2025 (11) TMI 781 - AT - IBC

Order set aside blocking CoC-approved related-party sale; CoC's commercial choice non-justiciable; Reg 29 allows, Reg 36A(1A) inapplicable

Pankaj Mahajan and Bhuvan Madan Versus Edelweiss Asset Reconstruction Asset Company, Punjab National Bank, Bank of India, Union Bank of India, Karur Vysya Bank, CFM Asset Reconstruction Private Limited, Axis Bank Limited, M/s SREI Equipment Finance Limited, NCR Rail Infrastructure Limited, Arshiya Northern FTZ Ltd. (ANFL), IDFC First Bank Limited (IDFC) and State Bank of India (SBI), Mumbai

NCLAT set aside the Adjudicating Authority's order that interdicted a CoC-approved sale of non-core assets of the corporate debtor, holding the CoC's ... Rejection of the sale of non-core assets of Arshiya Limited, which was approved by the Committee of Creditors - Error in passing the Impugned Order by failing to appreciate the provisions of Regulation 29 of the Insolvency and Bankruptcy Board of India (Corporate Insolvency Resolution Process) Regulations, 2016. Whether the manner of sale is a commercial decision lying within the exclusive domain of the CoC or not? - HELD THAT:- The CoC approved the Subject Transaction after detailed deliberations while considering the interdependent nature of the Subject Parcels, the operational synergies with NCR Rail and ANFL, the advanced stage of the CIR Processes of the related entities and the small value of the Subject Parcels in comparison to the total outstanding debt of INR 6600+ Crore. The minutes of the 7th meeting of the CoC record that solution for granting permanent right of way to NCR Rail through execution of a memorandum of understanding was tabled before the CoC but failed to gather requisite approval. At the 8th meeting, after due consideration, the CoC concluded that outright sale, rather than grant of limited right-of-way to the SRAs of both related entities, would maximize value, mitigate risk of future disputes, and ensure that the Subject Parcels are deployed to their most value-accretive use - It is also noted that the CoC’s preference for an outright transfer, at fair value, to entities that will unlock operational synergies is commercially rational, within the CoC’s exclusive domain, and thus non- justiciable. Judicial review of the CoC’s decision on matters of commercial wisdom is impermissible, save to the limited extent necessary to ensure compliance with the Code and rules and regulations framed thereunder. Therefore, the Impugned Order can be set aside for speculating for ‘better’ price discovery through invitation of independent bids. Adjudicating Authority can not re-appraise commercial decisions made by the CoC. The CoC’s preference for an outright transfer, at fair value, to entities that will unlock operational synergies is commercially rational, within the CoC’s exclusive domain, and thus non- justiciable. The Impugned Order recognizes that the CIR Processes of NCR Rail and ANFL are pending before separate benches of the NCLT, Mumbai and thus beyond the jurisdiction of the Ld. AA. However, contrary to its own finding, the Adjudicating Authority has directed and passed orders in respect of the CIR Processes of NCR Rail and ANFL. The directions requiring the RPs of NCR Rail and ANFL to advertise and invite independent bids for assets owned by the CD conflate independent proceedings under the Code. This in our view renders the CD’s CIR Process contingent upon the outcomes of parallel CIR Processes. Additionally, the CIR Processes of NCR Rail and ANFL are at an advanced stage wherein their respective CoCs have approved resolution plans for both entities and are pending for approval before different benches of NCLT, Mumbai. The CoC also brings to our notice that by adopting the recourse as in the Impugned Order, more time and resources will be expended in inviting independent bids from PRAs of NCR Rail and ANFL. Further judicial approval of the resolution plans will remain stalled; and the SRAs for both entities may be disincentivized against offering competitive bids for the Subject Parcels or even continuing to participate in the resolution efforts. In effect, the value achieved in the CIR Processes NCR Rail and ANFL may also be lost. The CoC also brings to notice that by adopting the recourse as in the Impugned Order, more time and resources will be expended in inviting independent bids from PRAs of NCR Rail and ANFL. Further judicial approval of the resolution plans will remain stalled; and the SRAs for both entities may be disincentivized against offering competitive bids for the Subject Parcels or