Back
Rules Unaccepted OTS Cannot Stall for Shree Sai Prakash Alloys
In a significant ruling that reinforces the , the , has held that an unaccepted proposal made before the commencement of liquidation cannot be enforced as a matter of right to stall or vitiate a subsequent . The Bench, comprising Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh, on dismissed an application that sought to cancel the of the assets of Shree Sai Prakash Alloys Pvt. Ltd. and the issued to the successful bidder.
The decision underscores the principle that once liquidation has been ordered, the process must proceed without interference from pre-liquidation settlement offers that were never accepted or concluded. The Tribunal's reasoning provides clarity on the interplay between settlement proposals and the mandatory liquidation mechanism under the .
Background: Insolvency to Liquidation
The against Shree Sai Prakash Alloys was initiated by under . Following the failure of the resolution plan to gain acceptance, the NCLT passed an order of liquidation on . Prior to that order, on , the corporate debtor had submitted an OTS proposal offering ₹22.50 crore to settle its loan accounts. However, the financial creditor, PNB, did not accept the proposal.
Subsequently, the liquidator conducted an on , which concluded with a successful bid of ₹16.23 crore. The was issued on . Aggrieved by the sale, the applicant—the corporate debtor—challenged the auction, contending that the OTS offer was significantly higher than the auction consideration and that the liquidation process had therefore failed to maximise the value of the assets, as required under the IBC.
Key Legal Finding: Unaccepted OTS Does Not Create Enforceable Rights
The central question before the NCLT was whether an unaccepted OTS proposal could be used to interdict a that had already been conducted. The Tribunal answered this in the negative, holding that no such right exists in law.
“Further it is noted that the OTS proposal dated was made prior to the passing of the order of liquidation dated . Thus, at the time when the said proposal was submitted, the liquidation process had not yet commenced. In the absence of any acceptance of the said proposal or a concluded and binding settlement between the Applicant and the Financial Creditor prior to the order of liquidation, the Applicant cannot seek enforcement of the said OTS as a matter of right after commencement of the liquidation proceedings. The subsequent liquidation process, therefore, cannot be interdicted merely on the basis of an OTS proposal which had remained unaccepted or which was made before the date of passing of the liquidation order.”
This observation clarifies that the mere submission of an OTS does not create a in the debtor to have the liquidation process stalled. The settlement must be both accepted and concluded before the liquidation order is passed. Without such acceptance, the liquidation proceedings retain their full legal force.
Validity of the and Upheld
The applicant also argued that the had failed to maximise asset value because the OTS offer was higher. The NCLT rejected this contention, noting that the had been fixed at 120% of the based on an approved valuation report and the decision of the . Furthermore, neither the applicant nor its proposed purchaser participated in the despite knowledge of the process.
The Bench held that differences between earlier valuations, private offers, and the eventual sale consideration do not, by themselves, establish illegality or arbitrariness in the absence of statutory violation, , , or . Since the sale stood concluded upon payment of the full consideration and issuance of the , the Tribunal declined to interfere.
Implications for Liquidation Practice
The ruling has immediate implications for insolvency practitioners and stakeholders. It confirms that once liquidation is ordered, the process is insulated from belated attempts to revive settlement discussions that were not finalised. The decision also reinforces the conducted under the liquidation framework, provided they adhere to the prescribed procedures and valuation norms.
For financial creditors, the ruling serves as a reminder that OTS proposals made during the CIRP stage or just before liquidation must be acted upon promptly if they are to be given effect. A passive stance may result in the loss of potential recovery, as the debtor cannot later compel the acceptance of a higher offer after liquidation has commenced.
The judgment also highlights the importance of robust valuation mechanisms and stakeholder consultation in setting the . The Tribunal's deference to the process followed by the liquidator and the underscores the limited scope for judicial interference in concluded sales.
Conclusion
The 's decision in provides authoritative guidance on the enforceability of pre-liquidation OTS proposals. By dismissing the application, the Bench has affirmed that liquidation proceedings must run their course without being derailed by unaccepted offers. This strengthens the predictability and finality of the IBC's liquidation framework, which is critical for attracting bidders and ensuring efficient asset realisation.
Legal professionals advising corporate debtors should note that the time to secure an OTS is well before the liquidation order is passed. Once liquidation commences, the only way to halt the sale would be through a successful challenge on grounds of or —not by invoking an unaccepted settlement proposal. This ruling thus contributes to the evolving jurisprudence on the boundaries of commercial compromise within the insolvency ecosystem.
