Monetising Non-Readily Realisable Assets (NRRA): The Regulatory Roadmap under IBC Regulation 37A

In the lifecycle of a corporate liquidation estate administered under the Insolvency and Bankruptcy Code (IBC) 2016, liquidators consistently encounter a stubborn asset class that resists traditional modes of realization. These assets, legally defined as Non-Readily Realisable Assets (NRRA), comprise sub-judice avoidance applications under Chapter III (Sections 43, 45, 49, 50, and 66), disputed trade debts entangled in protracted counter-claims, contingent arbitral awards awaiting enforcement under Section 36 of the Arbitration and Conciliation Act 1996, and uninvoked or disputed personal guarantees given by erstwhile promoters.

Historically, the inability to realize these assets within the statutory timelines prescribed under Regulation 44 of the IBBI (Liquidation Process) Regulations 2016 resulted in severe liquidation gridlock. Liquidators were compelled to seek repeated extensions from the Adjudicating Authority (National Company Law Tribunal), while financial creditors were deprived of immediate liquidity and corporate shells remained trapped in administrative limbo.

Statutory Origins: The Inception and Architecture of Regulation 37A

To eliminate this systemic inefficiency, the Insolvency and Bankruptcy Board of India (IBBI) introduced Regulation 37A into the IBBI (Liquidation Process) Regulations 2016 through the Liquidation Process (Fourth Amendment) Regulations 2020. Under Regulation 37A, a liquidator is granted explicit statutory authority to assign or transfer any non-readily realisable asset of the corporate debtor to an eligible buyer, through a transparent auction or Swiss challenge process, with the prior approval of the Stakeholders' Consultation Committee (SCC).

Regulation 37A represents a fundamental paradigm shift from traditional in-house realization to structured secondary market monetization. By permitting the outright sale or structured assignment of litigation rights and distressed receivables, the Code allows estates to close expeditiously, distributing immediate upfront proceeds to creditors under the strict waterfall mechanism codified in Section 53.

The legislative intent behind Regulation 37A is rooted in economic pragmatism. Corporate liquidation under the IBC is governed by strict statutory timelines. Prior to the 2020 amendment, liquidators were tasked with prosecuting complex civil suits, arbitration enforcement petitions, and avoidance claims against entrenched promoters. These legal battles frequently dragged on for five to ten years across multiple appellate forums. During this protracted period, the liquidation estate incurred mounting administrative expenses, legal retainers, and valuer fees, which systematically eroded the distributable surplus. Regulation 37A severed this Gordian knot by separating the administrative closure of the corporate debtor from the commercial recovery of contingent legal claims.

Statutory & Financial Taxonomy of Non-Readily Realisable Assets

Understanding the statutory boundaries of what constitutes an NRRA is essential for both liquidators structuring sales and institutional investors evaluating acquisition risks. In practice, NRRA holdings fall into four principal categories:

• Avoidance and Fraudulent Transaction Applications: Claims filed under Sections 43 (Preferential Transactions), 45 (Undervalued Transactions), 49 (Transactions Defrauding Creditors), 50 (Extortionate Credit Transactions), and 66 (Fraudulent or Wrongful Trading). These applications frequently involve substantial financial stakes, but their adjudication is inherently uncertain and vulnerable to multi-tiered appellate litigation before the NCLAT and the Supreme Court.
• Disputed and Delinquent Trade Receivables: Book debts where counterparties allege operational deficiencies, non-delivery of consignments, counter-claims, or expiration of statutory limitation periods under the Limitation Act 1963.
• Sub-Judice Arbitral Claims and Contingent Awards: Claims pending before domestic or international arbitral tribunals, or arbitral awards currently subject to setting-aside petitions under Section 34 of the Arbitration and Conciliation Act 1996 or appellate review under Section 37.
• Contested Third-Party and Promoter Guarantees: Uninvoked, contested, or litigated personal and corporate guarantees executed in favor of the corporate debtor prior to the commencement of insolvency proceedings, where the guarantor disputes liability or has relocated to foreign jurisdictions.

Each of these four asset classes possesses distinct risk profiles, evidentiary thresholds, and recovery horizons. Avoidance actions require forensic transaction audits demonstrating statutory look-back periods (one year for ordinary commercial counterparties and two years for related parties under Section 43 and 45). Trade debts require complete contractual trails and delivery reconciliations. Arbitral awards represent crystallized claims but remain exposed to prolonged judicial scrutiny under public policy and patent illegality challenges. Consequently, structuring an NRRA sale demands a tailored approach to each specific asset class.

