NCLAT Upholds Validity of Right of First Refusal (RoFR) Granted to Anchor Bidder Under Swiss Challenge Mechanism in Liquidation Process

The NCLAT upheld the validity of granting the Right of First Refusal to the anchor bidder under the Swiss Challenge Mechanism in the liquidation 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 an appeal and held that granting the Right of First Refusal (RoFR) to an anchor bidder under the Swiss Challenge Mechanism is valid and legally permissible, particularly when the bidder is the sole originator of a viable offer following multiple failed auctions. The Tribunal emphasised that such a process is permissible if it is approved by the Stakeholders’ Consultation Committee and is in line with the Insolvency and Bankruptcy Code (IBC) and applicable regulations. It further affirmed that commercial decisions of the Liquidator, when duly endorsed and not arbitrary, do not warrant judicial interference.

In the appeal before the National Company Law Appellate Tribunal (NCLAT), the Appellant challenged the order dated 11.12.2024 passed by the National Company Law Tribunal (NCLT), Principal Bench, which permitted the Liquidator of Essar Power (Jharkhand) Ltd. to proceed with a private sale of the Corporate Debtor (CD) as a going concern under the Swiss Challenge Mechanism. The liquidation had commenced on 03.01.2020, but despite 21 e-auctions, only two residential units were successfully sold. Subsequently, Orissa Alloy Steel Pvt. Ltd. (OASPL) submitted a private offer of ₹67 crores, excluding assets lying with the Kolkata Port Trust. On direction from the Stakeholders’ Consultation Committee (SCC), the offer was revised to ₹73 crores with a 30% EMD and was approved with a 66.52% majority. The SCC also resolved to proceed with a Swiss Challenge Mechanism and granted OASPL the Right of First Refusal (RoFR).

The Appellant contended that the adoption of the Swiss Challenge Process and the grant of RoFR were non-transparent and discriminatory, asserting that the Liquidator acted without proper authority. However, NCLAT observed that the Liquidator had placed OASPL’s offer before the SCC in accordance with applicable provisions, and no other formal or commercial offer was received, including from the Appellant, who had merely expressed interest by letter dated 02.08.2024. The Tribunal held that the adoption of the Swiss Challenge Mechanism was a commercially viable and transparent step, duly endorsed by the SCC and consistent with the statutory framework under the Insolvency and Bankruptcy Code (IBC) and the IBBI (Liquidation Process) Regulations, 2016.

The Tribunal found no illegality in granting RoFR to OASPL, particularly as it was the only party that had submitted a viable base offer after years of failed auctions. The decision aligned with commercial logic and was not discriminatory, especially in the absence of competing proposals. In support of its view, the NCLAT relied on the Supreme Court’s judgment in R.K. Industries (Unit-II) LLP v. HR Commercials Private Limited and Others, REEDLAW 2021 NCLAT Del 12535, which recognised that anchor bidders may be granted RoFR without gaining any vested rights, and that the Swiss Challenge Process is a permissible and transparent method under the IBC for value maximisation.

The Appellant’s reliance on a 2021 Discussion Paper issued by the IBBI was also dismissed, with NCLAT clarifying that such documents serve consultative and informative purposes and cannot override statutory provisions. The Tribunal emphasised that both the Liquidator and SCC acted within their jurisdiction and responsibilities, and that the Adjudicating Authority rightly granted approval for the proposed sale.

Accordingly, NCLAT upheld the order of the Adjudicating Authority and dismissed the appeal, finding no merit in the objections raised. Pending interlocutory applications were also disposed of, with no order as to costs.

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

Mr. Abhishek Anand a/w Ms. Smiti Tiwari, Ms. Shivani Sharma and Mr. Sanapreet Singh, Advocates, appeared for the Respondents.

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