Absence Of Forfeiture Provision In IBBI Liquidation Regulations Not Decisive Where E-Auction Terms Provide For It: Supreme Court Upholds Forfeiture Of EMD

The Court accordingly upheld the forfeiture of ₹6.39 crore, comprising the Earnest Money Deposit and part of the sale consideration voluntarily paid by the successful bidder.

The Court was hearing an appeal by the successful bidder against an NCLAT order that reversed the National Company Law Tribunal’s direction to refund the forfeited amount deposited towards the purchase of an immovable property sold during liquidation under the Insolvency and Bankruptcy Code, 2016.

A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran observed: “The argument of absence of stipulation of forfeiture, in the regulations also falls flat in the wake of the specific condition in the auction notice, which made forfeiture an inevitable consequence on failure to deposit the balance sale consideration.”

The Bench accordingly held: “The appellant having paid the money voluntarily and the terms and conditions stipulated in the e-auction notice having provided for the entire amount paid by a successful bidder, including EMD to be forfeited, if he fails to pay the balance sale consideration as per the terms of the sale, there is no reason to order refund.”

Senior Advocate Meenakshi Arora appeared for the appellant. Advocate Abhishek Anand represented the respondent-Resolution Professional.

Background

Liquidation proceedings were initiated against the corporate debtor after no resolution plan was submitted during the corporate insolvency resolution process.

Several properties belonging to the corporate debtor were offered through an e-auction. The property concerned had a reserve price of ₹25.56 crore and was offered on an “as is where is” basis. The auction notice disclosed the pendency of a civil dispute concerning the sale deed for a portion of the property and stated that the Liquidator was taking steps to obtain its custody.

The appellant submitted a bid at the reserve price and emerged as the successful bidder. It initially deposited ₹6.39 crore, comprising an Earnest Money Deposit of ₹2.55 crore and ₹3.84 crore towards the sale consideration.

The balance amount of ₹19.17 crore had to be paid within 30 days. The auction terms permitted payment within 90 days upon payment of interest at 12% per annum. The appellant communicated its intention to make the payment within the extended period but failed to do so.

The appellant subsequently sought the property’s prior title deeds. Its application was rejected by the NCLT, and its appeal was dismissed by the NCLAT. The High Court later rejected its request for the title deeds while reserving liberty to pursue other remedies available in law.

The property was subsequently sold in a fresh auction for ₹31.10 crore. The appellant thereafter approached the NCLT seeking annulment of the forfeiture and refund of the amount deposited.

The NCLT allowed the application after applying a “Triple Test” concerning whether the bidder had attempted to rig the auction, lacked financial capacity or had been prevented by extraneous circumstances from making the payment. The NCLAT reversed that decision and upheld the forfeiture, leading to the appeal before the Supreme Court.

Court’s Observations

The Court noted that Schedule I to the Liquidation Process Regulations, 2016 restricted the Earnest Money Deposit to 10% of the reserve price but did not expressly provide for forfeiture upon failure to pay the balance sale consideration.

However, the e-auction notice specifically permitted forfeiture of the Earnest Money Deposit and every other amount paid by a successful bidder who failed to deposit the balance consideration within the prescribed period.

The Court observed: “We see from Schedule I of the Liquidation Process Regulations that there is a stipulation that EMD should not be more than 10%; brought in on 30.09.2021 and there is no forfeiture expressly provided, in the event of failure to pay the balance sale consideration. As pointed out by the learned Counsel for the respondent, the terms are explicit in the Tender Notice and the appellant, with open eyes, bid in auction as also deposited the amounts demanded without any protest. Having deposited 10% of the reserve price, along with a portion of the balance sale consideration, which itself is an undertaking to pay the balance amounts within a period of 30 days or 90 days with interest, brings in the consequences of forfeiture, on failure; which is automatic.”

The Court found that the regulations did not prohibit the inclusion or enforcement of the specific forfeiture condition contained in the auction notice.

