1. Liquidation of corporate debtor — Failed e-auctions — Transition from Swiss Challenge Process for partial assets to Private Sale of composite assets under the Insolvency and Bankruptcy Code. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 )
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2022 Supreme(SC) 854
SUPREME COURT OF INDIA
N.V. RAMANA, CJI., J.K. MAHESHWARI, HIMA KOHLI, JJ.
M/s. R.K. Industries (Unit-II) LLP – Appellant
Versus
M/s. H.R. Commercials Private Limited And Other – Respondents
Civil Appeal No. 7722 of 2021
And
Welspun Steel Resources Private Limited - Appellant
Versus
M/s R.K. Industries (Unit II) LLP And Others - Respondents
Civil Appeal No. 7731 of 2021
Decided on : 26-08-2022
Advocates appeared:
For the Appellant(s) : Dr. Abhishek Manu Singhvi, Sr.Adv.
In C.A.No.7731/21 : Mr. Sameer Pandit, Adv. Mr. Aman Raj Gandhi, AOR Mr. Parthasarathy Bose, Adv. Mr. Anuj Jain, Adv. Mr. Aditya Ladha, Adv. Mr. Ananya Pratap Singh, Adv. Mr. Azeem Samuel, Adv. Mr. Nidhiram, Adv.
In C.A.No.7722/21 : Mr. Gaurav Mitra, Sr.Adv. Mr. Akash Kakade, Adv. Mr. Gurdeep Singh Sachar, Adv. Mr. Vikrant Shetty, Adv. Mr. Shriya Ray Chaudhary, Adv. Mr. Swetab Kumar, Adv. Mr. Somanatha Padhan, AOR Mr. Arvind Datar, Sr.Adv. Mr. J.Salva, Sr.Adv. Mr. Abhishek Sharma, Adv. Ms. Ashly Cherian, Adv. Mr. Gaurav Arora, Adv. Mr. Kamlendra Singh, Adv. Ms. Renuka, Adv.
For Liquidator : Mr. Jay Savla, Sr.Adv. Mr. Abhishek Sharma, Adv. Ms. Ashly Cherian, Adv. Mr. Kamlendra Singh, Adv. Mr. Gaurav Arora, Adv. Ms. Renuka Sahu, Adv. Mr. Alok Tripathi, AOR
For Respondent(s): Mr. Tushar Mehta, SG Mr. K.M. Nataraj, ASG Mr. Rupesh Kumar, Adv. Mr. Kannu Agarwal, Adv. Mr. Mayank Pandey, Adv. Mr. Mukesh Kumar Maroria, AOR
For Intervenor : Mr. Mukul Rohatgi, Sr.Adv.
In I.A.No.166862/21 : 1 Mr. Siddhartha Dave, Sr.Adv.
In C.A.7722/21 : Mr. Shiv Mangal Sharma, Adv. Mr. Saurabh Rajpal, Adv. Ms. Shrinjan Khosla, Adv. For M/S. Aura & Co., AOR
For R-1 in C.A.No.: Mr. Vikram Nankani, Sr.Adv.
7722/2021 and for R-3 in C.A.No. 7731/2021 : Mr. Jasdeep Singh Dhillon, Adv. Mr. Salil Thakore, Adv. Mr. Prabhay Chaurasia, Adv Mr. Rahul Gupta, Adv. Ms. R. Nair, Adv.
For R.No.8 in C.A.No.7731/21 & for intervenor In C.A.7667/21 : Mr. Gaurav Mathur, Adv. Ms. Anushree Prashit Kapadia, AOR Mr. Abhishek Shah, Adv. Ms. Priyanka Rathi, Adv. Mr. Shashank Khurana, Adv. Mr. Somanatha Padhan, AOR Mr. Alok Tripathi, AOR M/S. Cyril Amarchand Mangaldas Aor, AOR Mr. Aman Raj Gandhi, AOR
For the Appellant(s) : Dr. Abhishek Manu Singhvi, Sr.Adv.
In C.A.No.7731/21 : Mr. Sameer Pandit, Adv. Mr. Aman Raj Gandhi, AOR Mr. Parthasarathy Bose, Adv. Mr. Anuj Jain, Adv. Mr. Aditya Ladha, Adv. Mr. Ananya Pratap Singh, Adv. Mr. Azeem Samuel, Adv. Mr. Nidhiram, Adv.
In C.A.No.7722/21 : Mr. Gaurav Mitra, Sr.Adv. Mr. Akash Kakade, Adv. Mr. Gurdeep Singh Sachar, Adv. Mr. Vikrant Shetty, Adv. Mr. Shriya Ray Chaudhary, Adv. Mr. Swetab Kumar, Adv. Mr. Somanatha Padhan, AOR Mr. Arvind Datar, Sr.Adv. Mr. J.Salva, Sr.Adv. Mr. Abhishek Sharma, Adv. Ms. Ashly Cherian, Adv. Mr. Gaurav Arora, Adv. Mr. Kamlendra Singh, Adv. Ms. Renuka, Adv.