even continuing to participate in the resolution efforts. In effect, the value achieved in the CIR Processes NCR Rail and ANFL may also be lost - It is agreed with the arguments canvassed by the CoC and therefore it is concluded that such directions makes the CIR Process of the CD contingent upon CIR Process of ANFL and NCR Rail and thus this direction by the AA is not sustainable. Whether the commercial context of the Khurja FTWZ necessitates the Subject Transaction for value maximization or not? - HELD THAT:- The commercial utility of the Subject Parcels arises from contiguity and integration with the adjoining FTWZ assets. If the Subject Transaction is not executed, third-party acquirers will inherit integration challenges, face customs/SEZ alignment issues, and require bilateral access covenants with NCR Rail/ANFL. Conversely, the Subject Transaction will preserve the FTWZ’s throughput economics. Therefore, the Subject Transaction ensures value maximization in the CIR Processes of all three entities. Such a commercial context has to be considered as has been brought before us by the CoC and by not accounting for this fact, an optimal commercial decision cannot be arrived at. CoC had taken into consideration the commercial context of Khurja FTWZ for value maximization and we should defer to their commercial wisdom. Whether the sale of encumbered assets is permitted under Regulation 29. Regulation 29 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 protects secured creditors from prejudicial transfer of encumbered assets without their knowledge or consent? - HELD THAT:- It permits sale of unencumbered assets “other than in the ordinary course of business” to ensure that encumbered assets are not transferred without the knowledge and consent charge holders. However, Regulation 29 does not prohibit a CoC sanctioned sale where the relevant secured creditors have given consent to the sale - In the present case, EARCL and SREI – the sole charge-holders over the Subject Parcels - form part of the CoC and have expressly consented to the Subject Transaction. This is functionally equivalent to a waiver of the prejudice that Regulation 29 guards against. Therefore, the Subject Transaction cannot be interdicted on the ground that the assets are encumbered where the beneficiaries of that encumbrance have agreed to the same. Whether Regulation 36A(1A) of the CIRP Regulations is inapplicable in the present case or not? - HELD THAT:- Regulation 36A(1A) of the CIRP Regulations, which permits invitation of expressions of interest for sale of one or more assets of a CD, is wholly inapplicable in the present case. While the Subject Parcels are assets of the CD, the Impugned Order contains directions for invitation of bids for the sale of the Subject Parcels from PRAs of NCR Rail and ANFL. We note that not only Regulation 36A(1A), but no other provision in the Code allows invitations of bids for sale of assets owned by a separate entity in the CIR Process of a Corporate Debtor. Furthermore, Regulation 36A(1A) was only inserted into the CIRP Regulations vide a notification dated 26 May 2025. However, the Subject Transaction was approved by the CoC on 18 March 2025 – much prior to the introduction of Regulation 36A(1A). The concerned provision vests substantive powers in resolution professionals to invite expressions of interest for the sale of assets of a Corporate Debtor, which was hitherto not - Regulation 36A(1A) of the CIRP Regulations is not applicable in the facts and the circumstances of the case. permitted. The directions issued by the Adjudicating Authority are not sustainable and deserve to be set aside - the sale of assets as approved by the CoC is allowed - appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the manner of sale of non-core assets approved by the Committee of Creditors (CoC) is a commercial decision within the exclusive domain of the CoC and therefore not amenable to re-appraisal by the Adjudicating Authority. 2. Whether public auction is the sole or mandatory mode of price discovery/value maximisation for the sale of the subject land parcels, notwithstanding CoC-commissioned valuations and an agreed reserve (floor) price. 3. Whether the Adjudicating Authority exceeded its jurisdiction by directing invitation of independent bids from Prospective Resolution Applicants (PRAs) in separate CIRPs of related entities, thereby making the Corporate Debtor's CIRP contingent on parallel CIRPs before other benches. 4. Whether sale of encumbered assets is permissible under Regulation 29 of the CIRP Regulations where charge-holders are members of the CoC and have consented to the transaction. 