Decision Taken By Liquidator To Proceed With Private Sale By 'Swiss Challenge Method' Cannot Be Said To Be Beyond Jurisdiction: NCLAT

Brief Facts:

The liquidation process against the corporate debtor commenced on January 3, 2020.The Liquidator received an offer dated 26.09.2024 from Orissa Alloy Steel Pvt. Ltd. (OASPL) for acquiring the CD as a going concern, excluding the assets of the CD lying at the Kolkata Port Trust for consideration of Rs.67 crores.

In the SCC meeting held on October 1, 2024, OASPL was asked to give offer equal to or more than the last reserve price for the asset. The 'OASPL' revised its offer to Rs.73 crores along with an offer to provide a 30% value of the consideration as 'EMD'. The offer of OASPL was voted upon and was approved by the SCC with “requisite majority”.

The Liquidator filed an Application before the Adjudicating Authority seeking permission to conduct sale of the assets of the CD under Swiss Challenge Mechanism with Right of First Refusal (RoFR) to 'OASPL', which Application was heard and allowed by the Adjudicating Authority vide order dated 11.12.2024.

Therefore, the present appeal has been filed challenging this order.

Contentions:

The appellant submitted that the Swiss Challenge Mechanism is against the principles of natural justice and there was no reason for adopting Swiss Challenge Mechanism.

It was also argued that even if Swiss Challenge Mechanism can be permitted, it can be done only in pursuance to approval of the Stakeholders Consultation Committee. The Swiss Challenge Mechanism does not satisfy the principles of fairness, equity, and transparency.

Per contra, the respondent submitted that the appellant never made a commercial offer to the liquidator despite corresponding since August 2, 2024. As no one interested party submitted an offer, the SCC decided to consider and accept the offer given by the 'OASPL'.

It was also argued that the Swiss Challenge Mechanism gives opportunity to all, including the Appellant to participate and is intended to maximize the value of the assets of the CD. No exception can be taken to the Swiss Challenge Mechanism. The Liquidation has received 'Expression of Interests' from several intending parties and Swiss Challenge Mechanism is to be conducted on 29.01.2025.

Observations:

The tribunal observed that one of the Clauses in Schedule 2, sub-clause (3) is “or through any other means that is likely to maximize the realizations from the sale of assets”. The statute empowers the liquidator to choose or adopt any method that enhances asset realisation

The tribunal observed that the Swiss Challenge Mechanism is a price discovery method which allows the applicants to offer the highest bid. It rejected the submission of the appellant that this process violates the principle of natural justice or lacks transparency. All applicants who meet the prescribed conditions can participate therefore it cannot be said that this method does not give opportunity to all competitors.

It noted that the Supreme Court in 'R.K. Industries (Unit-II) LLP vs. H.R. Commercials Pvt. Ltd. & Ors. (2024)' held that an anchor bidder has no vested right beyond the RoFR, being the origination of the proposal. It must be borne in mind that the Swiss Challenge Process is just another method of private participation that has been recognised by this Court for its transparency.

The court in the above case also observed that “ultimately, IBC has left it to the discretion of the liquidator to explore the best possible method for selling the assets of the corporate debtor in liquidation, which includes private sale through direct negotiations with the object of maximising the value of the assets offered for sale.”

Based on the above, the tribunal rejected the first submission that the Swiss Challenge Mechanism could not be accepted.

The tribunal after pursuing the relevance clauses of the offer and minutes of the meeting given by the SCC observed that the SCC agreed in principle and the said proposal was put to vote and approved with 66.52% vote share. Hence, the offer of OASPL was approved by SCC.

Based on the above, It held that “we do not find any error in giving Right of First Refusal to OASPL, who was the only entity, who has given offer and the offer was with the above condition. We, thus, do not find any substance in the submission of the Appellant that OASPL ought not to have been given Right of First Refusal.”

The tribunal noted that in the present case, an application filed by the liquidator under Regulation 35(h) was approved by the Adjudicating Authority therefore it cannot be said that the liquidator exercised power in an arbitrary manner. The Supreme Court in RK Industries (supra) held that once the decision taken by the liquidator is approved by the stakeholders, the court should not reassess its reasonableness or substitute the same with their own views.

The Supreme Court in RK Industries (supra) held that the Supreme court also observed that the anchor bidder has no vested right to insist on completing the process. Although RK Industries was chosen as the anchor bidder but due to change in circumstances and a better offer given by Welspun, the SCC decided to opt for a private sale method instead of proceeding with the Swiss Challenge process.

Due to the above reasons, the Liquidator in the above case left the process of Swiss Challenge and discontinued the Swiss Challenge Process opting for private sale.

It further noted that the above judgment of the Supreme Court does not in any manner support the case of the appellant that OASPL could not have been given Right of First Refusal.

The tribunal noted that discussion papers released by IBBI aim to inform stakeholders and seek feedback on IBC issues. They serve to strengthen the regulatory framework but do not impact the statutory scheme of the liquidation process.

The tribunal concluded that “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.”

Case Title: M/s Power Mech Projects Ltd. Versus Essar Power (Jharkhand) Ltd. and Anr.

Case Number: Company Appeal (AT) (Insolvency) No.106 of 2025

Date of Judgment: 04/02/2025

For Appellant : Mr. Abhijeet Sinha Ld. Sr. Advocate with Mr. Gaichangpov Gangmei, Mr. Arjun D. Singh, Mr. Harsh Kesharia and Mr. Yimyangkr Longkumer, Advocates.

For Respondents : Mr. Abhishek Anand a/w Ms. Smiti Tiwari, Ms. Shivani Sharma and Mr. Sanapreet Singh, Advocates.

Click Here To Read/Download The Order