The NCLAT held that the liquidator had the right to forfeit the amounts deposited by the Appellant as per the terms and conditions of the auction process.
The National Company Law Appellate Tribunal (NCLAT), New Delhi bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Naresh Salecha & Indevar Pandey (Technical Members) was hearing an appeal and held that the liquidator had the right to forfeit the amounts deposited by the Appellant as per the terms and conditions of the auction process. The NCLAT bench observed that in cases of e-auctions conducted under the Insolvency and Bankruptcy Code (IBC), the forfeiture of earnest money deposit (EMD) and part payment by the highest bidder is governed by the terms and conditions set out in the auction process documents.
The National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal challenging the validity of an order from the Adjudicating Authority (National Company Law Tribunal, New Delhi). The order, dated 04.10.2023, concerned I.A. No. 5450 of 2022 filed in CP (IB) No. 706/PB/2018 under Section 60(5) of the Insolvency and Bankruptcy Code, 2016. The Appellant sought directions for the refund of amounts paid as Earnest Money Deposit (EMD) and part consideration towards a bid for the sale of a Corporate Debtor as a going concern.
The case originated when ICICI Bank Limited filed an application under Section 7 of the Code against Apex Buildsys Limited (now in liquidation), admitted on 20.09.2018. Despite multiple attempts at resolution, the Corporate Debtor went into liquidation on 09.01.2020. The Liquidator conducted several e-auctions for the sale of the Corporate Debtor, which all failed. Eventually, on 17.05.2021, the Appellant emerged as the sole bidder and was declared the Highest Bidder (H1) with a bid of Rs. 73.01 Cr.
The Appellant paid an EMD of Rs. 7.30 Cr. and subsequently deposited Rs. 10,95,25,000/- as part payment of the bid amount. However, the Appellant failed to deposit the remaining sum within the stipulated time. Despite various legal manoeuvres and appeals, including an attempt to extend the payment deadline, the Appellant failed to comply.
The Adjudicating Authority granted permission to the Liquidator to cancel the sale, leading to the forfeiture of the EMD and part payment by the Appellant. The Appellant's subsequent appeals, including to the Hon’ble Supreme Court, were unsuccessful.
The Appellate Tribunal noted that Section 74 of the Indian Contract Act, which deals with compensation for breach of contract, does not apply in such instances. The bidders are bound by the terms specified in the auction process documents, and failure to adhere to these terms may result in the forfeiture of the EMD and part payment. Therefore, the forfeiture of the amount by the liquidator is upheld if it is by the terms and conditions specified in the auction process.
The NCLAT upheld the Adjudicating Authority's decision, ruling that the Liquidator had the right to forfeit the amounts deposited by the Appellant by the terms and conditions of the auction process.
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