Sale of Corporate Debtor's Assets: NCLT Bengaluru Sets 25% Threshold for Reserve Price Reduction

Sale of Corporate Debtor's Assets: NCLT Bengaluru Sets 25% Threshold for Reserve Price Reduction

Introduction

The National Company Law Tribunal (NCLT), Bengaluru Bench has held that the sale of a corporate debtor's assets cannot be allowed at a reserve price reduced beyond the 25% threshold of 25%, as it would violate Schedule I of the Liquidation Regulations.

Factual Background

The Liquidator of the Corporate Debtor filed an application under Section 60(5) of the Insolvency and Bankruptcy Code (IBC) seeking to sell the assets of the corporate debtor at a reserve price reduced beyond the 25% threshold limit. The applicant argued that the raw material is deteriorating and perishing with each passing day, and immediate sale of the assets is imperative to prevent further deterioration.

Procedural Background

The Liquidator recommended reducing the reserve price beyond the 25% threshold limit as per the Stakeholders Consultation Committee's decision. The applicant prayed for approval to conduct a physical auction of the movable assets as per Schedule I of the Liquidation Regulations.

Contentions of the Parties

Applicant's Contentions: The Liquidator submitted that reducing the reserve price beyond 25% would be in the interest of value maximization of the assets of the Corporate Debtor.

No Counter Contentions: There are no reported counter contentions from other parties in this case.

Court's Analysis

The bench of Shri Umesh Kumar Shukla (Technical Member) and Shri Kishore Vemulapalli (Judicial Member) carefully examined the Liquidation Regulations and held that reducing the reserve price beyond 25% would violate Schedule I of the Liquidation Regulations. The Tribunal observed that the Adjudicating Authority cannot use its powers under Section 60(5) of the IBC to allow such a reduction, as it would amount to creating a procedural or substantive remedy that was not contemplated by the Statute.

The NCLT emphasized that the Liquidation Regulations are designed to ensure transparency and fairness in the sale of assets. Allowing a reduction beyond 25% would undermine these objectives and create uncertainty in the insolvency resolution process.

Issues

1. Reserve Price Reduction: The NCLT held that the sale of the corporate debtor's assets cannot be allowed at a reserve price reduced beyond the 25% threshold limit.

2. Liquidation Regulations: The Tribunal emphasized that Schedule I of the Liquidation Regulations permits the Liquidator to reduce the Reserve Price by up to 25% after the auction fails for the 1st time and subsequently reduce by 10% for further auctions.

Outcome

The NCLT disposed of the application, permitting the applicant to sell assets physically under Schedule I of the Liquidation Regulations and other applicable provisions, but rejecting the prayer to reduce the reserve price beyond the 25% threshold limit.

In this case the applicant was represented by Mr. Manav Gecil Thomas, Advocate. Meanwhile the respondent was represented by Mr. Amir Bavani, Advocate.