Swiss Challenge Method of Bidding in Insolvency and Bankruptcy Code

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What is Swiss Challenge Method of bidding?

Swiss challenge method is a new process of giving government contracts and acquisition of stressed companies under Insolvency and Bankruptcy Code (IBC). In this method, any person with credentials can submit his bid to the government for the development proposal or for the acquisition of an insolvent company under IBC. Bids received will be made online and the highest bid would be declared. The other bidders would be given a chance to improve their bid in order to beat the highest bid.

On receiving the revised bids, the expert committee will accept the best proposal and the original proposer will further get a chance to improve their original bid.

In case the original proposer is not able to match the more attractive and competing counter proposal, the project will be awarded to the counter-proposal.

Case Study: Bhushan Steel

Bhushan Power & Steel is one of the 12 companies identified by the RBI in its first list for resolution under the Insolvency & Bankruptcy Code. Its outstanding dues stand at a staggering INR 45,000 crore.

Bhushan Steel was acquired by Tata Steel recently. Tata Steel Ltd (TSL) emerged as the highest bidder for Bhushan Steel Ltd with a revised bid of INR 35,000 Cr. JSW Steel Ltd was in the second place with a bid of INR 29,700 Cr, according to media reports. In the initial round of bidding, Tata steel was at the second place with their bid of INR 24,000 cr while JSW Steel was leading with their bid of INR 29,700 Cr. However, the tables turned around in the final round.

Case Study: Ruchi Soya

Ruchi Soya is an edible oil manufacturing company that was declared insolvent recently. Baba Ramdev promoted – Patanjali and Adani Group company – Adani Wilmar have been competing against each for the acquisition of Ruchi Soya under proceedings of Insolvency and Bankruptcy Code.

In the first round of bidding, Adani Wilmar emerged as the highest bidder at INR 6000 Cr. The second round of bids have been kicked off, now Patanjali has the opportunity to either better their bid such that it beats the highest bid or back out from the process and let Adani Group acquire Ruchi Soya.

Benefits of Swiss Challenge Method

As we can see in the case of Bhushan Steel. It was just because of this method that the banks realized extra INR 5,300 Cr (Highest bid in first round Vs. Highest bid in the second round). So, it can be concluded that this method is very helpful in realizing the fair value of the stressed assets or government assets. This method would also be very helpful in bidding for government tenders and bidding for the sale of natural resources like airwave and mining rights.

If this method was used from the start the scams like Coalgate and 2G Spectrum scam would never happen in our country.