Matter: R.K. Industries (Unit-II) LLP v. HR Commercials Pvt. Ltd.
Order dated: 10 December 2021
Summary:
CIRP was initiated against ABG Shipyard Limited (ABG Shipyard) under the Code. Since no resolution plan could be obtained the NCLT ordered liquidation of ABG Shipyard. The liquidator held five e-auction process which were unsuccessful. Subsequently, the liquidator, after consultation with the stakeholders’ consultation committee (SCC), decided to carry out a sale of certain assets of ABG Shipyard. The sale method was a two stage Swiss challenge process i.e., an initial anchor stage and a subsequent second stage. In the anchor stage, R.K. Industries (Unit-ii) LLP (R.K. Industries) was declared as the highest bidder, and other entities were to bid against R.K. Industries.
Around the same time, Welspun Steel Resources Pvt. Ltd. (Welspun) informed the liquidator of its interest in buying all assets of ABG Shipyard including the ones presently under the Swiss challenge bid process. The SCC decided that it would be beneficial if all assets were sold under a consolidated sale to Welspun and accordingly, the liquidator informed the NCLT which allowed cancellation of the second stage of Swiss challenge process and permitted the consideration of the offer of Welspun, while also allowing the bidders of the Swiss challenge process to bid in this consolidated sale which was to be completed within three weeks. R.K. Industries challenged this order of the NCLT before the NCLAT.
NCLAT noted that the reason the liquidator preferred the consolidated sale and cancelled the second stage of Swiss challenge process was:
(a) it would have completed asset sale within 9 to 12 months, which would otherwise take 15 to 18 months; and
(b) It would have permitted completion of the liquidation process in a timely manner.
NCLAT noted that NCLT’s order cancelling the second stage of Swiss challenge process does not grant any particular party any favour, as it was driven by the SCC’s wish to get the liquidation process concluded early. However, the NCLAT found that the NCLT’s order allowing only three weeks’ time to complete the sale of assets and also limiting participation of bidders who had earlier bid for the Swiss challenge to not be in line of the objective of the Code i.e., value maximisation of the corporate debtor. Thus, the NCLAT ordered the process to be restarted after giving open notice to all prospective buyers.
For further information, please contact:
Souvik Ganguly, Partner, Acuity Law
al@acuitylaw.co.in
