Asset Sale Procedures.
ASSET SALE PROCEDURES
1. Meaning and Purpose of Asset Sale
Asset sale procedures govern the sale, transfer or disposal of assets of a company or entity, particularly:
During insolvency or liquidation
Under debt recovery proceedings
In corporate restructuring or enforcement of security
The primary objectives are:
Maximisation of value
Transparency and fairness
Protection of stakeholder interests
Compliance with statutory procedures
LEGAL FRAMEWORK
Insolvency and Bankruptcy Code, 2016 (IBC)
Companies Act, 2013
SARFAESI Act, 2002
Recovery of Debts and Bankruptcy Act, 1993
NCLT / NCLAT Regulations and Rules
KEY STAGES IN ASSET SALE PROCEDURES
2. Identification and Valuation of Assets
Assets must be properly identified and independently valued.
Case Law 1: Swiss Ribbons Pvt. Ltd. v. Union of India (2019)
Supreme Court emphasized value maximisation as a core objective of IBC
Transparent asset valuation is essential for fair sale
➡️ Significance: Valuation integrity is foundational to asset sale procedures.
3. Mode of Sale: Auction vs Private Sale
Sale must ordinarily be by public auction, unless justified otherwise.
Case Law 2: Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh (2020)
Court upheld commercial wisdom of creditors in accepting asset sale value
Emphasized that best possible value, not theoretical maximum, is required
➡️ Significance: Commercial discretion governs sale decisions.
4. Role of Liquidator / Resolution Professional
The liquidator or RP acts as a fiduciary for stakeholders.
Case Law 3: Y. Shivram Prasad v. S. Dhanapal (2019)
NCLAT laid down structured asset sale mechanisms
Stressed phased auctions and reserve price rationalisation
➡️ Significance: Procedural discipline is mandatory in asset sales.
5. Judicial Oversight and Procedural Fairness
Courts intervene if the process is arbitrary or tainted.
Case Law 4: Valji Khimji and Co. v. Official Liquidator of Hindustan Nitro Product (2008)
Supreme Court held that courts should interfere only in cases of fraud or material irregularity
Commercial decisions should not be lightly disturbed
➡️ Significance: Judicial restraint balances fairness and efficiency.
6. Asset Sale Free from Encumbrances
IBC allows sale of assets free from past liabilities.
Case Law 5: Committee of Creditors of Essar Steel v. Satish Kumar Gupta (2019)
Resolution plans may transfer assets free from prior claims
Creditors’ commercial wisdom prevails
➡️ Significance: Clean slate principle applies to asset sales under IBC.
7. Asset Sale and Secured Creditors’ Rights
Secured creditors may enforce or relinquish security.
Case Law 6: Anuj Jain, IRP for Jaypee Infratech Ltd. v. Axis Bank Ltd. (2020)
Clarified treatment of security interests
Ensured asset sale does not defeat statutory priorities
➡️ Significance: Asset sale must respect creditor hierarchy.
8. Asset Sale Under SARFAESI and DRT Proceedings
Statutory procedure must be strictly followed.
Case Law 7: Mathew Varghese v. M. Amritha Kumar (2014)
Sale of secured assets without strict compliance was invalidated
Notice and valuation requirements are mandatory
➡️ Significance: Procedural lapses vitiate asset sales.
CORE PRINCIPLES GOVERNING ASSET SALE PROCEDURES
| Principle | Judicial Position |
|---|---|
| Value maximisation | Central objective |
| Transparency | Mandatory |
| Commercial wisdom | Given primacy |
| Judicial interference | Limited |
| Statutory compliance | Non-negotiable |
| Clean slate | Recognised |
PRACTICAL CHALLENGES
Depressed market conditions
Valuation disputes
Litigation delays
Stakeholder conflicts
Allegations of collusion
CONCLUSION
Asset sale procedures form the backbone of insolvency and recovery regimes. Indian courts consistently ensure that:
Sales are transparent and fair
Value is maximised, not sacrificed
Commercial expertise is respected
Statutory safeguards are enforced
Thus, asset sale procedures balance efficiency, equity, and legality.
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