Liquidator Cannot Conduct Private Sale Without Prior NCLT Approval: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench held that Liquidator cannot conduct a private sale without the permission of the National Company Law Tribunal (NCLT) as mandated under Regulation 33(2)(d) of the IBBI (Liquidation Process) Regulations, 2016 (LPR). The Bench comprising Justice Ashok Bhushan and Mr. Barun Mitra (Technical Member) dismissed appeals filed by Orissa Alloy Steel Pvt. Ltd. (OASPL) and S.M. Steels and Power Ltd. (SMSPL) arising from a common order passed by the NCLT Kolkata by which it had set aside the Swiss Challenge based private sale and directed the Liquidator to conduct a fresh process with standardisation conditions. “The liquidator was required to obtain prior permission from the Adjudicating Authority before proceeding with the private sale transaction, which not having been done, to our minds, tantamount to an infraction of the LPR.,” the tribunal held. Background: The case arose out of the liquidation of the corporate debtor where the liquidator had failed multiple times to sell the corporate debtor as a going concern. After nine unsuccessful attempts, Orissa Alloy Steels Pvt. Ltd. (OASPL) offered to acquire the corporate debtor through a private sale under Swiss Challenge Method for ₹265 crore with an Earnest Money Deposit (EMD) of ₹150 crore. After obtaining approval of the Stakeholders Consultation Committee (SCC), the liquidator issued an auction notice for Swiss Challenge by keeping the offer of the OASPL as the anchor bid. S.M. Steels and Power Ltd. (SMSPL), a potential buyer, objected to the process alleging collusion between OASPL, the liquidator, and major stakeholder Assets Care and Reconstruction Enterprise (ACRE) claiming the process was opaque and conducted without NCLT's approval. The NCLT set aside the auction notice and directed a fresh Swiss challenge process by keeping the OASPL's offer as the anchor bid but requiring EMD to be fixed per standard norms. Both OASPL and SMSPL had filed appeals before the NCLAT. Orissa Alloy submitted that the Swiss challenge process was lawfully conducted under the SCC's commercial wisdom and had been approved by a 99.92% vote. It was further submitted that Orissa Alloys was a bona fide bidder having deposited Rs. 150 crore and approved all conditions. It was further submitted that since the SM Steels had neither participated in the nine failed auctions nor in the Swiss challenge process, it had no locus to challenge the outcome. The Liquidator submitted that the process was conducted with full transparency and under the consultation of the SCC. It was further submitted that an application seeking approval of the NCLT had already been filed before the completion of the process. Per contra, SM Steels submitted that the entire was marred by procedural irregularities as the liquidator's public auction notice provided only 6 days for eligibility submissions 5 days for inspection, and 8 days for EMD deposit, contrary to the mandatory 14-day and 10-day periods prescribed under Schedule I of the Regulations. It was further submitted that the truncated timelines, excessive EMD requirement of ₹150 crore (far exceeding the 10% cap), and belated issue of process documents made the auction exclusionary and tailored to benefit OASPL. Lastly, it was further submitted that there was a collusion between Orissa Alloys and ACRE which the liquidator failed to report to the NCLT as mandated under Regulation 33(3). Findings: The Tribunal upheld the NCLT's findings holding that the liquidator erred in conducting the private sale without obtaining permission of the Adjudicating Authority. “Regulation 33(2)(d) is categorical that the Liquidator may sell assets by private sale only after obtaining prior permission of the Adjudicating Authority. It is not open to the Liquidator to conduct or conclude the process and then seek ex post facto approval,” the Bench held. It further observed that compressed sale timeline curtailed bidder participation and failed to value maximisation of the corporate debtor's assets, violating the objectives of the IBC. The Tribunal held that “the manner in which the private sale process was conducted, it stamped out meaningful participation of bidders which in turn impeded procuring the highest possible price which is in the best public interest. The Process Document instead of providing a level playing field to all potential bidders and paving way for maximisation of assets, it precluded genuine bidders from submitting their bids. Instead of giving equal opportunity to all intending bidders to compete to procure the highest value, the Process Document was a handicap for the potential bidders.” On collusion, the Tribunal observed that there was no sufficient material to establish a collusion between ACRE and Orissa Alloy. It held that “the Liquidator should have 'reason to believe' that there is...

Liquidator Cannot Conduct Private Sale Without Prior NCLT Approval: NCLAT

Mohd Malik Chauhan

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