Jurisprudential Evolution: Survivability and Assignability of Avoidance Applications

For several years following the enactment of the IBC, a profound jurisprudential question lingered over whether avoidance claims could survive the completion of a Corporate Insolvency Resolution Process (CIRP) or liquidation, and whether such claims could lawfully be assigned to private third-party investors. A restrictive interpretation suggested that avoidance proceedings were designed exclusively for the collective benefit of creditors and could not be privatized or commercialized.

The Single Bench Ruling in Venus Recruiters (2020)

This debate reached a critical inflection point in the decision of the single judge bench of the High Court of Delhi in Venus Recruiters Private Limited v. Union of India & Ors. (2020). In that judgment, the court held that an avoidance application filed under Section 43 could not continue after the approval of a resolution plan if the plan did not explicitly provide for its continuation. The single bench reasoned that once the CIRP concludes and the resolution applicant takes over the company, the Resolution Professional becomes functus officio, and the Adjudicating Authority loses jurisdiction to adjudicate pending avoidance applications. This decision sent shockwaves through the insolvency profession, threatening to extinguish hundreds of millions of dollars in pending avoidance claims.

The Landmark Division Bench Reversal: Tata Steel BSL (2023)

Recognizing the grave commercial and policy distortions caused by the single bench interpretation, the Division Bench of the High Court of Delhi authoritatively reversed the decision in Tata Steel BSL Limited v. Venus Recruiters Private Limited & Ors. (2023). The Division Bench ruled that avoidance applications are independent statutory proceedings that do not perish with the conclusion of the CIRP or liquidation. The Court articulated several foundational principles:

• Avoidance applications exist for the restitution of the corporate debtor's asset pool and for the benefit of its creditors, preventing errant promoters from enjoying the fruits of fraudulent or preferential transfers.
• The Adjudicating Authority retains full statutory jurisdiction under the IBC to adjudicate pending avoidance applications notwithstanding the approval of a resolution plan or the dissolution of the corporate debtor.
• The recoveries arising from avoidance applications must be distributed according to the terms of the resolution plan or statutory liquidation order, and such recovery rights can be lawfully assigned, shared, or passed through to third parties or dedicated recovery trusts.

Affirmation by the NCLAT: 63 Moons & Regen Powertech

The National Company Law Appellate Tribunal (NCLAT) has consistently reaffirmed and expanded upon these principles. In the landmark case of 63 Moons Technologies Ltd. v. The Administrator of Dewan Housing Finance Corporation Ltd. (DHFL), the NCLAT affirmed that resolution applicants and liquidators are legally permitted to structure mechanisms whereby avoidance recoveries are either assigned to institutional purchasers or vested in special-purpose recovery trusts for the benefit of erstwhile financial creditors. Similar principles were upheld in Regen Powertech Private Limited, establishing beyond doubt that litigation claims and avoidance rights constitute actionable property capable of lawful commercial transfer.

Actionable Claims and the Law of Assignment

Under Indian law, the transfer of an NRRA is governed by Section 130 of the Transfer of Property Act 1882, which regulates the transfer of 'actionable claims'. An actionable claim is defined under Section 3 of the Act as a claim to any debt or beneficial interest in movable property not in possession. Section 130 mandates that every transfer of an actionable claim must be effected through an instrument in writing signed by the transferor or their authorized agent. Upon execution of the assignment instrument, all the rights and remedies of the transferor, whether by way of damages or otherwise, vest absolutely in the transferee.

The Public Policy & Champerty Doctrine in Indian Law

A frequent objection raised by recalcitrant debtors against NRRA transfers is that the assignment of litigation rights constitutes champerty and maintenance, which is contrary to public policy under Section 23 of the Indian Contract Act 1872. However, Indian jurisprudence has long recognized that the rigid English common law rules against champerty and maintenance do not apply in India. In the historic Privy Council decision in Ram Coomar Coondoo v. Chunder Canto Mookerjee and subsequent Supreme Court authorities including Ram Sarup v. Court of Wards, the judiciary established that an agreement to finance litigation or acquire litigation rights is valid and enforceable, provided it is not extortionate, unconscionable, or entered into for an improper purpose. In the context of the IBC, where the transfer is explicitly sanctioned by statutory regulation (Regulation 37A) and supervised by the Adjudicating Authority, challenges based on champerty are legally untenable.

