Imagine you’re a bidder eyeing a distressed-company asset under the IBC process, ready to put up a serious offer. Then you discover the sale was done privately by the liquidator without prior approval of the National Company Law Tribunal (NCLT). It feels like someone changed the rules midway. That scenario was precisely the issue in the recent judgment emphasising that a liquidator cannot conduct private sale without prior NCLT approval in terms of Reg 33(2)(d) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Live Law+1
For professionals, creditors, bidders and insolvency practitioners in India, this decision is a game-changer. It reinforces that procedure isn’t just formal—it drives fairness, maximisation of value and trust in the IBC ecosystem. In this article, we’ll unpack what the rule means, explore the case, highlight its implications and walk you through what you should do next. Think of it as your friendly mentor breaking down a big legal shift in simple language.
What the New Ruling Says
The Facts at a Glance
In the case of Orissa Alloy Steel Pvt. Ltd. vs. S.M. Steels & Power Ltd. & Ors., the liquidator attempted a private sale of a corporate debtor’s assets under the IBC regime after nine failed public auctions. Live Law+1 The process involved a Swiss-Challenge model where the interested bidder was taken as “anchor bidder.” But another bidder raised objections: the timeframes were compressed, EMD (earnest money deposit) was disproportionately high, and most importantly, the liquidator had not obtained the prior permission of the NCLT before initiating the private sale. Taxscan
The National Company Law Appellate Tribunal (NCLAT) held that Regulation 33(2)(d) of the Liquidation Process Regulations is unambiguous — the liquidator must obtain prior approval from the adjudicating authority (NCLT) before commencing a private sale. “It is not open to the Liquidator to conduct or conclude the process and then seek ex post facto approval,” the Tribunal stated. Live Law+1
The Legal Basis
Key regulatory foundation:
- Regulation 33(2)(d) of the IBBI (Liquidation Process) Regulations, 2016: permits a liquidator to sell assets by private sale only after obtaining prior permission of the adjudicating authority. IBC Law+1
- The judgment stresses that the word “prior” is meaningful — the liquidator cannot retrospectively rummage for approval. Taxscan
- The process must align with the objective of the IBC: maximising value, maintaining transparency and giving fair opportunity to bidders. Compressing timelines or setting skewed conditions fails these goals. Live Law
Summary
The ruling sets a clear rule: before a private sale in liquidation, the liquidator must get NCLT approval — skipping this step puts the transaction at risk and undermines the IBC’s value maximisation goal.
Why This Matter for the IBC Ecosystem
Ensuring Fair Play for Bidders and Creditors
When a liquidator bypasses tribunal approval and conducts a private sale, it can:
- Limit bidder participation (e.g., by issuing eligibility criteria at the last minute). Taxscan+1
- Allow opaque structuring favouring one bidder (for example, using anchor-bidder models without full disclosure).
- Undermine the objective of maximising recovery for creditors and stakeholders. The NCLAT observed that “compressed sale timeline curtailed bidder participation … impeded procuring the highest possible price.” Live Law
For resolution professionals (RPs), this means that process design must be robust and tribunal clearance must be sought before moving to private sale. Skirting procedure can lead to reversal and reputational risk.
Strengthening Value-Maximisation Mandate
The IBC isn’t just about winding up companies. It sets out to realise the highest value for stakeholders — like a company in distress being sold and creditors paid. If private sales are executed without oversight, that mandate is compromised. The ruling reinforces that regardless of prior failed auctions, you cannot short-circuit oversight.
Procedure Protects Trust in the Market
Imagine being an investor in a resolution process. If you find out that the asset was sold privately without tribunal sanction, your trust suffers. This ruling emphasises that oversight is not bureaucratic filler—it builds confidence in the insolvency market, which is vital for investment, creditor participation and the overall health of the IBC ecosystem.
Summary
This judgment underscores that procedural discipline — tribunal approval, open timelines, fair terms — is the backbone of the IBC framework, ensuring fairness, value and market confidence.
What Practical Changes Are Needed – For RPs, Liquidators & Creditors
For Resolution Professionals / Liquidators
- Develop a checklist: Before initiating private sale, file an IA (interim application) seeking NCLT permission and obtain the order.
- Maintain documentation: timeline issuance, eligibility criteria, EMD details, auction/reserve price records. The case found fault with a 6-day window instead of the 14-day norm. Live Law+1
- Keep to Schedule I of the Regulations: especially for public auction. If converting to private sale, ensure justification and show that conditions of Regulation 33(4) are met.
- Map stakeholders: show consultation with the Stakeholders’ Consultation Committee (SCC) but note SCC’s view cannot override regulatory safeguard. The Tribunal said: “commercial wisdom of the SCC though respected but cannot override the statutory safeguards under the IBC and Regulations.” Live Law
For Creditors & Potential Bidders
- Be vigilant: ask whether prior NCLT approval has been obtained for a proposed private sale.
- Participate actively: if a bidder believes conditions are skewed (e.g., excessive EMD, compressed timeline), raise objections early — as in the case where SM Steels pressed objection. Taxscan
- Monitor documentation: process documents, auctions timeline, transparency of bidder inclusion.
- Use this ruling as leverage: if you suspect a private sale is being done without approval, you might get grounds to challenge it, protecting your interest.
