Liquidator cannot Conduct Private Sale without Permission of NCLT under Regulation 33(2)(d) of IBBI: NCLAT [Read Order]

While disposing of cross-appeals arising from the liquidation of Corporate Power Limited, the National Company Law Appellate Tribunal (Principal Bench, New Delhi) has set aside a private sale process for being opaque and procedurally flawed, while directing a fresh Swiss Challenge process with more equitable terms.

The appeals were filed by Orissa Alloy Steel Pvt. Ltd. (OASPL) and SM Steels and Power Ltd. (SMSPL) challenged an order dated 20.12.2024 passed by the National Company Law Tribunal, Kolkata Bench. The order had set aside a private sale of Corporate Power Limited to OASPL and directed a fresh Swiss Challenge process.

OASPL, the successful bidder in the impugned private sale, contended that after nine failed public auctions, its offer, approved by the Stakeholders’ Consultation Committee (SCC), was a bona fide attempt to maximize value. They argued that the SCC's commercial decision, taken with a near-unanimous vote, should be respected and that setting the sale aside would cause further delay and prejudice their interests. They also refuted the allegations of collusion with the major creditor, ACRE, as baseless.

Per contra, SMSPL, a competing bidder, challenged the very foundation of the private sale. They argued that the process was vitiated by opacity and designed to favor OASPL. They pointed out that the Process Document, which contained critical terms and eligibility criteria, was issued on 29.02.2024, *after* the last date for submission of eligibility documents (27.02.2024), making it impossible for prospective bidders to comply.

Furthermore, the Earnest Money Deposit (EMD) was fixed at an unreasonably high Rs. 150 crores, over 50% of the reserve price, which acted as a barrier to genuine participation. SMSPL also alleged collusion between OASPL, the liquidator, and ACRE to hijack the liquidation process.

A division bench of the NCLAT, comprising Justice (Retd.) Ramalingam Sudhakar and Mr. Ravindra Chaturvedi, held that the Adjudicating Authority had correctly set aside the private sale. The Tribunal found that the manner in which the private sale was conducted demonstrated a lack of transparency and fairness. It agreed that the delayed publication of the Process Document and the compressed timelines for submission of documents and EMD deposit effectively precluded meaningful participation from other bidders, thereby impeding the objective of value maximization.

The NCLAT also affirmed the Adjudicating Authority's finding that the liquidator had contravened Regulation 33(2)(d) of the Insolvency and Bankruptcy Code, 2016, read with the Liquidation Process Regulations, 2016. The Tribunal emphasized that the word "prior" prefixed to "permission" is unambiguous, and the liquidator was required to obtain the Adjudicating Authority's approval *before* initiating the private sale process, not after presenting it as a *fait accompli*. The liquidator's failure to do so was a significant procedural infraction.

However, the NCLAT rejected the allegations of collusion between OASPL and ACRE. It found that while ACRE was a significant creditor, it did not control the requisite 66% voting share in the SCC to unilaterally dictate outcomes. The Tribunal noted that other financial institutions on the committee had voted in favour of OASPL's proposal, and there was no material evidence on record to establish a "secret or dishonest agreement" necessary to prove collusion under the law.

Accordingly, the NCLAT disposed of both appeals. It upheld the order setting aside the impugned private sale and directed the liquidator to undertake a fresh Swiss Challenge process for the private sale of the CorporateDebtor.

The Tribunal modified the terms: the process would be kept open to all eligible prospective bidders, including OASPL and SMSPL, and the EMD would be fixed at a more reasonable 10% of the reserve price of Rs. 265 crores. The liquidator was directed to complete the entire process within a period of 60 days from the date of the judgment.

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