Private Sale in Liquidation to Strictly Adhere to Mandatory Requirements of Regulation 33 of the Liquidation Regulations: NCLAT Sets Aside Private Sale to a Related Party

The Hon’ble NCLAT, Principal Bench, New Delhi, vide its judgment dated May 30, 2025, in the matter of Bhavik Bhimjyani vs. Uday Vinodchandra Shah, addressed significant issues relating to private sale during liquidation under the Insolvency and Bankruptcy Code, 2016 and the Liquidation Regulations. The appeal challenged the National Company Law Tribunal, Mumbai Bench-Is decision of approving a private sale at undervalued rates to a related party of the Corporate Debtor. The Appellant a shareholder and ex-director of the Corporate Debtor, challenged this private sale alleging undervaluation and procedural irregularities including non-compliance with Regulation 33 of the Liquidation Regulations.

In the case at hand, the assets in question were approximately 80.6 acres of prime non-agricultural land in Alibaug, with 30 acres directly held by NTCPL and 50.6 acres held by its 100% subsidiary, Urban Rupi Infrastructure Pvt Ltd (URIPL). After failed auctions in 2019 and 2021, the liquidator accepted an offer from Leisure Enterprises LLP, a related party due to shared promoter group connections with Urban Infrastructure Trustees Ltd (UITL), a financial creditor and 40% shareholder of NTCPL, both linked to Mr. Anand Jain.

The Hon’ble NCLAT held as follows:

• Non-Conformity with Regulation 12: The NCLAT found that the liquidator had breached Regulation 12 by publishing auction notices in only two newspapers with limited circulation..
• Mandatory Prior Permission for Private Sale under Regulation 33: It was established that prior permission from NCLT is mandatory for a private sale, especially when the sale is to a related party. The NCLAT noted that the Liquidator had approached the NCLT after agreeing to an undervalued price and accepting a deposit from the related party, issuing a confirmation letter of sale before NCLT approval thereby presenting a fait accompli rather than seeking prior permission as required by Regulation 33.
• Gross Undervaluation and Failure to Maximize Value: The NCLAT observed that the sale price of Rs 58.51 crores was grossly undervalued when compared to other valuations on record, including a government valuation of Rs 70.31 crores and a previous resolution plan that had valued the property at INR 103 crores. The NCLAT concluded that the Liquidator failed to uphold the statutory obligation under Section 35(1)(f) of the IBC to maximize recovery of the corporate debtor’s assets. The NCLAT also emphasized that Schedule I of the Liquidation Regulations requires liquidators to prepare a strategy to approach interested buyers for private sales to maximize realizations, which was not adequately done in this case.
• Inapplicability of Public Auction Precedents: The NCLAT clarified that judgments related to the finality of bids in public auctions are not applicable to private sales under liquidation, where strict adherence to procedural regulations, particularly Regulation 33, is paramount for transparency and value maximisation. Consequently, the NCLAT set aside the NCLT’s order dated December 5, 2023, approving the private sale.

Consequently, the Ld. NCLAT set aside the Ld. NCLT’s decision approving the private sale and directed the appointment of a new liquidator within fifteen (15) days to conduct the liquidation process afresh.

In our opinion, this judgment reinforces the principle that liquidators must strictly adhere to statutory procedures when conducting private sales, especially to related parties of the Corporate Debtor. It serves as a reminder that the primary duty of liquidators is to maximize asset value through transparent processes that protect stakeholders’ interests.