Swiss Challenge and Insolvency and Bankruptcy Code


The phrase “Swiss challenge,” according to authors and experts, was created to contrast a government’s objectivity in granting contracts to the private sector with Switzerland’s neutrality during World Wars I and II.1 Swiss challenge method (SCM) is a form of public procurement by way of a bidding process, wherein a bidder (original bidder) makes an unsolicited bid to the auctioneer. Once approved, the auctioneer then seeks counterproposals against the original bidder’s proposal and chooses the best amongst all options including the original bid. The original bidder in most cases is granted the right to first refusal. If the original bidder matches its offer to the challenging proposal, the bid is awarded to him, else it is awarded to the challenging bidder.2

The Union Cabinet approved the implementation of SCM to redevelop 400 railway stations in 2015, when it was a relatively new procurement process where any interested person meeting with the requisite eligibility criteria could submit a proposal to the Government and the same would be made known to other parties, to enable them to provide suggestions to improve and beat the proposal. An Expert Committee would accept the best proposal and the original bidder would get a chance to accept it if it is an improvement on his proposal. In case the original proposal does not match the more attractive counter, the project would be awarded to the latter.3 From this point onwards, SCM has rapidly gained momentum in cases of major public development projects and even seeped into the arena of pre-packaged insolvency.

The major selling point of SCM lies in the fact that it ensures a less pedantic and more open bidding process. In a situation wherein the Government is undertaking a large scale infrastructure development project, it is not always the case that the Government would possess the technical knowledge which is very specific to the field. An unsolicited bid is essentially one that involves a new concept or technology which is not initially envisaged while issuing the call for bids. The private developers would get the chance to make unsolicited bids, and that would automatically increase the scope for innovation and adoption of new techniques. The recent construction of the hyperloop in Maharashtra, a transportation system that can move people and freight at extremely high speeds in sealed tubes, is a notable example. Virgin Hyperloop One had submitted an unsolicited proposal to build the first commercially viable hyperloop to the Maharashtra Government in this instance, and the Maharashtra Government was allowed to consider the proposal by using the SCM.4

The Supreme Court of India gave its stamp of approval to the method in Ravi Development v. Shree Krishna Prathisthan5, and held that, “the said method is beneficial to the Government inasmuch as the Government does not lose any revenue, as it is still getting the highest possible value”. It was also amply established that the decision to adopt SCM is a purely executive one and does not call for undue interference. It was however pointed out that the adoption of such a method requires itself to be conducted as per proper procedure to ensure fairness/transparency and cannot be simply prescribed by the State Government. For instance, the National Company Law Tribunals in catena of decisions have clarified that all bidders must be made prematurely aware of the fact that the originator of the proposal has the right of first refusal and upheld the Ravi Development6 judgment as far as the legality of SCM is concerned.

The Bombay High Court has cleared the air with respect to when the adoption of SCM is inherently discriminatory and arbitrary in Shree Ostwal Builders Ltd. v. State of Maharashtra7 . In this case, SCM was invoked by the Government to give preferential treatment to a specific bidder, and the Government in turn suffered losses.

A place for SCM in IBC

It is true that there is considerably less scope of judicial review with respect to awarding Government contracts, as long as the acts of the Government are not discriminatory, arbitrary or contrary to public interest.8 The insolvency and bankruptcy regime on the other hand has slowly but steadily demonstrated acceptance of SCM. As long as the maximisation of value of the corporate debtor is achieved through proper means, the Code does not preclude SCM in its codification.

In R.K. Industries (Unit-II) LLP v. H.R. Commercials (P) Ltd.9, two SCM auctions were conducted for the liquidation sale of assets of the corporate debtor. It was emphasised by Supreme Court that the Insolvency and Bankruptcy Code, 2016 (IBC) and Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (CIRP Regulations) specify that the corporate debtor’s assets must be protected and preserved during the liquidation process before being sold at the highest price. There is no right vested with the bidders in liquidation sale beyond the express terms of the offer documents, as the liquidator may elect to undertake private sale of the assets of the corporate debtor, for maximisation of value and a higher and quicker recovery for the stakeholders, to avoid delay, and to provide a guaranteed timeline for completion of the liquidation proceedings. Purely business-based decisions cannot be interfered with in commercial transactions.

Regulation 39(3)(a) of the CIRP Regulations provides the mechanism for approval of resolution plan by the Committee of Creditors (CoC) and provides that the CoCshall evaluate the resolution plans received as per evaluation matrix and thus, the said regulation is silent on the exact method to be used for selection of the best resolution plan.

