Rs. 3 Cr plus interest @ 18% per annum from 01.06.2018 from Corsalite and its directors (Appellants 1-3).

The Legal Issue

The central questions were: (i) Whether the Adjudicating Authority possessed jurisdiction under Section 60(5) IBC to entertain the Liquidator's application for recovery of unpaid consideration under a pre-CIRP commercial contract; (ii) Whether the amount payable under the BPA constitutes an asset receivable by the Corporate Debtor recoverable during liquidation; (iii) Whether the appellants, as directors of the purchaser company who assumed control of the Corporate Debtor, are personally liable for the BPA consideration despite lacking privity of contract.

Arguments Presented

For the Appellants

Counsel contended the BPA was exclusively between Corporate Debtor and Corsalite; appellants were neither parties nor signatories and undertook no contractual obligation. Appellant No. 1 signed only as authorised representative of Corsalite. The IA No. 2902/2022 contained no averment seeking lifting of corporate veil or explaining legal basis for personal liability. The Adjudicating Authority recorded appellants' objection but directed payment without finding on how liability arises in law. Reliance placed on Balwant Rai Saluja v. Air India Ltd. (2014) 9 SCC 407: corporate veil lifting only in exceptional circumstances, none pleaded or established. Jurisdiction under Section 60(5) cannot adjudicate disputed pre-CIRP contractual claims requiring evidence appreciation and contractual interpretation, especially with arbitration clause in BPA. Precedents Arkay Logistics Ltd. v. Abhijit Guhathakurta (Company Appeal (AT) (Insolvency) No. 836 of 2024) and Amier Hamsa Ali Abbas Rawther v. CMD, NLC India Ltd. (Company Appeal (AT) (CH) (Ins.) No. 213 of 2025) distinguishable: those involved third-party disputes, not recovery of consideration forming part of liquidation estate. Clause 2(d) BPA made payment contingent on income generation; conditions precedent unfulfilled; Settlement Agreement 14.01.2019 showed Corporate Debtor acknowledged Rs. 1.50 Cr receipt from Corsalite.

For the Respondent (Liquidator)

Counsel supported impugned order as well-reasoned based on pleadings and documentary evidence. Section 61 appellate jurisdiction limited to legality, jurisdictional error, or patent perversity. Post-BPA, appellants assumed complete management/control: Appellant No. 1 as Chairman/authorised signatory, Appellant No. 3 as Director/financial control. Clause 8 BPA records "as is where is" acceptance after due diligence. Within months, Corsalite transferred entire shareholding to appellants; fresh equity issued raising ~Rs. 4 Cr; new coaching centre at Janakpuri established; Axis Tutorials acquisition for Rs. 1.08 Cr. Simultaneous resignation/divestment in August 2018 indicates attempt to avoid liability. Section 35(1)(d) and Regulation 39 Liquidation Regulations empower Liquidator to protect/preserve assets and recover dues. Section 60(5) confers wide residuary jurisdiction over all questions arising out of/relating to liquidation. Corporate veil lifting justified: Corsalite used as vehicle by appellants to acquire/control Corporate Debtor; appellants were real controlling minds and beneficiaries. Balwant Rai Saluja recognises veil lifting where corporate personality defeats legitimate rights or perpetuates injustice.

The Court's Analysis

The Tribunal framed three issues: jurisdiction under Section 60(5), whether BPA consideration is recoverable asset, and appellants' personal liability.

On jurisdiction, the Tribunal examined Section 35(1)(d) IBC (liquidator's duty to protect/preserve assets) and Regulation 39 Liquidation Regulations (recovery of all dues in time-bound manner). The unpaid BPA consideration "undoubtedly constitutes a receivable forming part of the liquidation estate" and recovery is "directly connected with augmentation of the assets available for distribution amongst creditors." Such proceedings arise "out of" and are "in relation to" liquidation within Section 60(5)(c). The jurisdiction under Section 60(5) is "of wide amplitude" extending to all questions with direct nexus to insolvency/liquidation. Recovery cannot be "relegated to independent civil proceedings merely because the liability originates from a contract." The relied precedents Arkay Logistics and Amier Hamsa were distinguished: they dealt with "purely contractual disputes requiring independent adjudication between third parties" whereas here the Liquidator seeks recovery of consideration "admittedly agreed under the BPA for maximisation of value of the liquidation estate" falling "squarely within the statutory functions entrusted to the Liquidator."

On recoverability, the Tribunal analysed Clause 2(d) BPA which prescribed payment from income generated. This "merely prescribes the commercial mechanism through which specified liabilities were intended to be discharged" and "cannot be interpreted as extinguishing the purchaser's primary obligation to pay the agreed consideration." Accepting appellants' interpretation would "enable the purchaser to indefinitely postpone payment merely by asserting inadequate revenue generation, despite having assumed complete control of the Corporate Debtor" rendering the agreement "commercially unworkable." Commercial contracts require "business efficacy interpretation." The appellants, "having remained in complete control of the business operations, cannot rely upon the financial consequences of their own management to avoid contractual obligations." During their control (14.07.2017 - August 2018), they raised >Rs. 4 Cr via equity issue and utilised >Rs. 1 Cr for Axis Tutorials acquisition, while Axis Tutorials income was not brought into Corporate Debtor accounts. Clause 8 BPA records "as is where is" acceptance after due diligence; having accepted assets with full knowledge, purchaser cannot contend consideration unenforceable.

