IBC | Failure To Pay Balance Sale Consideration Invites EMD Forfeiture If Auction Terms So Provide : Supreme Court
The Supreme Court on Monday (September 28) ruled that where auction terms provide for it, a successful bidder's failure to pay the balance sale consideration in a liquidation proceeding will result in forfeiture of the Earnest Money Deposit, even though the Liquidation Process Regulations do not expressly provide for such forfeiture.
The successful auction bidder, Appellant, relying on the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“IBBI Regulations”), argued that while the IBBI Regulations prescribe that the EMD shall not exceed 10% of the reserve price, they contain no provision authorising forfeiture of the EMD for failure to deposit the balance sale consideration.
Rejecting this argument, a bench of Justice JB Pardiwala and Justice K. Vinod Chandran, although accepting the position regarding the forfeiture of EMD under the IBBI Regulations, which shall not be more than 10% of the reserve price, clarified that this did not assist the appellant because the terms of the e-auction notice itself expressly provided for forfeiture.
Since the terms of the e-auction provided forfeiture of the EMD upon failure to deposit the balance sale consideration within the stipulated period, the Court said that reliance on the statutory regulation would not benefit the Appellant.
The property in question, situated in Sonepat, Haryana, had a reserve price of ₹25.56 crore.
The EMD stipulated was ₹2.55 crore, exactly 10% of the reserve price. The liquidator required the successful bidder to deposit 25% of the bid amount, which included the EMD and a portion of the balance sale consideration.
The auction notice contained a specific forfeiture condition stating that the entire amount paid by the bidder, including the EMD, could be forfeited if the successful bidder failed to pay the balance sale consideration according to the terms of sale.
The Appellant, being a successful bidder in an e-auction, failed to deposit the balance sale consideration of approximately ₹19.17 crore within the initial 30-day period or within the extended 90-day period, which resulted in forfeiture of the EMD and an amount earlier paid by the Appellant.
Against the forfeiture, the Appellant moved to the NCLT, which allowed his application against the forfeiture, invoking the triple test, noting that:
(i) the Appellant had no hidden agenda mentioned and, in the facts, and circumstances coming out from the case to rig the auction,
(ii) there is nothing to show the mala fide intention of the appellant to frustrate the auction process.; or
(iii) Appellant been prevented by any extraneous reasons from making full payment of the balance sale consideration because of the pending proceedings qua the subject property.
The NCLAT, however, set aside the NCLT findings, noting that since the Appellant had entered into the auction proceedings, after having knowledge of the e-auction terms which proceeded on a “as is where is” basis, and prescribing a forfeiture of the EMD and deposit amount upon failure to deposit the balance sale consideration within the stipulated period, thus, when their failure to deposit the balance sale consideration cannot be countenance by reliance on IBBI Regulation.
Against the NCLAT decision, the auction bidder moved to the Supreme Court.
Dismissing the appeal, the judgment authored by Justice Chandran found no reason to interfere with the NCLAT's findings.
Reference was made to the NCLAT's judgments of Westcoast Infraprojects Private Limited v. Ram Chandra Dallaram Choudhary and Potens Transmission & Power Pvt. Ltd. v. Apex Buidlsys Ltd. (In Liquidation), which were later approved by the Supreme Court. The NCLAT, therein, upheld forfeiture, pursuant to the relevant e-auction clause, of both the EMD and other deposits made by the bidder upon failure to pay the balance sale consideration. (Also see Potens Transmissions & Power Pvt. Ltd v Gian Chand Narang)
The Court found the same principle applicable in the present case because the auction notice expressly authorised forfeiture of the entire amount paid by the successful bidder.
“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 Court said.
As a result, the appeal was dismissed.
Cause Title: M/S ASJ FINSOLUTIONS PVT. LTD. Versus VIKRAM BAJAJ
Citation : 2026 LiveLaw (SC) 998
Click here to read/download judgment
Appearance:
For Appellant(s) : Ms. Meenakshi Arora, Sr. Adv. Mr. Mrinal Harshvardhan, Adv. Mr. Lakshay Agarwal, Adv. Ms. Vanshika Agarwal, Adv. Ms. Ekta Choudhary, AOR
For Respondent(s) :Mr. Abhishek Anand, Adv. Mr. Mandeep Kalra, AOR Mr. Karan Kohli, Adv. Ms. Palak Kalra, Adv. Ms. Ridhima Mehrotra, Adv. Ms. Chitrangada Singh, Adv. Mr. Yashas J, Adv. Mr. Vaibhav Yadav, Adv. Mr. Paras Mohan Sharma, Adv.