For the Adjudicating Authority (NCLT)
- Check that liquidator’s application for permission is complete: details of proposed private sale, justification why public auction failed or isn’t viable, fairness of terms.
- Ensure timelines, notice periods and EMD levels are reasonable and documented.
Summary
In short: this ruling shifts the emphasis from “can we do private sale?” to “have we done it with full prior approval, transparency and fair process?” All stakeholders need to align with that sequence.
Common Mistakes to Avoid – Lessons from the Case
Mistake 1: Treating private sale as just “alternative” without oversight
In the case, the liquidator proceeded with the sale and then sought approval — a classic error. The phrase “prior permission” is not decorative. Taxscan
Mistake 2: Setting unfair conditions that block bidder participation
Examples: very high EMD (₹150 crore in this case) far above 10% cap; compressed timeline giving prospective bidders less than a week for eligibility, inspection, and submission. Taxscan
Mistake 3: Ignoring procedural standardisation in favour of “commercial wisdom”
Yes, SCC’s input is relevant. But commercial wisdom cannot override statutory safeguards and transparent participation. The Tribunal emphasised that the metrics of fairness, transparency, and value maximisation cannot be sidelined by pure business logic. Live Law
Mistake 4: Assuming that private sale can be done as a fait accompli
When you treat the tribunal as a rubber-stamp rather than a prior checkpoint, the sale risks getting set aside, delays ensue, asset value falls.Summary
Avoid shortcuts. A private sale in IBC is not a “fast lane” if you skip key steps — prior NCLT approval, fair timelines, transparent participation and reasonable criteria.
Why This Ruling Matters for India’s Insolvency Landscape
Encouraging Better Asset Realisation
India has often faced criticism that liquidation sales fetch poor value. By enforcing stricter oversight on private sales, this judgment encourages asset realisation at closer to true value — because more bidders and better process = stronger results.
Aligning with Global Best Practice
In mature insolvency jurisdictions (US-Chapter 11, UK restructuring, Singapore), asset sales are transparent, overseen by court/tribunal, guarantee fair bidding and disclosure. This ruling brings the Indian IBC closer to global norms.
Boosting Investor Confidence
When investors know that assets won’t be siphoned off via private deals but will undergo tribunal-supervised sale with fair competition, they’re more willing to participate in resolution processes. That strengthens the ecosystem for corporate turnaround and creditor value.
Reinforcing Rule-Based Governance
This decision signals: it’s not just about results but how you arrive at them. For the broader economic ecosystem — for creditors, startups, lenders, vendors — a rule-based process enhances legitimacy.
Summary
This is more than a one-case decision. It’s an inflection point in ensuring that India’s insolvency-resolution architecture leans into transparency, fairness and value maximisation.
What to Do Going Forward – Strategic Action Points
For Liquidators & RPs: Process Reengineering
- Build a “private sale roadmap” checklist:
- Step 1: Attempt public auction / explain failure.
- Step 2: Draft private sale plan, detail terms, timeline, eligibility.
- Step 3: File IA for NCLT approval before issuing process documents.
- Step 4: Once NCLT order obtained, publish private sale notice, allow adequate timeline.
- Step 5: Maintain complete record of participation, bids, communications.
- Engage legal counsel early to ensure compliance with Reg 33 and that liquidation plan aligns with statutory safeguards.
- Educate your stakeholders (creditors, SCC) about private-sale risks and tribunal sanction requirements.
For Creditors & Bidders: Due Diligence Elevation
- When you see a private sale notice, ask: “Has NCLT approved this?” If not, raise query or flag it.
- Analyse terms: ensure the notice allows sufficient time for eligibility, inspection, submission of EMD.
- Consider past failed auctions: If asset has been on auction multiple times without bidders, a private sale may be justified—but ensure the justification is documented.
- For bidders: insist on full transparency from liquidator. Make participation conditional on compliance with this ruling.
For Legal/Corporate Professionals: Stay Updated
- Monitor future NCLT/NCLAT orders on private sale and liquidation process — this space will evolve.
- Incorporate clause in contracts/engagements pointing to this statutory requirement of prior approval.
- Train teams (legal, advisory, restructuring) about this rule and build internal SOPs accordingly.
Summary
Concretely: build process, ask tough questions, document everything. The rule is now firm — execution must follow.
Conclusion
The new ruling that a liquidator cannot conduct private sale without prior NCLT approval is more than a technical tweak. It’s a shift in India’s insolvency process: from ad-hoc deals to structured, transparent, tribunal-sanctioned sales. For everyone from liquidators and RPs, to bidders and creditors, it sets a clear red line: skip the prior approval and the deal may get undone.
If you’re engaged in asset resolution, bidding, restructuring or corporate insolvency in India, it’s time to adjust your mindset: procedure matters as much as price. Because at the end of the day, maximisation of value, fairness in sale and trust in process aren’t just ideals—they’re prerequisites.
Here’s a question to leave you with: In your next liquidation sale or restructuring scenario, what step will you take to ensure compliance with this rule — and thereby safeguard value, fairness and certainty?
Share your thoughts or experiences below — I’d love to hear how you’re implementing this into your work or advising clients.