NCLAT Appeal Not A Bar On Swiss Challenge Auction By Bank: Madras High Court

The Madras High Court on 22 June held that the pendency of an appeal before the NCLAT does not, by itself, bar a bank from proceeding with the transfer of loan exposure or auction of secured assets through the Swiss Challenge Method, reiterating that courts will not ordinarily interfere in commercial banking decisions unless they are shown to be arbitrary or illegal.

A Division Bench comprising Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan dismissed a plea challenging Punjab National Bank's decision to proceed with the proposed transfer of Aban Offshore Limited's loan exposure. The judges observed:

“The materials on record clearly indicate that the OTS proposal had already been rejected by the respondent bank and that such rejection has been taken note of by the NCLAT and now the appeal is to be decided on its own merits with regard to the order admitting the CIRP. The appeal is not a bar from proceeding with the impugned transfer and such proceedings cannot, in any way, affect or enjoin the respondent bank from proceeding with the impugned auction.”

Reji Abraham, former Managing Director of Aban Offshore, had approached the High Court challenging a public notice issued by Punjab National Bank proposing to transfer the company's loan exposure under the Swiss Challenge Method.

Aban Offshore, an offshore drilling company, was undergoing insolvency proceedings initiated by PNB under the Insolvency and Bankruptcy Code. The company had challenged the admission of the Corporate Insolvency Resolution Process (CIRP) before the National Company Law Appellate Tribunal (NCLAT), which stayed the insolvency proceedings.

Abraham argued that despite the pending appeal and a settlement proposal, the bank proceeded with the auction in violation of the Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025. He further contended that the company should be permitted to match the highest bid.

Opposing the plea, PNB submitted that Aban Offshore owed more than Rs. 1,000 crore, the one-time settlement proposal had already been rejected, and the sale process was being conducted in accordance with the bank's policy.

The High Court noted that the NCLAT had already recorded that there was no possibility of settlement between the parties and rejected the petitioner's argument on matching the highest bid, observing that Section 29A of the Insolvency and Bankruptcy Code disqualifies erstwhile management from participating in the resolution process.

On the challenge to the Swiss Challenge Method, the Bench reiterated that the mechanism has been upheld in prior decisions and does not violate Article 14 of the Constitution. It further recorded that the auction process had already concluded by the time the matter came up for hearing, rendering the writ petition infructuous.

Accordingly, the High Court dismissed the petition.

For Petitioner: Senior Advocate R. Sankaranarayanan and Hema Srinivasan

For Respondent: Advocates M.L Ganesh and S. Arun Kumar