Liquidator Must Not Restrict Sale Of Corporate Debtor's Assets Through Private Sale To Single Buyer: NCLT Mumbai
Pranav B Prem
The National Company Law Tribunal (NCLT) Mumbai Bench, comprising Shri Anil Raj Chellan (Judicial Member) and Shri K. R. Saji Kumar (Technical Member), recently ruled that a liquidator must not restrict the sale of a corporate debtor's assets to a single buyer through a private sale. Instead, the liquidator must strategize to attract multiple buyers to ensure the highest possible realization from the asset sale. The ruling came while disallowing a liquidator's application seeking approval for a private sale in favor of a single buyer.
Background of the Case
The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (CIRP) by an order dated 23.11.2017. However, due to the failure to approve any Resolution Plan by the Committee of Creditors (CoC), the Adjudicating Authority ordered the liquidation of the Corporate Debtor on 07.10.2020, appointing the applicant as the liquidator.
Subsequently, in consultation with the Stakeholders' Consultation Committee (SCC), the liquidator classified the asset as a Not Readily Realisable Asset (NRRA) under Regulation 37A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The asset was put up for a public auction on 20.07.2024, but no bids were received.
After declaring the asset as an NRRA, two public announcements were made. In the second public announcement dated 05.09.2024, an offer of Rs. 27,35,000/- was received from Bhubnesh Commercial Private Limited. This offer was subsequently increased to Rs. 35,00,000/- by its associate company, Amrex Marketing Private Limited, which also deposited an Earnest Money Deposit (EMD) of Rs. 3,00,000/-. The offer was discussed in the SCC meeting held on 10.10.2024 and was put to vote from 17.10.2024 to 27.11.2024. The voting results were as follows:
63.70% in favor
30.78% against
5.92% abstained
Based on this, the liquidator filed an application before the NCLT seeking approval for the private sale in favor of Amrex Marketing Private Limited.
Contentions of the Liquidator
The liquidator submitted that despite multiple efforts, the asset had not been sold. Given the lack of market interest in the public auction, the private sale was proposed as an alternative mechanism to achieve asset realization. The liquidator argued that the sale adhered to Regulation 31A(10) of the Liquidation Process Regulations, which allows private sales under specific circumstances, including the failure of public auctions and the asset’s classification as an NRRA.
Observations by NCLT
The Tribunal noted that the most recent failed auction had a reserve price of Rs. 71,76,839/-, whereas the present offer stood significantly lower at Rs. 35,00,000/-. Furthermore, the proposal for a private sale lacked the required majority approval under Regulation 32A(9) of the Liquidation Process Regulations. The Tribunal observed that the Liquidation Regulations impose several checks and balances on private sales. Schedule I of the regulations requires that the liquidator:
Strategize to attract buyers
Liaise with potential purchasers
Complete the sale in accordance with the prescribed terms
Relying on the precedent set by the National Company Law Appellate Tribunal (NCLAT) in State Bank of India v. Bhuvee Stenovate Private Limited & Ors.[Comp. App. (AT) (Ins) No. 1013/2022], the Tribunal reiterated that a liquidator must not limit a private sale to a single buyer but should instead formulate a strategy to attract multiple buyers to maximize asset realization. In the present case, the Tribunal found no evidence indicating that the liquidator had developed a strategy to attract more buyers. Additionally, the liquidation value of the asset had not been determined to justify the Rs. 35,00,000/- offer.
Directions Issued by NCLT
In view of the above findings, the Tribunal dismissed the application for private sale and directed the liquidator, under Section 35 of the Insolvency and Bankruptcy Code, 2016, to:
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The Liquidator shall issue a fresh notice of sale in two widely circulated newspapers and invite bids above the bid submitted by Amrex Marketing Private Ltd by adopting Swiss Challenge method, treating the bid offered by Amrex Marketing Private Ltd as the anchor bid.
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The interested bidders will have to submit 10% of the bid amount as EMD along with the bid.
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In the event of receipt of a higher bid than the anchor bid, Amrex Markeing Private Limited shall have the option to match that bid.
Appearance
For the Applicant: Adv. Aniruth Purusothaman
Cause Title: Avil Menezes Liquidator of Parekh Aluminex Limited [ In the matter of Kotak Mahindra Bank V. Parekh Aluminex Limited ]
Case No: IA No.492 of 2025 In CP (IB)/1262/MB/C-II/2017
Coram: Shri Anil Raj Chellan [Memeber (Technical)], Shri K.R. Sajikumar [Member (Judicial)]
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