For Liquidator : Mr. Jay Savla, Sr.Adv. Mr. Abhishek Sharma, Adv. Ms. Ashly Cherian, Adv. Mr. Kamlendra Singh, Adv. Mr. Gaurav Arora, Adv. Ms. Renuka Sahu, Adv. Mr. Alok Tripathi, AOR
For Respondent(s): Mr. Tushar Mehta, SG Mr. K.M. Nataraj, ASG Mr. Rupesh Kumar, Adv. Mr. Kannu Agarwal, Adv. Mr. Mayank Pandey, Adv. Mr. Mukesh Kumar Maroria, AOR
For Intervenor : Mr. Mukul Rohatgi, Sr.Adv.
In I.A.No.166862/21 : 1 Mr. Siddhartha Dave, Sr.Adv.
In C.A.7722/21 : Mr. Shiv Mangal Sharma, Adv. Mr. Saurabh Rajpal, Adv. Ms. Shrinjan Khosla, Adv. For M/S. Aura & Co., AOR
For R-1 in C.A.No.: Mr. Vikram Nankani, Sr.Adv.
7722/2021 and for R-3 in C.A.No. 7731/2021 : Mr. Jasdeep Singh Dhillon, Adv. Mr. Salil Thakore, Adv. Mr. Prabhay Chaurasia, Adv Mr. Rahul Gupta, Adv. Ms. R. Nair, Adv.
For R.No.8 in C.A.No.7731/21 & for intervenor In C.A.7667/21 : Mr. Gaurav Mathur, Adv. Ms. Anushree Prashit Kapadia, AOR Mr. Abhishek Shah, Adv. Ms. Priyanka Rathi, Adv. Mr. Shashank Khurana, Adv. Mr. Somanatha Padhan, AOR Mr. Alok Tripathi, AOR M/S. Cyril Amarchand Mangaldas Aor, AOR Mr. Aman Raj Gandhi, AOR
A Liquidator under the IBC may cancel a bidding process to pursue a private sale of composite assets to maximize value. Such commercial decisions, if not mala fide and supported by stakeholders, are generally not subject to judicial review by the NCLAT.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 61, Regulation 33(2)(d) - Liquidation of Corporate Debtor - Appeals against NCLAT decision allowing Private Sale of assets after failed e-auctions and Swiss Challenge Process. Applicability of regulations and efficiency in liquidation strategies are critical.
(B) Legal principle: The Liquidator retains the discretion to abandon bidding processes; stakeholders’ input is not definitive for all sales operations; ensuring maximum recovery for stakeholders is paramount.
(C) The Court emphasized the necessity for timely liquidation to preserve asset value and affirmed the Liquidator's method to conduct Private Sales.
(D)
Facts of the case:
The Corporate Debtor’s assets were up for sale after a failed five-round e-auction; the Liquidator obtained permission for Private Sale after consultations with stakeholders. (E)
Findings of Court:
The NCLAT appropriately directed the Liquidator to maximize stakeholders' value by allowing participation from earlier bidders while enabling a swift sale process. (F)
Issues: Whether the Liquidator was entitled to abandon the Swiss Challenge Process and the implications of stakeholders’ recommendations on sales strategies. (G)
Ratio Decidendi: The Liquidator’s decision to proceed with Private Sale was justified; commercial decisions made in accordance with procedural guidelines should not be questioned. (H)
Result: Appeal by R.K. Industries dismissed; Welspun's appeal allowed; Liquidator directed to proceed with Private Sale.
Legal Category Hierarchy
Table of Contents
2. Whether the Liquidator could cancel a Swiss Challenge Process mid-way and whether a Private Sale requires open notice to all prospective buyers. (Para 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 )
3. Liquidator's discretion to maximize asset value and ensure time-bound liquidation outweighs the procedural expectations of a bidder, provided the action is not mala fide. (Para 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 36 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 )
4. Commercial decisions of a Liquidator to maximize value and expedite liquidation are not subject to judicial review unless they are arbitrary, capricious, or mala fide. (Para 52 , 57 , 60 )
5. Does an anchor bidder in a Swiss Challenge Process have a vested right to see the process through to completion?
No. An anchor bidder has no vested right beyond the Right of First Refusal. If the tender documents explicitly allow the Liquidator to cancel or abandon the process at any stage, the bidder cannot insist on its conclusion. (Para 47 , 48 , 49 )
6. To what extent can courts review the commercial decisions of a Liquidator regarding the mode of asset sale?
Judicial review is limited. Courts should not substitute their own views for the commercial wisdom of the Liquidator and stakeholders unless the decision is demonstrated to be arbitrary, capricious, or mala fide. (Para 52 , 57 , 60 )
7. Does a Private Sale under the Liquidation Regulations require the issuance of an open notice to all prospective buyers?