The Swiss Challenge Valuation & Price Discovery Architecture

Monetizing an NRRA requires strict adherence to procedural fairness to insulate the transaction from subsequent challenges by disgruntled creditors, former promoters, or regulatory authorities. Regulation 37A prescribes that the transfer must occur via an open competitive auction or a Swiss challenge mechanism:

1. Valuer Engagement under Section 247 of the Companies Act 2013

Because an NRRA carries high legal contingency, determining a fair reserve price presents unique valuation challenges. Liquidators must engage registered valuers under Section 247 of the Companies Act 2013 to establish both fair market value and liquidation value. In avoidance actions, valuers deploy probabilistic litigation risk models, discounting the face value of the claim against five objective metrics:

• Evidentiary Strength: The quality and completeness of forensic audit reports, transaction vouchers, and bank statements substantiating the diversion of funds.
• Counterparty Solvency: The financial capacity of the respondent to satisfy a court decree or restitution order upon successful adjudication.
• Estimated Litigation Duration: Projected timelines across the NCLT, NCLAT, and Supreme Court corridors, typically modeled across a 3 to 7 year horizon.
• Cost of Ongoing Prosecution: Projected senior counsel retainers, filing expenses, forensic expert witness fees, and administrative overhead.
• Historical Judicial Realization Ratios: Statistical analysis of realized recoveries from similar avoidance applications across regional NCLT benches.

2. Stakeholders' Consultation Committee (SCC) Approval Protocols

Under Regulation 31A and Regulation 37A, the liquidator cannot unilaterally approve the reserve price or auction parameters of an NRRA. The proposed transfer mechanism, including bid eligibility criteria, baseline valuation, reserve price, earnest money deposit (EMD), and payment milestones, must be tabled before the SCC. A formal resolution must be passed by the requisite voting majority of secured and unsecured financial creditors. This collective consensus shields the liquidator from future allegations of asset undervaluation or procedural irregularity.

3. Conducting the Swiss Challenge Auction

Where a private asset reconstruction company (ARC), distressed debt fund, or litigation finance entity submits an unsolicited initial offer (the Anchor Bid), the liquidator may subject that bid to a Swiss challenge auction. The procedural steps are rigorously defined:

1. Public Notice: The liquidator publishes an open auction notice inviting competing bids, disclosing the terms of the anchor bid while maintaining confidential transactional data behind an encrypted data room.
2. Minimum Incremental Multiplier: Competing bidders must submit offers that exceed the anchor bid by a defined minimum incremental percentage (typically 5% to 10%).
3. Right of First Refusal (ROFR): If a competing bidder submits a higher qualifying offer, the original anchor bidder is granted the contractual right of first refusal to match or surpass the highest competing bid within a specified timeframe (typically 7 to 14 days).
4. Definitive Award: The highest conforming bidder is awarded the asset, and the earnest money deposit of unsuccessful participants is promptly refunded.

Drafting the Definitive Assignment Deed: Critical Protective Covenants

The definitive assignment agreement transfers the litigation risk and economic rights from the liquidation estate to the acquirer. A professionally drafted assignment deed must address several critical transactional complexities:

1. Substantive Assignment Clause

The deed must contain an unequivocal operative clause transferring all legal, equitable, and beneficial right, title, and interest in the identified NRRA under Section 130 of the Transfer of Property Act 1882. The transfer must include all associated claims, remedies, execution rights, appellate entitlements, and ancillary damages.

2. Power of Attorney and Court Substitution Rights

Simultaneously with the execution of the assignment deed, the liquidator must execute an irrevocable Power of Attorney empowering the acquirer to substitute itself in place of the corporate debtor or liquidator in all pending judicial proceedings. Under Order XXII Rule 10 of the Code of Civil Procedure 1908 and Rule 34 of the NCLT Rules 2016, an assignee of an interest during the pendency of a suit or proceeding may, by leave of the court, continue the proceeding in its own name. The assignment documentation must obligate the liquidator to execute formal affidavits and non-objection certificates supporting this substitution.

3. Absolute Exclusion of Liquidator Warranties ('As-Is-Where-Is')

The liquidator and the liquidation estate must be fully insulated against any future liability or indemnification claims. The deed must feature robust 'as-is-where-is, as-is-what-is, whatever-there-is, and without-recourse' covenants. The buyer must explicitly acknowledge that it has conducted its own independent legal and financial due diligence, that the liquidator makes no representation regarding the eventual success of the litigation or the solvency of the defendants, and that no refund of purchase consideration will be granted under any circumstances.

4. Stamp Duty Compliance and Registration

Under the Indian Stamp Act 1899 and relevant state stamp acts (such as the Maharashtra Stamp Act 1958 or Rajasthan Stamp Act 1998), deeds of assignment transferring actionable claims and litigation rights attract specific or ad valorem stamp duties. Structuring the assignment requires precise calibration to prevent the document from being impounded under Section 33 of the Indian Stamp Act for insufficient stamping, which would delay judicial enforcement. Where immovable property guarantees or mortgages are transferred alongside the claim, registration under Section 17 of the Registration Act 1908 is mandatory.

5. Deferred Consideration & Escrow Recovery Mechanics

In transactions where consideration consists of an upfront cash payment paired with a backend percentage of realized proceeds, parties must execute a tri-partite escrow agreement with a scheduled commercial bank. The agreement must establish strict distribution priorities in alignment with the Section 53 waterfall of the IBC, specifying deduction of verified legal enforcement costs, tax withholdings, and institutional distributions.

