2025 (2) TMI 217 - AT - IBC

NCLAT upholds liquidator's Swiss Challenge sale method, rejects anchor bidder's appeal citing no vested completion rights

NCLAT dismissed appeal challenging liquidator's decision to sell corporate debtor through private sale using Swiss Challenge Mechanism. Court held that ... Seeking permission of the Adjudicating Authority, to sell the Corporate Debtor (CD) as a going concern through private sale method - appropriateness of the Swiss Challenge Mechanism - HELD THAT:- The Hon’ble Supreme Court in R.K. Industries [2022 (8) TMI 1162 - SUPREME COURT] held that anchor bidder had no vested right to insist that the process must be taken to its logical conclusion. R.K. Industries was treated to be anchor bidder, but due to intervening facts, including the offer received from Welspun for purchase of materials as well as the land, SCC had decided to go for private sale of consolidated assets. Due to the above reasons, the Liquidator left the process of Swiss Challenge and discontinued the Swiss Challenge Process opting for private sale. The above observation of the Hon’ble Supreme Court was in reference to the facts of that case. There can be no dispute to the proposition that an anchor bidder has no indefeasible right. Anchor bidder has to place first bid, after which other bidders are required to participate and give a higher bid. The present is a case where the OASPL, offer was treated to be a base bid giving right of RoFR and the Swiss Challenge Process was to proceed thereafter, which was fixed for 29.01.2025. The judgment of the Hon’ble Supreme Court in R.K. Industries’ case as noted above, in no manner support the submission of the Appellant in the present case that the OASPL could not have been given Right of First Refusal. On looking into the Discussion paper, it clearly mentions that Swiss Challenge is a time-tested mechanism and has proven to be highly effective. The Swiss Challenge Mechanism has also been incorporated in hybrid method pertaining to pre-packaged insolvency resolution process. Section 54K of the IBC contemplate the base resolution plan by the Applicant and thereafter other competitive resolution plans are invited in event the base resolution plan is not approved. The Discussion Papers issued by IBBI are Discussion Papers to elicit response from stakeholders and to inform the stakeholders about the issues, which arose regarding working of IBC and Regulations. Discussion Papers are only to inform the issues and elicit response to strengthen the regulatory framework. The Discussion Paper in no manner can affect the statutory and regulatory scheme governing the liquidation process as noticed in foregoing paragraph of this judgment. Thus Discussion Paper dated 27.08.2021 relied and as extracted by the Appellant, in no manner help the Appellant to support his submission in the present case. The power and duties given to the Liquidator under the IBC and the 2016 Regulations, has to be exercised within the four corners of the statutory provisions. The decision taken by the Liquidator to proceed with private sale by adopting Swiss Challenge Mechanism, cannot be said to be a decision beyond the jurisdiction or authority of the Liquidator. Furthermore, SCC has already endorsed the said decision after detailed discussion as noted above. Conclusion - i) The Swiss Challenge Mechanism is a valid and transparent method for asset sale, consistent with the principles of natural justice. ii) Granting the Right of First Refusal to OASPL was justified given the context and lack of other offers. iii) The Liquidator acted within the scope of the IBC and 2016 Regulations, with SCC's approval supporting the actions taken. There are no error in the order passed by Adjudicating Authority, which warrant any interference by this Tribunal in exercise of its appellate jurisdiction. There is no merit in the Appeal - appeal dismissed. The legal judgment involves an appeal against an order by the National Company Law Tribunal (NCLT) allowing the Liquidator to sell the Corporate Debtor (CD) as a going concern through the Swiss Challenge Mechanism. The appeal challenges the decision on several grounds, including the appropriateness of the Swiss Challenge Mechanism and the granting of the Right of First Refusal (RoFR) to Orissa Alloy Steel Pvt. Ltd. (OASPL).Issues Presented and Considered:The core issues considered in the judgment are:Whether the Swiss Challenge Mechanism was appropriate and consistent with principles of natural justice and transparency.Whether granting the Right of First Refusal to OASPL was justified.The extent of the Liquidator's powers under the Insolvency and Bankruptcy Code (IBC) and the 2016 Regulations.Issue-wise Detailed Analysis:Swiss Challenge Mechanism:Legal Framework: The Swiss Challenge Mechanism is recognized as a method of private participation for value maximization and transparency. The Insolvency and Bankruptcy Board of India (IBBI) regulations allow for private sales to maximize realizations from asset sales.Court's Interpretation: The Tribunal found that the Swiss Challenge Mechanism is a legitimate method for maximizing asset value and is consistent with principles of fairness and transparency.Evidence and Findings: The Stakeholder's Consultation Committee (SCC) approved the Swiss Challenge Mechanism after deliberations, indicating its necessity for value maximization.Application of Law to Facts: The Tribunal noted that the Swiss Challenge Mechanism was adopted following SCC's approval, and the Liquidator's actions were within the scope of the IBC and 2016 Regulations.Competing Arguments: The Appellant argued that the mechanism was against natural justice, but the Tribunal found no substance in this claim, citing the mechanism's transparency and inclusivity.Conclusion: The Tribunal upheld the use of the Swiss Challenge Mechanism, finding it appropriate and justified.Right of First Refusal to OASPL:Legal Framework: The right of first refusal is a recognized aspect of Swiss Challenge Mechanism, particularly for anchor bidders.Court's Interpretation: The Tribunal found that granting RoFR to OASPL was justified as it was the only entity to submit a formal offer, which included this condition.Evidence and Findings: OASPL's offer was the only one received, and it included a condition for RoFR. The SCC approved this offer after negotiations.Application of Law to Facts: The Tribunal noted that the RoFR was part of the negotiated terms with OASPL, and its inclusion was consistent with the regulations.Competing Arguments: The Appellant contended that RoFR was unfair, but the Tribunal found it justified given the circumstances and the lack of other offers.Conclusion: The Tribunal upheld the decision to grant RoFR to OASPL.Liquidator's Powers:Legal Framework: The IBC and 2016 Regulations outline the Liquidator's powers and duties, including the ability to conduct private sales.Court's Interpretation: The Tribunal found that the Liquidator acted within the legal framework and with SCC's endorsement.Evidence and Findings: The Liquidator's actions were supported by SCC resolutions and were aimed at maximizing asset value.Application of Law to Facts: The Tribunal noted that the Liquidator's decision-making was guided by statutory provisions and stakeholder interests.Competing Arguments: The Appellant argued that the Liquidator overstepped, but the Tribunal found the actions were within legal bounds.Conclusion: The Tribunal affirmed the Liquidator's powers and actions.Significant Holdings:The Tribunal's significant holdings include:The Swiss Challenge Mechanism is a valid and transparent method for asset sale, consistent with the principles of natural justice.Granting the Right of First Refusal to OASPL was justified given the context and lack of other offers.The Liquidator acted within the scope of the IBC and 2016 Regulations, with SCC's approval supporting the actions taken.The Tribunal dismissed the appeal, upholding the NCLT's decision to allow the Liquidator to proceed with the Swiss Challenge Mechanism.