5. Whether Regulation 36A(1A) (inviting expressions of interest for sale of one or more assets) applies retrospectively to a CoC decision taken before its insertion and whether it mandates the mode of sale in the present facts. 6. Whether the intervenor (suspended director/personal guarantor) has shown procedural irregularity, mala fides, or such prejudice as to warrant setting aside the CoC decision or the RP's conduct. ISSUE-WISE DETAILED ANALYSIS Issue 1 - CoC's exclusive domain to determine manner of sale Legal framework: The Code and CIRP Regulations vest commercial decision-making primarily in the CoC; judicial review is limited to jurisdictional and compliance checks and does not extend to re-appraising commercial wisdom. Precedent treatment: The Tribunal follows established principle that courts/tribunals must defer to CoC's commercial choices except where they contravene statutory mandates or procedural compliance requirements. Interpretation and reasoning: The CoC recorded detailed deliberations, commissioned two independent valuers, and approved a two-part sale with clear commercial rationale (operational synergies and FTWZ integration). The Adjudicating Authority's speculative suggestion that 'better' price discovery might exist elsewhere amounted to re-appraising the CoC's commercial judgment. The Tribunal holds that such re-appraisal is impermissible absent demonstrated non-compliance or illegality. Ratio vs. Obiter: Ratio - CoC's decision on manner of sale, supported by deliberations and valuation, is non-justiciable except for compliance; Adjudicating Authority cannot substitute its commercial view for that of CoC. Obiter - observations on contextual commercial factors (FTWZ) supporting deference. Conclusion: The manner of sale lies within CoC's exclusive commercial domain; the Impugned Order's interference on grounds of speculative superior price discovery is unsustainable. Issue 2 - Public auction as sole mode of price discovery Legal framework: CIRP aims at maximisation of asset value; regulations prescribe transparent processes but do not universally mandate auction as the only mode of sale for non-core or encumbered assets. Precedent treatment: The Tribunal recognizes authority allowing sale of assets by modes other than auction where commercial justification and transparent valuation exist; auction is not invariably prescribed where long-term commercial prospects or inter-entity synergies justify other routes. Interpretation and reasoning: CoC obtained two independent valuations and fixed a floor (average fair value). Given the unique FTWZ commercial integration and that only related entities (or their SRAs) could effectively utilize the parcels, calling for a general public auction could depress value and derail parallel CIRPs. The AA's presumption that current process 'does not ensure value maximisation' ignored these facts and valuations. Ratio vs. Obiter: Ratio - public auction is not the sole or mandatory method of price discovery where the CoC's process includes independent valuation and commercial rationale for alternative sale modes. Obiter - general observations on desirability of auctions in other contexts. Conclusion: Public auction is not the exclusive method; the CoC's alternative process (valuers + floor price + commercial rationale) suffices for value maximisation in the present facts. Issue 3 - Jurisdictional limits: directions affecting parallel CIRPs Legal framework: Each CIRP is an independent statutory proceeding; an Adjudicating Authority must not issue directions that impermissibly conflate or make one CIRP contingent upon outcomes of separate CIRPs before different benches. Precedent treatment: The Tribunal reiterates limits on adjudicatory intervention where separate benches and proceedings are concerned; supervisory powers are circumscribed by jurisdiction and compliance review. Interpretation and reasoning: Although the AA noted that transferees would likely be parties in other CIRPs, it nonetheless directed RPs of separate CIRPs to invite independent bids, thereby intruding into parallel processes and potentially delaying/derailing approved resolution plans. Such directions conflated independent proceedings and exceeded the AA's jurisdiction. Ratio vs. Obiter: Ratio - AA cannot direct conduct of parallel CIRPs or make one CIRP contingent on another where such directions interfere with separate benches' jurisdiction and advance of those CIRPs. Obiter - practical consequences of such contamination (delays, disincentivising