Madras High Court Refuses to Stop PNB’s Swiss Challenge Auction of Aban Offshore Debt; Holds Pending NCLAT Appeal and Rejected OTS Do Not Bar Loan Transfer
The Madras High Court has dismissed a writ petition filed by the former Managing Director of Aban Offshore Limited challenging Punjab National Bank’s decision to transfer the company’s loan exposure through the Swiss Challenge Method.
A Division Bench comprising Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan held that the pendency of an appeal before the National Company Law Appellate Tribunal did not prevent the bank from proceeding with the auction, particularly after the One Time Settlement proposal had already been rejected and the NCLAT had taken note of that rejection.
The Court also held that the erstwhile management could not insist upon matching the highest bid in view of the disqualification contained in Section 29A of the Insolvency and Bankruptcy Code, 2016.
Facts
Reji Abraham, the promoter and former Managing Director of Aban Offshore Limited, filed a writ petition challenging a public notice dated 6 June 2026 issued by Punjab National Bank for transfer of the company’s loan exposure through the Swiss Challenge Method.
Aban Offshore Limited is a listed public company engaged in offshore drilling operations in India and abroad.
The company had availed various credit facilities from Punjab National Bank. After defaults in repayment, its loan account was classified as a non-performing asset on 2 May 2017.
The bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. A demand notice under Section 13(2) was issued on 7 May 2018, followed by a possession notice under Section 13(4) on 8 July 2021.
Several attempts to sell the secured assets failed. As of 15 August 2024, the outstanding amount was stated to be approximately ₹1,062.86 crore.
Punjab National Bank thereafter filed an application under Section 7 of the Insolvency and Bankruptcy Code before the National Company Law Tribunal, Chennai.
On 1 September 2025, the NCLT admitted the insolvency petition, commenced the Corporate Insolvency Resolution Process and appointed an Interim Resolution Professional.
The company challenged the admission order before the NCLAT. During the appeal, the company submitted a One Time Settlement proposal. The NCLAT stayed the insolvency proceedings and directed the bank to take a decision on the OTS proposal.
The bank rejected the proposal. By an order dated 27 March 2026, the NCLAT recorded that there was no possibility of settlement and that the dispute regarding acceptance or rejection of the OTS no longer survived.
The appeal against commencement of CIRP remained pending on merits.
While the appeal was pending, Punjab National Bank issued the impugned public notice proposing transfer of its loan exposure through a Swiss Challenge auction.
The former Managing Director approached the Madras High Court seeking quashing of the auction notice.
Issues
The principal issues before the Court were:
- Whether Punjab National Bank could proceed with transfer of the loan exposure while the appeal against initiation of CIRP was pending before the NCLAT.
- Whether the pending OTS-related proceedings before the NCLAT prevented the bank from conducting the Swiss Challenge auction.
- Whether the bank had failed to comply with the RBI directions governing stressed assets, compromise settlements and transfer of credit risk.
- Whether the borrower or erstwhile management had a right to match the highest bid received in the auction.
- Whether Section 29A of the Insolvency and Bankruptcy Code barred the erstwhile management from participating in or matching the auction process.
- Whether the Swiss Challenge Method adopted by the bank was arbitrary or violative of Article 14.
- Whether the writ petition had become infructuous after completion of the auction process.
Petitioner’s Arguments
The petitioner argued that the bank could not proceed with the Swiss Challenge auction while the appeal before the NCLAT remained pending.
It was submitted that the NCLAT had taken note of the OTS proposal and had directed the bank to place its decision on record.
According to the petitioner, the proposed transfer of the loan exposure would prejudice the settlement process and affect the viability of any resolution.
The petitioner contended that the bank had not properly complied with the Reserve Bank of India (Commercial Banks — Resolution of Stressed Assets) Directions, 2025 and the Reserve Bank of India (Commercial Banks — Transfer and Distribution of Credit Risk) Directions, 2025.
It was argued that the RBI framework required the bank to act under a valid board-approved policy and follow a structured decision-making process before undertaking compromise settlement or transfer of stressed assets.
