The National Company Law Appellate Tribunal, Principal Bench, New Delhi, has upheld an NCLT order directing two warring shareholder groups of a closely-held family company, Cheers Interactive (India) Pvt. Ltd., to bid for each other's shares through a supervised 'Swiss Challenge' auction, confirming this as a valid remedy for oppression under Sections 241-242 of the Companies Act, 2013.
The company was a quasi-partnership in substance, run on the mutual trust of two family shareholder groups. That trust had broken down irretrievably, and the NCLT found that one group had excluded the other from management and from the fruits of the company's profits without due process, amounting to oppression. Rather than ordering a winding up, the NCLT directed both groups to bid for each other's stake under the supervision of an independent observer, using the competitive 'Swiss Challenge' bidding method to fix a fair exit price.
On appeal by the shareholders excluded from management, the NCLAT upheld this approach, holding that Section 242(2)(b) of the Companies Act empowers the NCLT to direct a competitive inter se bidding process between deadlocked shareholder groups where both are willing and financially able to buy out the other, and that a supervised Swiss Challenge auction, with an independent observer overseeing the process, is a fair and transparent way to arrive at that exit price.