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by Admin
15 December 2025 3:42 AM
“Anchor Bidder Selection Need Not Be Disclosed; Swiss Challenge Is a Lawful and Transparent Method” — Interim Injunction Set Aside as Challenge Found Premature and Lacking Locus. In a significant ruling Calcutta High Court (Bench: Justice Sabyasachi Bhattacharyya and Justice Uday Kumar) vacated an ad interim injunction granted in a civil suit that had restrained the operation of a debt auction carried out via the Swiss Challenge method. The decision in SREI Equipment Finance Limited & Anr. v. International Financial Service Limited [F.M.A. No. 828 of 2025 with CAN 1 of 2025] reasserts the legitimacy of the Swiss Challenge auction model, upholds the regulatory sanctity of the RBI Master Directions on Transfer of Loan Exposures, and lays down firm procedural norms on locus standi in public tenders.
Observing that “a mere claim of prospective interest, unbacked by eligibility, cannot sustain a legal challenge to auction terms,” the Court allowed the appeal and set aside the injunction order passed by the trial court, which had halted the auction process initiated by SREI Equipment Finance through a notice dated 16 April 2025.
Challenging the Auction Without EoI or Eligibility Plea
The respondent–plaintiff, International Financial Service Limited, filed a suit seeking a declaration that the EoI notice issued by the appellants was void and sought injunctive relief to stop further steps in the auction of a large loan exposure. The plaintiff claimed the auction process was non-transparent, lacked due diligence time, and unfairly favoured a predetermined "Anchor Bidder."
However, as the Court noted, the plaintiff neither submitted an Expression of Interest (EoI) nor pleaded any eligibility to participate in the process. Worse, the resolution to challenge the auction was adopted on the very day the EoI was issued — a fact that severely undercut the credibility of the plaintiff’s claims.
“The challenger must at least plead eligibility and interest in participation. Without this, even a challenge to the terms of a tender cannot be entertained,” the Bench held.
On Swiss Challenge: Transparency and Lawfulness Affirmed
Dealing with the Swiss Challenge mechanism, the Court categorically reaffirmed its legal sanctity. Referring to Clause 85 of the RBI Master Direction and the Supreme Court's ruling in Ravi Development v. Shree Krishna Prathisthan, (2009) 7 SCC 462, the Court ruled:
“There is no requirement in the RBI Circular to disclose how the Anchor Bidder is chosen. The Swiss Challenge method rests on a base-bid being offered by a selected bidder and inviting counter-bids with a right of first refusal — this is by design and has been upheld in law.”
The Court rejected the argument that the lack of transparency arose from failure to disclose Anchor Bidder details, finding that the base-bid, reserve price, and markup were all declared in the EoI and accompanying Deal Summary.
“The bid process steps were clearly laid down. The method cannot be faulted as non-transparent when the RBI itself accepts it as a valid mode of debt transfer,” the Court observed.
Plaintiff’s Credibility in Doubt: Collusion with Borrower Suspected
Perhaps the most striking aspect of the judgment lies in the Court’s scrutiny of the plaintiff’s conduct, which it found suspicious and potentially collusive. The Court noted that the plaintiff had never submitted an EoI, never demonstrated eligibility, and passed a resolution to sue on the very day the EoI notice was issued.
“Such hot haste raises a doubt as to whether the challenge was a pre-planned ploy to forestall and protract the sale of the debt for the possible purpose of buying time for the borrower,” the Bench said.
The Court further found that the plaintiff’s arguments against the low reserve price — ordinarily not a concern for a bidder — aligned more with a borrower’s interest, leading to an inference of possible collusion.
“To argue that the reserve price is too low is a borrower-centric ground. For a bidder, a low reserve price is advantageous. The conduct of the plaintiff suggests it may be acting at the borrower’s behest,” the Court concluded.
On Maintainability and Injunction Principles: Trial Court’s Order Criticised
In a strong rebuke to the trial court’s reasoning, the Division Bench found that the injunction had been granted without proper application of law.
“The learned Trial Judge erred in applying the correct legal tests. The suit itself is prima facie not maintainable for lack of locus standi. The injunction order was passed in a blanket fashion, based merely on pleadings and perceived irregularities, without engaging with the core legal issues,” the Bench stated.
The Court reiterated that unless the challenger to a tender demonstrates both eligibility and intention to participate, the suit would be non-maintainable — particularly when it lacks any public interest dimension.
Due Diligence Time, RBI Compliance, and Valuation Concerns Found Unfounded
On the challenge based on inadequate due diligence time, the Court observed that nine clear days were given, with virtual data rooms opened the day after EoIs closed — a procedure compliant with Clause 59 of the RBI Circular.
On alleged failure to obtain two external valuation reports (mandatory for exposures above ₹100 crore), the Court held:
“The plaintiff had no access to information about valuations, as it never submitted an EoI. Thus, its claim is speculative and not backed by any material.”
Setting aside the injunction, the Court held that the trial court had applied incorrect legal standards and ignored crucial issues of maintainability, eligibility, and bona fides.
“The impugned order is tainted by errors of law, fact, and perversity,” the Court declared, while cautioning that its findings are tentative and shall not bind the trial court during final hearing of the interim application.
However, acknowledging that “arguable points are involved,” the Bench granted a 15-day stay on its judgment to enable the respondent to approach a higher forum.
Date of Decision: 9 June 2025