The petitioner alleged that the bank had not disclosed the applicable policy or the resolution authorising the transfer.
It was further argued that when the bank fixed a reserve price and invited bids, the debtor company ought to have been allowed to match the highest bid and settle the loan.
The petitioner also contended that the auction was arbitrary and violated Articles 14, 19 and 21 of the Constitution.
According to the petitioner, the NCLAT could not decide all the issues relating to the validity of the auction notice, which justified approaching the High Court under Article 226.
Respondent’s Arguments
Punjab National Bank argued that more than ₹1,000 crore remained outstanding and that the corporate debtor had failed to make bona fide repayment despite being granted several opportunities.
The bank submitted that the settlement proposals offered only meagre amounts compared with the outstanding liability and did not involve any viable upfront payment.
It was argued that the OTS proposal had already been considered and rejected.
The NCLAT had expressly taken note of the rejection and had recorded that there was no possibility of settlement between the parties.
Accordingly, the pendency of the appeal before the NCLAT did not create any legal bar against transfer of the bank’s loan exposure.
The bank further contended that the claim of the company or former management to match the highest bid was barred by Section 29A of the Insolvency and Bankruptcy Code.
The respondent submitted that the Swiss Challenge process had been undertaken in accordance with the bank’s applicable policies and commercial decision-making framework.
Reliance was placed on decisions holding that adoption of the Swiss Challenge Method by a financial institution is not unconstitutional.
The bank also argued that acceptance or rejection of an OTS proposal falls within its commercial wisdom and that a borrower cannot compel a bank to enter into a settlement.
It was further pointed out that the auction had already commenced and concluded by the time the writ petition was heard. The relief sought had therefore become infructuous.
Analysis of the Law
The Court examined the relationship between the pending insolvency appeal, the rejected OTS proposal and the bank’s power to transfer its debt exposure.
Effect of the Pending NCLAT Appeal
The Court noted that the NCLAT had already recorded the rejection of the OTS proposal and had held that the settlement-related controversy no longer survived.
The pending appeal concerned the merits of the NCLT order admitting the insolvency petition.
The Court held that mere pendency of that appeal did not impose any restraint upon Punjab National Bank from transferring its loan exposure.
There was no order of the NCLAT specifically prohibiting the bank from proceeding with the auction.
Rejection of the OTS Proposal
The Court observed that the OTS proposal had been considered by the bank and rejected.
The rejection had also been brought to the notice of the NCLAT, which recorded that no possibility of settlement remained.
The petitioner was not directly challenging the decision rejecting the OTS in the present writ petition.
The Court therefore rejected the argument that the auction had to be stopped until further consideration of the settlement proposal.
Commercial Wisdom of the Bank
The Court reiterated that whether to accept a compromise or OTS proposal is primarily a commercial decision of the lending bank.
Courts cannot ordinarily compel a bank to accept a settlement proposal or restructure the debt according to the borrower’s preference.
Judicial review is limited to examining whether the bank’s action is arbitrary, illegal, mala fide or contrary to binding statutory requirements.
Swiss Challenge Method
The Court held that use of the Swiss Challenge Method for transfer of a bank’s loan exposure is not inherently arbitrary or violative of Article 14.
A financial institution may adopt such a method as part of its commercial decision-making process, subject to compliance with law and applicable policy.
The Court observed that writ jurisdiction cannot be used to interfere with every commercial decision of a bank merely because the borrower disagrees with it.
Section 29A of the Insolvency and Bankruptcy Code
The Court found that Section 29A disqualifies specified persons, including certain members of the erstwhile management of a corporate debtor, from participating in the resolution process.
The petitioner’s claim that the company or former management should be permitted to match the highest bid could not be accepted in the face of this statutory bar.
Alleged Violation of RBI Directions
The petitioner alleged that the bank had not followed a valid board-approved policy.
The Court found that this allegation was vague and unsupported by sufficient material.
The bank had stated that the auction was conducted under its applicable policies and resolutions.
Further, the OTS proposal had already been considered and rejected under the prevailing policy framework.
