NCLAT Holds H1 Bidder Immunity Ceases When Only Two Bidders Remain in CIRP Bidding Process

The NCLAT held that the immunity granted to the H1 bidder under the Negotiation Process ceases to apply once only two bidders remain in the CIRP bidding process.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed two appeals and held that immunity from elimination under Clause I of the Negotiation Process Document ceases to apply once only two bidders remain. As the Appellant was duly informed of this and voluntarily submitted a revised bid, there was no procedural irregularity or illegality in concluding the second round without proceeding to a third. The commercial decision of the Committee of Creditors (CoC), having followed due process and received unanimous approval, is not open to judicial interference.

In the matter of the Corporate Insolvency Resolution Process (CIRP) of Varutha Developers Pvt. Ltd., the National Company Law Appellate Tribunal (NCLAT) considered two appeals filed by an unsuccessful Resolution Applicant (Appellant) challenging the order dated 05.12.2024 and 07.01.2025 passed by the Adjudicating Authority. The CIRP was initiated on 20.12.2023 upon a petition filed by SREI Equipment Finance Ltd. After the issuance of Form-G, both the Appellant and Mangalam Multiplex Pvt. Ltd. (Respondent No. 3) submitted Expressions of Interest and actively participated in the process.

Following the opening of bids on 01.10.2024, a challenge process was undertaken to maximise value. The Appellant’s bid of ₹251.79 crore was declared H1 in the first round. However, during the second round, the Resolution Professional (RP) informed all Resolution Applicants that immunity for the H1 bidder from elimination no longer applied since only two bidders remained. Mangalam Multiplex submitted a higher bid of ₹265.65 crore and was declared the Successful Resolution Applicant (SRA). The Appellant, having submitted a revised bid of ₹263.18 crore in the second round, filed I.A. No. 2331/2024 before the Adjudicating Authority, seeking a third round of negotiations and cancellation of the results of the second round.

The Appellant alleged that the RP had violated Clause I of the Negotiation Process Document, which provided immunity to H1 bidders from elimination, and Clause K, which envisaged the continuation of rounds until a bidder declared unwillingness to improve its offer. However, the RP and CoC maintained that the immunity clause applied only until two bidders remained and the process was conducted fairly. The RP had, on 12.11.2024, expressly informed the Appellant that the immunity no longer applied at the current stage and invited an enhanced bid.

The NCLAT found that the Appellant was aware of the revised process and had voluntarily participated in the second round, thereby indicating acceptance of the conditions. Since both remaining bidders had submitted improved commercial offers, the Tribunal held that there was no occasion or necessity for a third round. The CoC, in its commercial wisdom, approved Mangalam’s plan with 100% voting in the meeting held on 26.11.2024, and the RP issued the Letter of Intent on 04.12.2024. The Adjudicating Authority subsequently approved the resolution plan on 07.01.2025, having found no procedural irregularities or violation of statutory requirements under Sections 30(2) and 31 of the IBC.

The NCLAT reiterated the limited scope of judicial review in CoC’s commercial decisions, emphasising that unless there is a violation of the IBC or associated regulations, the Tribunal will not interfere. It held that the negotiation process was carried out in accordance with the Process Document, and there was no breach of procedure by the RP. The appeals were accordingly dismissed, affirming the primacy of the CoC’s decision in the resolution process.

Mr. P. Nagesh, Sr. Advocate with Mr. Saurabh Kalia, Ms. Tanvi Bansal and Mr. Ravi Datta, Advocates, represented the Appellant.

Mr. Abhijeet Sinha, Sr. Advocate with Mr. Swetank Ginodia, Ms. Malvi Dedhia, Ms. Mini Agarwal and Mr. Saikat Sarkar, Advocates, appeared for the Respondent No. 1.

Mr. K. Datta, Sr. Advocate with Mr. Aditya Kanodia, Mr. Arjun Aggarwal, Mr. Akhil Nene, Mr. Aditya Kanodia, Mr. Anil Nene, Mr. Arjun Agarwal and Ms. Suparna Sardar, Advocates, appeared for the Respondent No. 2.

Mr. Arun Kathpalia, Sr. Advocate with Ms. Ruby Singh Ahuja, Ms. Aakriti Vohra, Ms. Roopali Gupta and Ms. Varsha Himatsingka, Advocates, appeared for the Respondent No. 3.

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