Kotak Mahindra Bank Vs Parekh Aluminex Limited (NCLT Mumbai)
The Mumbai bench of the National Company Law Tribunal (NCLT) has rejected an application by the Liquidator of Parekh Aluminex Limited seeking approval for a private sale of the corporate debtor’s 5.54% equity stake in Trishakti Power Private Limited for Rs. 35 lakh. Citing the need to maximise the realisation from the asset and noting deficiencies in the proposed process, the NCLT directed the Liquidator to conduct a fresh sale process using the Swiss Challenge method, with the current offer as the anchor bid.
Parekh Aluminex Limited, which had been undergoing the Corporate Insolvency Resolution Process (CIRP) since November 2017, was ordered into liquidation in October 2020 after the Committee of Creditors failed to approve a resolution plan. The applicant was appointed as the Liquidator.
During the pendency of an application for the dissolution of the company, the Serious Fraud Investigation Office (SFIO) informed the Liquidator about the corporate debtor’s shareholding in Trishakti Power Private Limited, an asset that was previously not accounted for. Following this discovery, the Liquidator successfully applied to withdraw the dissolution plea and obtained an extension of 180 days to complete the liquidation process by including this newly found asset.
The Liquidator made several attempts to sell the 5.54% equity stake. Three public auctions were conducted, starting with a reserve price of Rs. 93,81,489/-, then reduced to Rs. 79,74,266/-, and finally to Rs. 71,76,839/-. However, all three auctions failed to attract any bidders or receive earnest money deposits (EMD).
After the unsuccessful auctions, the Liquidator, in consultation with the Stakeholders’ Consultation Committee (SCC), decided to classify the equity stake as a ‘Not Readily Realisable Asset’ (NRRA) under Regulation 37A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (Liquidation Process Regulations). Two further attempts were made to sell the asset as an NRRA through public announcements.
In response to the second public announcement made on September 5, 2024, an offer of Rs. 27,35,000/- was received from Bhubnesh Commercial Private Limited on September 25, 2024. Subsequently, Amrex Marketing Private Limited, an associate company of Bhubnesh Commercial, revised the offer upwards to Rs. 35,00,000/-. Amrex Marketing also deposited an EMD of Rs. 3,00,000/- and indicated that the balance payment would be made within 10 days of obtaining NCLT approval for the sale.
The Rs. 35 lakh offer was discussed in an SCC meeting held on October 10, 2024. A voting process conducted between October 17, 2024, and November 27, 2024, showed 63.70% of the stakeholders voting in favour of the proposal, while 30.78% voted against, and 5.92% abstained. Despite the majority in favour, the Liquidator filed the application seeking Adjudicating Authority approval for the private sale to Amrex Marketing, citing the repeated failure of auctions and the asset’s NRRA classification as justification for opting for a private sale mechanism.
The NCLT, after reviewing the application and submissions, examined the provisions governing private sales under the Liquidation Process Regulations. Regulation 33(2) permits a private sale only after prior consultation with the SCC and, notably, requires the prior permission of the Adjudicating Authority in certain circumstances. Schedule I of the regulations outlines the manner of conducting a private sale, emphasising the need for the liquidator to prepare a strategy to approach interested buyers and conduct the sale in a manner likely to maximise the realisations from the assets.
The NCLT observed that the offer price of Rs. 35 lakhs was significantly lower than the reserve price of Rs. 71,76,839/- fixed for the last failed public auction. The tribunal also noted that the SCC vote, while showing a majority in favour, was interpreted by the NCLT as not having received the “requisite majority votes” for the “Resolution” to stand approved for recommendation to the Adjudicating Authority, referencing Regulation 31A(9) of the regulations.
Crucially, the NCLT referred to the principle laid down by the National Company Law Appellate Tribunal (NCLAT) in the case of State Bank of India Vs. Bhuvee Stenovate Private Limited and Ors. The NCLAT had observed that for conducting a private sale, the liquidator is not merely to identify one buyer and sell the assets but must prepare a strategy to approach interested buyers with the objective of attracting more participants and maximising realisation.
The NCLT found that in the present application, there was no evidence on record to demonstrate that the Liquidator had prepared a strategy to approach interested buyers to maximise the realisations from the asset, as required by Schedule I and the NCLAT precedent. Furthermore, the tribunal noted the absence of any evidence indicating that the liquidation value of the equity stake had been ascertained to justify the proposed sale price of Rs. 35 lakhs, particularly given the substantial difference from the prior reserve price.
Based on these findings, the NCLT concluded that the proposed private sale at Rs. 35 lakhs was not in alignment with the objective of maximising the value of the asset as mandated by the IBC and the liquidation regulations.
Accordingly, the NCLT dismissed the Liquidator’s application seeking approval for the private sale. However, to facilitate the realisation of the asset, the tribunal issued specific directions to the Liquidator under Section 35 of the IBC. The Liquidator was directed to issue a fresh notice of sale in two widely circulated newspapers and invite bids above the Rs. 35 lakh offer submitted by Amrex Marketing Private Limited. The court mandated the adoption of the Swiss Challenge method for this fresh sale process, with Amrex Marketing’s offer of Rs. 35 lakhs serving as the anchor bid. Interested bidders are required to submit 10% of their bid amount as EMD. The NCLT stipulated that in the event of receiving a higher bid than the anchor bid, Amrex Marketing Private Limited shall have the option to match that higher bid. The court also considered giving an opportunity to another interested party who had shown interest via a separate application.
The NCLT’s order underscores the importance of adhering to the prescribed procedures for private sales under the liquidation regulations and the paramount objective of maximising asset realisation, even in cases involving assets classified as not readily realisable.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