The Court therefore found no basis to invalidate the auction on this ground.
Completion of the Auction
The auction was scheduled between 11 a.m. and 12 noon on the date of hearing.
By the time the matter was taken up, the bidding process had already concluded.
The Court held that the challenge to the public notice had therefore also become infructuous.
Precedent Analysis
Sri Devi Karumariamman Educational Trust v. Central Bank of India
The Madras High Court had held that adoption of the Swiss Challenge Method by a bank does not violate Article 14.
The decision also recognised that courts should not interfere under Article 226 with commercial decisions of financial institutions unless the action is arbitrary or illegal.
The Supreme Court later declined to interfere with that decision.
The Court relied on this precedent to reject the challenge to the auction method adopted by Punjab National Bank.
Ravi Development v. Shree Krishna Prathisthan
The Supreme Court recognised the validity of the Swiss Challenge Method as a permissible method of competitive bidding.
The decision supported the position that such a process is not inherently arbitrary merely because an initial offer is subjected to competing bids.
Bijnor Urban Cooperative Bank Ltd. v. Meenal Agarwal
The Supreme Court held that grant of an OTS is not a matter of right.
Whether a settlement should be accepted is a decision to be taken by the bank in exercise of its commercial wisdom, having regard to public interest, recovery prospects and other relevant considerations.
A borrower cannot compel the bank to accept an OTS proposal.
The Madras High Court relied upon this principle to hold that the petitioner could not insist upon settlement or prevent the bank from transferring its debt exposure.
Court’s Reasoning
The Court found that the petitioner’s challenge rested primarily on the pending NCLAT appeal and the earlier OTS proposal.
However, the OTS proposal had already been rejected, and the NCLAT had expressly recorded that no settlement possibility remained.
The Court therefore held that the pendency of the insolvency appeal did not prevent Punjab National Bank from proceeding with the transfer of its loan exposure.
It also found that the corporate debtor had been given several opportunities to repay its dues or submit a viable settlement proposal but had failed to do so.
The Court observed that the bank had already attempted recovery through SARFAESI proceedings and multiple sale notices, without success.
In these circumstances, the bank was entitled to take a commercial decision regarding transfer of the stressed loan.
The petitioner’s demand that the company be permitted to match the highest bid was rejected because the former management was subject to the statutory disqualification under Section 29A of the Insolvency and Bankruptcy Code.
The Court further held that no specific material had been produced to show that the bank had acted without a valid policy or contrary to the RBI directions.
A general allegation that the board-approved policy had not been disclosed was insufficient to establish arbitrariness.
The Court also noted that the Swiss Challenge Method had already been judicially recognised and could not be treated as unconstitutional.
Finally, the auction had concluded by the time the matter was heard, making the challenge to the auction notice infructuous.
Conclusion
The Madras High Court dismissed the writ petition and upheld Punjab National Bank’s decision to transfer Aban Offshore Limited’s loan exposure through the Swiss Challenge Method.
The Court held that:
- the pendency of the NCLAT appeal did not bar the bank from conducting the auction;
- the OTS proposal had already been rejected and no settlement issue remained pending;
- the borrower could not compel the bank to accept an OTS;
- the bank’s commercial decision could not be interfered with unless shown to be arbitrary or illegal;
- use of the Swiss Challenge Method was legally permissible;
- the erstwhile management could not insist upon matching the highest bid in view of Section 29A of the Insolvency and Bankruptcy Code;
- the allegation of non-compliance with RBI directions was vague and unsupported; and
- the petition had also become infructuous because the auction had already concluded.
The writ petition was dismissed without costs, and the connected interim applications were closed.
Case: Reji Abraham v. Punjab National Bank
Court: High Court of Judicature at Madras
Case Number: W.P. No. 22088 of 2026 with W.M.P. Nos. 23973 and 23974 of 2026
Judge: Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan
Date: 22 June 2026
Result: Writ petition dismissed; Punjab National Bank’s Swiss Challenge auction for transfer of Aban Offshore Limited’s loan exposure upheld, with the Court also noting that the auction had already concluded.
