ERGO Business Development Impact Analysis: Limited Judicial Review by NCLT and NCLAT During Liquidation Proceedings: Supreme Court


A 3-judge bench of the Supreme Court (SC) in its judgment of August 26, 2022, in M/s RK Industries (Unit-II) LLP v. M/s HR Commercials Private Limited & Anr., Civil Appeal Nos. 7722/2021 and 7731/2021, considered the provisions of the Insolvency and Bankruptcy Code (Code) and the Insolvency and Bankruptcy Regulations 2016 Bankruptcy Board of India (Liquidation Process) (Liquidation Regulations). The SC also considered the powers of the liquidator to effect a private sale of the assets of the debtor company in the context of liquidation proceedings, as well as the scope and object of the jurisdiction of the adjudicating authority or appeal authority to interfere in the sale/tendering process in the event of liquidation. sale. The question arose in connection with the liquidation proceedings of ABG Shipyard Ltd.


  • The debtor company (ABG Shipyard Ltd) was active in the import of shipbuilding components and materials and in the export of ships built after their completion. The imported goods were stored by the debtor company in bonded warehouses in Gujarat and container freight yards in Maharashtra, and the debtor company availed itself of the capital goods export promotion scheme and obtained a license under said program with respect to said warehoused goods.
  • The National Company Law Tribunal, Ahmedabad Bench (NCLT) passed an order dated August 1, 2017 commencing company insolvency resolution (CIRP) proceedings against the debtor company under the provisions of the Code, appointed a professional of the interim resolution and imposed a moratorium in terms of section 14 of the Code.
  • The debtor company began liquidation proceedings on April 25, 2019, ending the moratorium under Article 14 of the Code, and thus marking the beginning of the moratorium under Article 33 (5) of the Code.
  • Subsequently, as part of the liquidation process, the liquidation sale of the assets of the Debtor Company was undertaken. For this purpose, two Swiss Challenge Process auctions were held, and the highest bid was submitted by the Appellant – RK Industries (Unit-II) LLP (RK Industries). Pending the Swiss Challenge proceedings, at the request of the liquidator, the NCLT authorized the liquidator to undertake a private sale of the Dahej site and the shipyard of the debtor company to Welspun Steel Resources Private Limited (Welspun), thus canceling the Swiss Challenge procedure.
  • The NCLT order was challenged by RK Industries in the National Company Law Appellate Tribunal (NCLAT) and set aside by the void NCLAT order of December 10, 2021 (i.e. the order challenged in the SC). The NCLAT, on equitable considerations, ordered the liquidator to restart the entire sale process by issuing new notices to all potential buyers, without limiting the sale to buyers who had participated in the Swiss Challenge process.
  • RK Industries challenged the NCLAT order before the SC in Civil Appeal No. 7722/2021 and Welspun also filed a separate appeal in Civil Appeal No. 7731/2021 before the SC challenging the same order.

Question to consider

  • What are the powers, role and responsibilities of the liquidator to effect a sale of the assets of the debtor company in the context of a liquidation procedure?
  • Does the NCLAT have jurisdiction under the provisions of the Code and/or the liquidation proceedings to vary the mode of sale adopted by the liquidator?

What the Supreme Court decided

  • The SC rescinded NCLAT’s instructions to restart the entire private sale process by issuing new notices to potential buyers. The SC ordered that all eligible bidders who had made a deposit would be allowed to participate in negotiations with the liquidator for the private sale, within 4 (four) weeks. Accordingly, the civil appeal filed by RK Industries was dismissed and the civil appeal filed by Welspun was partially upheld by the SC in its final decision.
  • The liquidator is vested with the responsibility of guaranteeing the assets and property of the debtor company under Article 35 (1) (b) of the Code read together with the liquidation regulations.
  • The liquidator is authorized to sell the immovable and movable property of the debtor legal entity by way of public auction or by mutual agreement, either collectively or in a fragmented manner. The Liquidator may also apply to the Adjudication Authority (NCLT) for appropriate orders or directions deemed necessary.
  • The procedure prescribed by the Code and the Liquidation Regulations is to protect and preserve the assets of the debtor legal person in liquidation, and to sell them at the best possible price.
  • The liquidator is entitled to consult the stakeholders who are entitled to the distribution of the proceeds of the sale, but the opinion of the stakeholders does not bind the liquidator in accordance with the proviso clause of Article 35 (2) of the Code.
  • There are no vested rights accruing to bidders in liquidation sale beyond the express terms of the offer documents, as the liquidator may choose to undertake a private sale of the assets of the debtor company, in order to achieve the maximization of value and a better and faster recovery for the stakeholders, in order to avoid any delays and to provide a guaranteed period for the completion of the liquidation procedure.
  • The scope of judicial review in commercial transactions is quite limited and the Court should refrain from substituting its decisions for those of the bidding agency.


The SC held that the scope of judicial review at the liquidation sale stage is limited because the NCLT and NCLAT cannot intervene in commercial transactions and purely commercial decisions made during the liquidation sale process. The SC emphasized that the NCLT and NCLAT are not courts of equity and cannot exercise plenary powers because their jurisdiction is limited.

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