SRAs). Conclusion: Directions that rendered the Corporate Debtor's CIRP contingent upon outcomes of other CIRPs were unsustainable and set aside. Issue 4 - Sale of encumbered assets under Regulation 29 Legal framework: Regulation 29 guards against prejudicial transfer of encumbered assets without charge-holders' knowledge/consent; it requires judicial sanction where necessary but does not operate as an absolute bar to sale of encumbered assets when secured creditors consent. Precedent treatment: The Tribunal follows precedent recognizing that encumbered assets may be sold during CIRP post consent/relinquishment by charge-holders; Regulation 29 is protective, not prohibitory, where charge-holders are part of decision-making and consent. Interpretation and reasoning: The sole charge-holders in respect of the parcels are members of the CoC and have expressly consented. Such consent functionally waives the prejudice Regulation 29 seeks to prevent. The AA's emphasis on encumbrance without accounting for secured creditors' consent therefore misapplied Regulation 29. Ratio vs. Obiter: Ratio - Regulation 29 does not bar sale of encumbered assets where charge-holders (secured creditors) have consented and the CoC has sanctioned the transaction; judicial oversight is limited to ensuring consent/compliance. Obiter - liquidation regulation analogies are inapposite to CIRP. Conclusion: Sale of the encumbered parcels is permissible under Regulation 29 given the express consent of the charge-holders and CoC approval. Issue 5 - Applicability of Regulation 36A(1A) Legal framework: Regulation 36A(1A) permits invitation of expressions of interest for sale of one or more assets; its scope and timing determine applicability to transactions approved prior to its insertion. Precedent treatment: The Tribunal treats intervening regulatory changes as prospective unless explicitly retrospective; substantive powers inserted after CoC approval do not automatically invalidate prior lawful decisions. Interpretation and reasoning: The CoC approved the subject transaction on 18 March 2025; Regulation 36A(1A) was notified on 26 May 2025. The provision is prospective and not mandatory in the present facts. Even if applicable, the language is not an absolute mandate displacing CoC's commercial discretion where compliance and transparency have already been met. Ratio vs. Obiter: Ratio - Regulation 36A(1A) is inapplicable retrospectively to a CoC decision taken before its insertion and does not automatically mandate the AA's directions where CoC's process satisfied transparency and valuation requirements. Obiter - remarks on interpretive approach to regulatory insertions. Conclusion: Regulation 36A(1A) does not apply to or invalidate the CoC-approved Subject Transaction in this case. Issue 6 - Intervenor's allegations of procedural impropriety and locus Legal framework: Standing/intervention and reliefs based on alleged procedural lapses require demonstration of material prejudice, mala fides, or breach of statutory process capable of vitiating CoC decisions. Precedent treatment: Tribunal requires cogent material showing procedural infirmity that affects compliance or the integrity of the process; speculative or dilatory allegations are insufficient. Interpretation and reasoning: The intervenor alleges exclusion, non-production of minutes/video, collusion and rigging. The record shows CoC deliberations, two independent valuations, and no established procedural irregularity, malafide or undervaluation. The intervenor's claims amount to attempted derailment and fail to demonstrate material prejudice affecting the CoC's decision or compliance with the Code/Regulations. Ratio vs. Obiter: Ratio - intervention alleging procedural irregularity dismissed where there is no material showing of non-compliance, mala fides or prejudice to justify setting aside CoC's commercial decision. Obiter - guidance that personal guarantor's residual liability does not ipso facto confer a right to annul compliant CIRP processes. Conclusion: Intervenor's application is unsustainable and is dismissed. Overall Conclusion The Tribunal sets aside the directions of the Adjudicating Authority which (i) required invitation of independent bids from PRAs in parallel CIRPs, (ii) treated public auction as necessary despite CoC's valuation-backed process, and (iii) relied on Regulation 36A(1A) retroactively. The CoC-approved sale under Regulation 29 (with consent of charge-holders and independent valuations) is upheld; the intervenor's IA is dismissed. The Impugned Order is modified accordingly.