No. Unlike public auctions, a Private Sale allows the Liquidator to directly liaise with potential buyers to maximize realizations and does not mandate an open notice process. (Para 59 )
8. How does the objective of value maximization influence the choice of sale method in liquidation?
The IBC emphasizes time-bound liquidation to prevent asset depreciation. A composite sale may be preferred over piecemeal sales if it ensures higher recovery and a quicker timeline for stakeholders. (Para 32 , 51 , 56 )
JUDGMENT :
HIMA KOHLI, J.
1. By this common judgment, we propose to decide both the appeals one filed by M/s. R.K. Industries (Unit-II) LLP (appellant in Civil Appeal No.7722 of 2021 and respondent No.1 in Civil Appeal No.7731 of 2021) and Welspun Steel Resources Private Limited1[For short ‘Welspun’] (appellant in Civil Appeal No.7731 of 2021 and respondent No.7 in Appeal No.7722/2021) against the judgment dated 10th December, 2021 passed by the Appellate Authority, National Company Law Appellate Tribunal, Principal Bench, New Delhi2[For short ‘NCLAT’] in Company Appeal (AT) (Ins.)No.690 of 2021 filed by R.K. Industries under Section 61 of the Insolvency and Bankruptcy Code , 20163[For short ‘IBC’], assailing the order dated 16th August, 2021 passed by the Adjudicating Authority, (National Company Law Tribunal, Ahmedabad)4[For short ‘NCLT’] in Interlocutory Application No.273 of 2021 (filed by the respondent No.1 -H.R. Commercial Private Limited, in IA No.698 of 2020 (filed by Liquidator) in Company Petition (IB) No.53 of 2017. For the sake of convenience, we propose to refer to the facts narrated in Civil Appeal No.7722 of 2021.
FACTS OF THE CASE
2. The facts of the case necessary to decide the present appeals are as follows.
2.1 Vide Agreement dated 26th February, 2008, Gujarat Maritime Board5[For short ‘GMB’] leased out a parcel of land to ABG Shipyard Limited6[For short ‘Corporate Debtor’] for a period of thirty years. On 1st August, 2017, ICICI Bank Limited moved an application for initiation of Corporate Insolvency Resolution Process7[For short ‘CIRP’] against the Corporate Debtor under Section 7 of the IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules8[For short ‘IBC Rules’], 2016 before the Adjudicating Authority, NCLT, Ahmedabad [CP(IB) No.53/NCLT/AHM/2017] wherein, Mr. Sundaresh Bhat was appointed as an Interim Resolution Professional9[For short ‘IRP’]. As no Resolution Plan was approved during the CIRP, an application was moved by the IRP for initiating liquidation proceedings. Vide order dated 25th April, 2019, the Adjudicating Authority ordered liquidation of the Corporate Debtor and appointed Mr. Sundaresh Bhat as the Liquidator. The respondent No.2 Liquidator made efforts to sell the assets of the Corporate Debtor through an e-auction process, as contemplated in Sections 33 and 35 of the IBC read with Schedule-I of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 201610[For short ‘ Liquidation Regulations ’]. Five e-auctions were conducted by the respondent No.2 Liquidator to sell the consolidated assets of the Corporate Debtor on 17th September, 2019; 27th September, 2019; 22nd October, 2019; 11th November, 2019 and 5th August, 2020. When the first four e-auctions were unsuccessful, in the fifth e-auction, the respondent No.2 -Liquidator offered sale of the assets on a stand-alone basis or singly or in smaller lots, besides compositely. Except for the sale of two residential assets, no purchasers stepped forward to purchase the other assets.
2.2. Faced with the above situation, the respondent No.2 -Liquidator moved an application (IA No.698 of 2020) before the NCLT for permission to sell the assets of the Corporate Debtor through Private Sale, in terms of Regulation 33(2)(d) of the Liquidation Regulations , which was duly allowed. On receiving offers from potential buyers, the respondent No.2 -Liquidator approached the Stakeholders, who in the Meeting conducted on 28th January, 2021, took a decision to go in for the sale of the Dahej Material and Scrap11[For short ‘Dahej Material’] at amounts higher than the reserve price of the Dahej Material fixed at Rs.516 crores in the fifth round of the e-auction. The Stakeholders’ Consultative Committee12[For short ‘SCC’] resolved that the prospective bidders, who proposed to participate in the Private Sale, ought to be encouraged to participate in the Swiss Challenge Process. As a result, the