On personal liability, the Tribunal rejected the privity defence. The appellants' case suffers from "inherent contradiction": they claim no contractual connection yet immediately assumed controlling positions; claim no control yet Appellant No. 1 became Chairman/authorised signatory and Appellant No. 3 managed finances; claim no involvement yet Board records show participation in all business/financial decisions. They rely on separate legal personality of Corsalite yet acquired personal shareholding and direct managerial positions. The sequence - BPA execution through Corsalite, immediate management assumption by appellants, shareholding transfer from Corsalite to appellants, exercise of complete dominion, asset utilisation, simultaneous resignation - "forms one continuous transaction revealing that Respondent No. 2 functioned merely as the alter ego of Appellant Nos. 1 to 3." The doctrine of separate corporate personality "cannot be invoked where the corporate form is used as a device to conceal the identity of the persons exercising complete control and to evade corresponding liabilities." Privity determines enforceability between contractual parties but "cannot be employed as a device to disregard the subsequent acts of persons who themselves assumed control of the company, participated in its management, operated its finances and acted upon the very transaction from which they now seek to dissociate themselves." The corporate form "cannot be permitted to become a cloak for avoiding responsibility for acts personally undertaken by those controlling the affairs of the company."

The Tribunal found no requirement for formal veil-lifting pleading since "the actions of Appellants on record clearly shows that the buyer was merely used as a vehicle to take over the Corporate Debtor." Evidence establishes Corsalite was "merely the corporate instrumentality through which Appellants acquired and controlled the Corporate Debtor, and they were the real beneficiaries and decision-makers behind every material transaction." Balwant Rai Saluja recognises veil lifting where corporate personality defeats legitimate rights or perpetuates injustice; present case falls within such exceptions.

However, the Tribunal noted a discrepancy: the legal notice dated 14.09.2021 and IA prayer (a) were confined to Corsalite and its directors (Appellants 1-3). The impugned order did not specify which respondents were directed. Recovery limited to Appellants 1-3 and Corsalite (Respondent No. 2).

The Verdict

The appeal was disposed of with partial modifications. The NCLAT upheld the Adjudicating Authority's jurisdiction under Section 60(5) IBC and the recoverability of Rs. 3 Cr as liquidation estate asset. The Tribunal held Appellant Nos. 1, 2, and 3 (Mr. Subbarao Siddabattula, Mr. Ilangovel Thulasimani, Ms. Charu Noheria) jointly and severally liable with Respondent No. 2 (Corsalite Educational Services Pvt. Ltd.) to pay the amount due to the Corporate Debtor along with interest to the Liquidator within four weeks from the order (27.10.2026). The amount received shall be deposited in the liquidation account forming part of the liquidation estate. Directions regarding disclosure of assets and cooperation with Liquidator (paragraph 11(ii) of impugned order) remained unchanged. No order as to costs. Appellants 4, 5 and Respondent No. 3 were not held liable as the Liquidator's claim was confined to Corsalite and its three directors.

What This Means For Similar Cases

Section 60(5) Jurisdiction Extends to Contractual Recovery for Estate Augmentation

The Tribunal's interpretation confirms that Section 60(5) IBC confers expansive jurisdiction on the Adjudicating Authority to entertain recovery proceedings for unpaid contractual consideration where such recovery directly augments the liquidation estate. Practitioners should note:

• Recovery of dues forming part of corporate debtor's assets falls within "arising out of" and "in relation to" liquidation proceedings
• Disputed contractual origin does not oust jurisdiction; the summary nature of IBC proceedings does not preclude determination of contractual liability when it impacts estate value
• Liquidator's statutory duty under Section 35(1)(d) and Regulation 39 to realise all assets provides independent jurisdictional anchor

Corporate Veil Lifting Based on Effective Control, Not Formal Pleading

The judgment establishes that formal pleading for lifting corporate veil is not a prerequisite when the documentary record demonstrates the purchaser company functioned as mere instrumentality of individuals who exercised complete control. Key takeaways:

• Simultaneous assumption of management, shareholding transfer from purchaser to individuals, exercise of financial authority, and coordinated exit constitute compelling evidence of alter ego relationship
• Directors who become chairman/authorised signatories of target company immediately post-acquisition cannot claim stranger status
• The "continuous transaction" test: acquisition → control → benefit extraction → coordinated exit supports veil lifting
• Balwant Rai Saluja exception applies where corporate form defeats legitimate rights (here, creditors' recovery)

Payment Contingency Clauses Do Not Extinguish Primary Obligation

Clause 2(d) BPA making payment contingent on revenue generation was held to be a payment mechanism, not a condition precedent extinguishing liability. Practitioners should:

• Argue that commercial contracts require business efficacy interpretation
• Highlight that a party in control of operations cannot rely on self-created revenue shortfalls to avoid payment
• Note that "as is where is" acceptance after due diligence (Clause 8) precludes subsequent challenges to consideration enforceability
• Document diversion of income (e.g., Axis Tutorials revenue not accounted in Corporate Debtor) as evidence of bad faith

Procedural Precision in Multi-Party Recovery

The Tribunal's limitation of liability to only those parties against whom the Liquidator specifically prayed (Corsalite and its three directors) underscores the importance of precise pleading. Liquidators must:

• Align legal notices, IA prayers, and written submissions on exact parties sought to be charged
• Ensure corporate veil lifting arguments are supported by documentary evidence of control and benefit extraction
• Recognise that resignation and share transfer timing (pre-insolvency) are relevant circumstances for inferring liability avoidance