NCLT Guwahati Refuses To Direct PNB To Accept ₹22.50 Cr. OTS Proposal, Says Tribunal Can't Compel Bank
The National Company Law Tribunal (NCLT), Guwahati, on 10 September refused to direct Punjab National Bank (PNB) to accept a Rs. 22.50 crore One-Time Settlement (OTS) proposal made by Sandeep Kumar Bhagat in relation to three companies undergoing liquidation.
A Bench of Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh observed:
“Acceptance of an OTS is a matter of commercial consideration, having regard to the financial position, security, recoverability and applicable banking norms. This Tribunal cannot compel the Financial Creditor to accept an unaccepted settlement proposal.”
Bhagat, through his legal heirs, challenged the liquidation and e-auction process concerning Shree Sai Prakash Alloys Private Limited, Shree Sai Rolling Mills (India) Limited and Shree Sai Smelters (India) Limited. PNB had sanctioned credit facilities to the three companies, which were subsequently classified as Non-Performing Assets.
The Bank initiated the Corporate Insolvency Resolution Process, which was admitted by the NCLT. Following proceedings before the National Company Law Appellate Tribunal and the Supreme Court, it ordered liquidation of the companies on 25 January 2024 and appointed Sandeep Khaitan as Liquidator.
Meanwhile, Bhagat had proposed an OTS of Rs. 22.50 crore to the Bank. He alleged that the proposal was not considered despite being brought to the notice of the Bank and the Liquidator.
The Liquidator issued an e-auction notice on 10 May 2024 for sale of the companies' assets at an aggregate reserve price of Rs. 16.23 crore. Bhagat alleged that the auction was conducted with less than 30 days' notice and that the reserve price was substantially lower than his OTS offer.
The auction was subsequently conducted, with N.K. Marketing emerging as the successful bidder. Bhagat challenged the auction and sought, among other reliefs, setting aside of the auction and Sale Certificate and a direction to accept his OTS proposal.
The Tribunal held that the Rs. 22.50 crore OTS proposal had been made before commencement of liquidation and had never crystallised into a binding settlement. Therefore, Bhagat could not seek its enforcement as a matter of right after liquidation had commenced. It further held that the fact that the proposed OTS amount was higher than the eventual sale consideration did not, by itself, render the auction illegal. It stated:
“A person intending to acquire the assets was required to participate in the auction and submit a bid in accordance with its terms.”
On the challenge to the auction, the Bench noted that Bhagat had failed to establish that the shorter notice period denied any eligible bidder a reasonable opportunity to participate or affected the fairness or competitiveness of the process.
It also rejected the challenge to the reserve price. It held that a difference between an earlier valuation, private proposals and the eventual auction consideration did not, by itself, establish illegality or arbitrariness. It said that there was no material establishing statutory violation, improper valuation, fraud, collusion or other material irregularity. As the sale had been completed and the Sale Certificate issued, it concluded:
“In the absence of any established statutory violation, material irregularity, fraud, collusion or other compelling circumstance affecting the legality of the concluded sale, no interference with the sale is warranted merely on the basis of a subsequent higher offer or settlement proposal.”
Accordingly, the NCLT dismissed the application.
For Petitioners: Advocates Nishant Das, Aatrayi Das and Adrita Bhuyan
For Respondents: Advocate Kamal Kanti Nandi
For Liquidator: Anshika Khaitan, CA and Sandeep Khaitan