Prior NCLT Approval Mandatory for Private Sale in Liquidation: Swiss Challenge Invalidated Due to Unreasonable Timelines and Restrictive EMD
- REEDLAW
- Dec 29, 2025
- 5 min read
REEDLAW Legal News Network reports: In a significant ruling on liquidation sales under the Insolvency and Bankruptcy Code, the Appellate Tribunal held that a private sale of a corporate debtor’s assets through a Swiss Challenge mechanism cannot be sustained without prior approval of the Adjudicating Authority. It was further held that liquidation processes structured with unreasonable timelines and restrictive earnest money deposit conditions undermine competitive participation and violate the statutory framework governing asset sales.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a batch of company appeals, held that a private sale of assets during liquidation conducted through a Swiss Challenge process was unsustainable where prior approval under Regulation 33(2)(d) of the Liquidation Regulations had not been obtained. It was observed that the process was vitiated by unreasonably short timelines and restrictive earnest money deposit conditions that effectively stifled competition, notwithstanding the absence of substantiated allegations of collusion.
The appeals had been preferred under Section 61 of the Insolvency and Bankruptcy Code, 2016 assailing a common order of the Adjudicating Authority whereby the application filed by the liquidator seeking approval of a private sale through a Swiss Challenge Process had been disallowed, directions were issued to conduct a fresh Swiss Challenge with revised earnest money deposit norms, and the applications filed by an unsuccessful aspirant bidder were disposed of. The Corporate Debtor had undergone a full-fledged corporate insolvency resolution process, which culminated in liquidation upon failure of resolution, and despite nine public auctions conducted over more than three years, no successful sale could be achieved. In this backdrop, the Stakeholders’ Consultation Committee had approved the adoption of a private sale through a Swiss Challenge mechanism with an anchor bid marginally above the reserve price and a substantially higher earnest money deposit to ensure the seriousness of participation.
The anchor bidder contended that the private sale was a conscious commercial decision taken by the SCC to maximise value after repeated auction failures, that the Swiss Challenge process had been conducted transparently with adequate publicity, and that the liquidator had approached the Adjudicating Authority before conclusion of the sale. It was argued that the unsuccessful aspirant bidder had neither participated in prior auctions nor complied with the timelines under the process document, had approached belatedly after the Swiss Challenge process had concluded, and therefore lacked locus to challenge the liquidation process. Allegations of collusion were characterised as speculative and unsupported, and it was urged that judicial interference with a concluded commercial process was unwarranted.
The unsuccessful aspirant bidder, on the other hand, challenged the legality of the Swiss Challenge process on the ground that mandatory prior permission of the Adjudicating Authority under Regulation 33(2)(d) of the Liquidation Process Regulations had not been obtained before initiating the private sale, that the timelines prescribed were excessively compressed, and that the earnest money deposit fixed was onerous and exclusionary. Serious allegations of collusion were raised against the anchor bidder, a creditor, and the liquidator, contending that the sale was opaque, tailor-made, and vitiated by fraud, and that the liquidator had failed to discharge statutory obligations under Regulation 33(3) by not reporting the alleged collusion.
The liquidator defended the process by submitting that all decisions had been taken in consultation with the SCC with overwhelming voting support, that the Swiss Challenge mechanism was adopted solely to ensure value maximisation, and that no material existed to form a “reason to believe” of collusion. It was asserted that timelines for a private sale were not statutorily prescribed and were fixed based on the collective commercial wisdom of stakeholders, and that the liquidator had acted bona fide throughout the liquidation process.
The Appellate Tribunal observed that although a non-participant ordinarily lacks locus to challenge a concluded sale process, in the present case, the private sale had not attained finality as approval of the Adjudicating Authority was still pending. It was noted that the unsuccessful aspirant bidder had approached prior to confirmation of the sale and had placed a higher financial offer, which had been considered by the SCC itself, thereby justifying examination of issues relating to locus, procedural compliance, transparency, and fairness of the sale process.
On merits, the Tribunal found that the compressed timelines prescribed in the public announcement and the process document had materially impaired meaningful participation by prospective bidders. It was noted that the process document, which governed eligibility, due diligence, bidding mechanics, and earnest money deposit requirements, had been issued after the deadline for submission of eligibility documents had expired, rendering compliance illusory and undermining transparency. The Tribunal held that even though Schedule I timelines for auction were not strictly applicable to private sales, the liquidator was duty-bound to ensure reasonable and realistic timelines that facilitated competition and value maximisation.
The Tribunal further held that fixation of an extraordinarily high earnest money deposit with same-day compliance requirements was restrictive and disincentivising, particularly when greater latitude was extended to the anchor bidder, and that such structuring had stifled competition and defeated the objective of maximising value for stakeholders. On the issue of prior permission, the Tribunal upheld the view that Regulation 33(2)(d) mandated obtaining approval of the Adjudicating Authority before crystallising the terms and modalities of a private sale, and that such permission could not be treated as a post facto formality or sought after presenting a fait accompli.
While dealing with allegations of collusion, the Tribunal drew a clear distinction between suspicion and a legally sustainable “reason to believe” under Regulation 33(3), holding that mere commonality of ultimate beneficial ownership, in the absence of cogent material demonstrating coordinated or anti-competitive conduct, was insufficient to establish collusion. It was noted that the liquidator had placed the allegations and responses before the SCC and that near-unanimous approval by the committee militated against a finding of collusion warranting judicial intervention.
In conclusion, the Appellate Tribunal held that the private sale process suffered from opacity, unreasonable timelines, and procedural infirmities that undermined transparency and competitive participation, thereby justifying interference, while simultaneously clarifying that allegations of collusion were not substantiated on the material placed on record.
Mr. Abhijeet Sinha, Sr. Advocate with Mr. Vaibhav Gaggar, Mr. Diwakar Maheshwari, Mr. Shounak Mitra, Mr. Saikat Sarkar, Mr. Shreyas Edupuganti, Mr. Zulfiqar Ali and Mr. Saptarshi Mandal, Advocates, represented the Appellant.
Mr. Dhruv Mehta and Mr. Krishnendu Datta Sr. Advocates with Mr. Anand Varma, Mr. Kaustubh Prakash, Ms. Prachi Bhatia and Ms. Alina Merin Mathew, Advocates, appeared for the Respondents.
Mr. Shyam Mehta, Sr. Advocate, with Mr. Udit Mendiratta, Mr. Shivkrit Rai and Ms. Apeksha Singh, Advocates, appeared for the Respondent No. 1 (SMSPL).
Shri Niranjan Reddy, Sr. Advocate, Mr. Ashim Sood, Mr. Abhishek Swaroop, Mr. Anupam Prakash, Ms. Bhawana Sharma and Ms. Kirti Talreja, Advocates, appeared for the Respondent No. 2 (Resolution Professional).
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