Section 29A Eligibility Due Diligence: Screening Ultimate Beneficial Owners

A vital statutory safeguard under the IBC is Section 29A, which disqualifies certain persons from acquiring corporate debtors or their assets. Disqualified entities include undischarged insolvents, willful defaulters, persons convicted of offenses punishable with imprisonment, promoters of companies with NPA accounts overdue for more than a year, and persons connected to prohibited entities.

Regulation 37A expressly mandates that an NRRA cannot be transferred or assigned to any person who is ineligible under Section 29A. Liquidators must conduct rigorous due diligence before entertaining any bid:

• Affidavit of Eligibility: Requiring bidders to submit a detailed sworn affidavit under Section 29A, confirming complete compliance across all sub-clauses (a) through (j).
• Forensic Beneficial Ownership Audit: Investigating the entire shareholding and directorship structure of corporate bidders to verify ultimate beneficial owners (UBOs) and ensure that defaulting promoters or their relatives are not using shell entities to re-acquire their own disputed debts or squashed avoidance liabilities.
• RBI Willful Defaulter Cross-Referencing: Verifying bidder directors and corporate parents against the willful defaulter and non-performing asset databases maintained by the Reserve Bank of India, CIBIL, and commercial credit bureaus.

Step-by-Step Practical Roadmap for Liquidators and Institutional Acquirers

Executing a successful NRRA transaction requires disciplined operational execution across six distinct stages:

1. Stage 1: Portfolio Identification and Data Room Preparation (Weeks 1 to 3): The liquidator audits estate records, compiles all pleadings, forensic audit reports, and evidentiary exhibits, and establishes a secure virtual data room (VDR) under non-disclosure agreements.
2. Stage 2: Independent Valuation Mandates (Weeks 4 to 6): Two registered valuers are appointed to evaluate the portfolio, determining fair market value and liquidation value based on probabilistic recovery modeling.
3. Stage 3: Stakeholders' Consultation Committee Approval (Week 7): The liquidator presents the proposed sale process document, reserve price, and eligibility terms to the SCC and secures the requisite voting approval.
4. Stage 4: Public Auction or Swiss Challenge Process (Weeks 8 to 11): Public e-auction notices are published in national and regional daily newspapers. Qualified bidders inspect the data room, submit earnest money deposits, and participate in competitive e-bidding.
5. Stage 5: Execution of Definitive Documents (Weeks 12 to 13): Full purchase consideration is received into the estate liquidation account. The Deed of Assignment, Irrevocable Power of Attorney, and Escrow Agreement are formally executed and stamped.
6. Stage 6: Judicial Intimation and Court Substitution (Weeks 14+): The liquidator files a formal compliance report and status intimation before the Adjudicating Authority (NCLT). Simultaneously, the acquirer files substitution applications under Order XXII Rule 10 CPC before all relevant judicial forums to assume control of ongoing recovery litigation.

Real-World Case Studies & Comparative Realization Metrics

Empirical evidence from Indian corporate insolvency proceedings demonstrates that NRRA monetization produces superior economic outcomes compared to prolonged litigation. In the liquidation of an infrastructure EPC contractor involving over ₹420 Crore in disputed book debts and arbitration claims, the liquidator spent ₹1.8 Crore in legal retainers over three years with zero net recovery. Following the adoption of Regulation 37A, the portfolio was divided into three asset blocks and auctioned via Swiss challenge. The estate realized an upfront cash sum of ₹38 Crore, allowing the liquidator to effect immediate interim distributions to secured financial creditors and proceed toward formal dissolution.

Similarly, in the resolution of a major manufacturing corporate debtor, pending avoidance applications filed under Section 43 and Section 66 against former directors valued at ₹180 Crore were assigned to a specialized recovery trust. Through dedicated forensic prosecution and settlement structuring, the trust realized over ₹64 Crore for erstwhile lenders, completely vindicating the commercial rationale of secondary market asset monetization.

The Standing Lawyers NRRA Practice Desk

Standing Lawyers maintains a specialized practice group dedicated exclusively to the monetization, valuation, and enforcement of Non-Readily Realisable Assets under the Insolvency and Bankruptcy Code. We advise Resolution Professionals, Liquidators, Asset Reconstruction Companies, private credit funds, and institutional claimants across India. Our services encompass complete legal audits of distressed litigation dockets, structuring Swiss challenge auction documentation, conducting Section 29A forensic screenings, drafting enforceable assignment deeds, and prosecuting substituted recovery claims before NCLT benches, High Courts, and commercial tribunals nationwide.