In the case of Power Mech Projects Limited. v. Essar Power (Jharkhand) Limited, Company Appeal (AT) (Insolvency) No.106 of 2025 the National Company Law Appellate Tribunal, New Delhi (“NCLAT”) held that the Swiss Challenge Mechanism for the sale of assets by a Liquidator is a well-recognized mode and does not violate principles of natural justice or transparency.

Facts

1. The liquidation process against Essar Power (Jharkhand) Limited (“Corporate Debtor”/“CD”) commenced vide order dated January 3, 2020.

2. Despite multiple e-auctions conducted by the Liquidator, only two residential units were sold by the 18th (eighteen) auction, leaving most assets unsold.

3. Power Mech Projects Limited (“Appellant”) sought information on the CD’s assets from the Liquidator on August 26, 2024, which was duly provided.

4. The Stakeholders’ Consultation Committee (“SCC”) decided to sell the assets in two parts:

a. Assets located at Kolkata Port Trust.

b. Assets located at Tori and Century JJP, Kolkata.

5. Orissa Alloy Steel Private Limited (“OASPL”) offered Rs. 67 crores (Rupees sixty-seven crore) to acquire CD as a going concern via private sale, excluding the assets at Kolkata Port Trust. The SCC considered the offer and decided that if the Liquidator opted for an auction or Swiss Challenge Mechanism, OASPL would be granted a Right of First Refusal (“RoFR”).

6. On October 10, 2024, OASPL was invited to an SCC meeting and was requested to match or exceed the last reserve price of Rs. 72.50 crores (Rupees seventy-two crore fifty lakh). OASPL revised its offer to Rs. 73 crores (Rupees seventy-three crore) and agreed to provide 30% (thirty percent) of the consideration as an Earnest Money Deposit. The SCC approved the offer and conducted a Swiss Challenge process for value maximization.

7. By order dated December 11, 2024 (“Impugned Order”), the National Company Law Tribunal, New Delhi allowed the Liquidator to proceed with the Swiss Challenge Mechanism with RoFR granted to OASPL.

Submissions before NCLAT

Appellant’s Arguments

The Appellant contended that:

1. The Swiss Challenge Mechanism was unnecessary and violated principles of natural justice and transparency.

2. OASPL should not have been granted the Right of First Refusal.

3. The Liquidator exceeded its jurisdiction by determining the mode and manner of sale, which must strictly adhere to the Insolvency and Bankruptcy Code, 2016, and its Regulations.

Respondent’s Arguments

The Liquidator and OASPL countered that:

1. Despite 21 (twenty-one) e-auctions, only two residential units had been sold, necessitating a different approach.

2. The SCC directed negotiations with OASPL, which revised its offer to Rs. 73 crores (Rupees seventy-three crore), above the last reserve price.

3. The Swiss Challenge Mechanism allowed all interested parties to participate, ensuring transparency and value maximization.

4. The RoFR condition was part of OASPL’s offer and was a commercially reasonable mechanism.

Findings of the Tribunal

The NCLAT upheld the NCLT’s decision and made the following observations:

1. The Swiss Challenge Mechanism is a valid and transparent mode of sale

a. Regulation 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“2016 Regulations”), governs the sale of assets, referencing Schedule I, which permits private sales, including “any other means that is likely to maximize realizations from the sale of assets.”

b. The SCC recorded that OASPL was the only interested party, with no competing bidders.

c. The Tribunal relied on R.K. Industries (Unit-II) LLP v. H.R. Commercials Private Limited (2024) 4 SCC 166, where the Supreme Court upheld the Swiss Challenge Mechanism as a recognized method for asset disposal, affirming its transparency.

2. Granting RoFR to OASPL was justified

a. Despite 21 failed e-auctions, no other bidder expressed interest, making OASPL’s offer critical for liquidation.

b. OASPL’s revised offer included the condition that RoFR be granted if a Swiss Challenge was conducted.

c. In R.K. Industries (supra), the Supreme Court upheld the RoFR mechanism for anchor bidders initiating asset purchase proposals.

3. The Liquidator acted within its powers

a. The Liquidator sought approval under Regulation 35(h) of the 2016 Regulations, which was granted by the Adjudicating Authority.

b. The Appellant’s reliance on a 2021 Insolvency and Bankruptcy Board of India Discussion Paper criticizing the Swiss Challenge Mechanism was misplaced, as discussion papers do not override statutory provisions.

Conclusion

The NCLAT dismissed the appeal, holding that:

1. The Swiss Challenge Mechanism is a well-recognized and valid mode of asset sale under the Insolvency and Bankruptcy Code, 2016.

2. The Right of First Refusal granted to OASPL was reasonable, considering the lack of competing bidders.

3. The Liquidator’s authority in conducting asset sales was properly exercised and approved by the Adjudicating Authority.

Please find attached a copy of the order.

This update has been contributed by Udit Mendiratta (Partner) and Apeksha Singh (Associate).

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