Clearly, there is no express prohibition on the adoption of Swiss challenge method during a CIRP.

In Jindal Stainless Ltd. v. Shailendra Ajmera10 the NCLAT observed that the approval of the plan submitted in CIRP is in the domain of the CoC. Under Regulation 39 of the CIRP Regulations, the Committee is entitled to record its deliberation and vote on such resolution plan simultaneously. Any discussion with the resolution applicant, including a challenge process, may be cancelled, or modified by the CoC without restriction, but the CoC must have prudence in its decision making process (which necessarily mean ascribing reasons for their actions). In the circumstances of the current case, the CoC did not opt to disregard the challenge process that was concluded previously, and instead elected to vote on the plan that the voting process had already started on. One resolution applicant will not be permitted to submit a revised plan following the adoption of the Swiss challenge method to choose the best plan. NCLAT, while reaching its decision also emphasised on the much-reiterated principle that CoC’s opinion formed after due deliberations in the meetings through voting, as per voting shares is the reflection of the commercial wisdom of CoC. The same is not up for challenge except for in situations envisaged under Sections 30(2) and 61(3) of the IBC. This overarching dictum of IBC also has ratifying effect upon the adoption of SCM, as it is within the CoC’s domain to formulate the rules and process of accepting plans, and the same is an unfettered power.

Interestingly, Regulation 36-C mandates the resolution professional to prepare a strategy for marketing of assets to the corporate debtor in consultation with the Committee where the total assets as per the last available financial statements exceed one hundred crore rupees and may prepare such strategy in other cases. Members of the Committee are also encouraged to take such measures for marketing the assets of the corporate debtor. By affording bidders to match with the highest bid, this goal envisaged in the Code is furthered.

The SCM has displayed some impact on cost and time, since it is a two-stage bidding in the least, where at first there is a stage to become preferred bidder and then, comes the Swiss challenge.11 However, to ensure transparency in any bidding process, there needs to be a robust framework in place, in order to achieve the end goal of the process.


The Supreme Court in Rajputana Properties (P) Ltd. v. Ultratech Cement Ltd.12 had upheld the view of NCLAT13 which had observed that in exceptional circumstances delayed bids may be considered if they provide for a better revival package and has been submitted by an applicant who was participating in the process from the inception. The only unfaltering principle is that the insolvency proceedings should take place in a time-bound manner, but the procedure need not be followed to the letter when other benefits are at stake. Even with the application of SCM, there are multiple ways to work around the same to make it suitable to the needs of the specific type of business or field. Commercial wisdom of the CoC is absolute and as long as transparency and propriety are maintained, the doors for more innovative bidding opens up. This allows for value maximisation, openness, and price discovery. As it has been noted in the judgments above, there is no inherent quality in SCM that poses a threat to the sanctity of proceedings under IBC. SCM, in fact, seamlessly fits itself within IBC. However, the same can only be established after we collect sufficient evidence of the application of the same, across insolvency proceedings of diverse business structures.

† Advocate-on-Record, Supreme Court of India.

†† Teaching Assistant and PhD Scholar, WBNUJS Kolkata.

††† Advocate and Associate, Chambers of Swarnendu Chatterjee.

1. <>.

2. Discussion Paper on “Strengthening Regulatory Framework of Liquidation Process” <>.

3. Amrita Nayak Dutta, “Modi Govt. Plans National Policy Framework for Swiss Challenge System of Public Procurement”, ThePrint, 14-12-2020 <>.

4. Shrinivas Deshpande, “Swiss Twist for Pune-Mumbai Hyperloop: Global Firms Can Now Bid to Challenge Virgin One”, Hindustan Times, 13-11-2018 <>.)

5. (2009) 7 SCC 462.

6. (2009) 7 SCC 462.

7. 2008 SCC OnLine Bom 326.

8. Monarch Infrastructure (P) Ltd. v. Ulhasnagar, Municipal Corpn., (2000) 5 SCC 287.

9. 2022 SCC OnLine SC 1124.

10. 2023 SCC OnLine NCLAT 44.

11. Discussion Paper on “Strengthening Regulatory Framework of Liquidation Process” <>.)

12. 2018 SCC OnLine SC 3596 (R.F. Nariman and Navin Sinha JJ.).

13. 2018 SCC Online NCLAT 521.

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