The Court rejected the appellant’s reliance on the non-availability of certain title deeds. It noted that the auction notice had expressly disclosed the issue and that the property was being sold on an “as is where is” basis.

The appellant had neither sought verification of the title deeds before submitting its bid nor raised any protest while depositing the Earnest Money Deposit and part-sale consideration.

The Court observed: “A request was made for prior deeds, which, in any event, was not permissible at that distance of time, since the auction notice was issued on an ‘as is where is’ basis and it specifically indicated the non-availability of sale deeds with respect to a portion of the property. The appellant having not sought for verification of title deeds before the bid was made or the EMD was deposited, cannot project it as a requirement to resile from payment of the balance sale consideration.”

The bidder could not rely on a fact disclosed before the auction as a subsequent justification for withholding the balance payment.

The NCLT had applied the Triple Test to examine whether the appellant had acted with a hidden agenda to rig the auction, lacked sufficient financial capacity or had been prevented by an extraneous circumstance from completing the payment.

The Supreme Court agreed with the NCLAT that the test could not absolve the bidder from the consequences of an express forfeiture clause after wilful default in paying the balance amount.

It observed: “Looking at the specific clause threatening forfeiture on failure of payment of balance sale consideration, on cancellation, forfeiture is a necessary consequence and there is no application of the Triple Test, on facts herein, to absolve the appellant from such forfeiture. The mere failure to make the balance sale consideration was to rig the auction proceedings, in which circumstance, admittedly, there was a fresh auction proposed and there was a higher value received on such auction. The higher value received is only because of the inherent value of the property and is not in set off, of the expenses incurred. The proof of financial capacity, is not in the repeated communications agreeing to pay the money, but should be insofar as materials produced substantiating the capacity and not mere assertions made.”

The Court held that repeated assurances of payment did not establish the bidder’s financial capacity. Such capacity had to be demonstrated through supporting material.

The appellant also relied upon proceedings initiated by another entity concerning the same property as an extraneous circumstance that prevented it from paying the balance amount.

The Court rejected the explanation as an afterthought. It noted that the third party had merely filed an application pursuant to liberty granted by the High Court and later withdrew it.

The Court observed: “The extraneous consideration pointed out by the appellant is just an afterthought. M/s Agarwal Trading Company, based on the directions in the writ petition, merely filed an application and withdrew the same, a little later. The fallacy of the claim is evident from the facts, and this is merely projected as an excuse to scuttle the process of auction and to absolve the appellant from the liability to pay the balance sale consideration.”

The Court also rejected the allegation that the appellant had been discriminated against because another purchaser was allegedly granted additional time to complete payment. The contention had not been raised in the earlier proceedings, and the orders relied upon were produced only with the written submissions before the Supreme Court.

Conclusion

The Supreme Court held that the Earnest Money Deposit stipulated in the auction notice was ₹2.55 crore, which represented 10% of the reserve price. The remaining ₹3.84 crore formed part of the sale consideration voluntarily deposited by the appellant.

Since the auction notice expressly permitted forfeiture of the entire amount paid upon the successful bidder’s failure to deposit the balance sale consideration, the Court found no ground to direct a refund.

The appeal was accordingly dismissed, and the pending applications were rejected.

Cause Title: M/s ASJ Finsolutions Pvt. Ltd. v. Vikram Bajaj (Neutral Citation: 2026 INSC 1062)

Appearances

Appellant: Senior Advocate Meenakshi Arora; Advocate-on-Record Ekta Choudhary; Advocates Mrinal Harshvardhan, Lakshay Agarwal, Vanshika Agarwal, Rushali Sikand and Shirish Parashar

Respondent: Advocate Abhishek Anand; Advocate-on-Record Mandeep Kalra; Advocates Karan Kohli, Palak Kalra, Ridhima Mehrotra, Chitrangada Singh, Yashas J, Vaibhav Yadav and Paras Mohan Sharma

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