NCLT Can Order Forfeiture Of Entire Deposit If Purchaser Of Liquidation Assets Defaults In Payments : Supreme Court

The Supreme Court held that if a purchaser defaults on payment for assets acquired in liquidation under a judicially supervised sale, the entire amount already deposited may be forfeited. It further clarified that Section 74 of the Indian Contract Act, 1872 cannot be invoked to seek a refund, as no contract exists between the purchaser and the liquidator, the sale being conducted under the authority and supervision of the Adjudicating Authority.

“the appellant had no justifiable claim to seek refund of the amounts paid by it, which stood forfeited in keeping with the order passed by the NCLT. This was not a case of a contract between the appellant and the liquidator/stakeholders, whereby the appellant could seek to fall back on Section 74 of the Indian Contract Act,1872. The sale in question was purely under the supervision of the Adjudicating Authority, i.e., the NCLT, and the forfeiture condition stipulated by the NCLT while granting extension of time cannot be equated with a forfeiture clause in a contract.”, observed a bench of Justices Sanjay Kumar and Alok Aradhe, while dismissing an appeal filed by a purchaser-company who defaulted on payment of the sale amount on time despite repetitive extension granted by the NCLT monitoring the sale in the liquidation proceedings.

The Court dismissed appeals by M/s Shri Karshni Alloys Pvt. Ltd., upholding the forfeiture of about ₹37.80 crore paid toward the purchase of assets of Surana Industries Ltd. in liquidation. 

The dispute arose during the liquidation of Surana Industries, where Karshni Alloys offered ₹105.21 crore in September 2021 to buy the Raichur plant as a going concern. Although the National Company Law Tribunal (NCLT) approved the sale in March 2022, strict timelines were imposed for payment of the balance consideration. Karshni Alloys failed to meet the deadlines, paying only ₹37.80 crore in partial instalments. The NCLT consequently ordered forfeiture of the entire amount and directed a fresh auction.

Karshni Alloys challenged the forfeiture before the NCLAT and subsequently before the Madras High Court, arguing that the resale of the assets at ₹145.38 crore to another bidder showed no loss to stakeholders and that the forfeiture was unjust. However, the Supreme Court upheld the majority NCLAT view that the sale was governed under Regulation 33(2)(d) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, and the National Company Law Tribunal had the power to set terms, including forfeiture, under Rule 15 of the NCLT Rules.

Reinforcing the IBC's time-bound framework, the Court stressed that delays frustrate the very purpose of the insolvency regime.

Relying on Kridhan Infrastructure Private Limited vs. Venkatesan Sankaranarayan and others, (2021) 6 SCC 94, the Court reiterated that “time is a crucial facet of the scheme under the IBC and to allow such proceedings to lapse into indefinite delay would plainly defeat the very object of the statute.”, adding that the forfeiture clause imposed by the NCLT was held to be a legitimate exercise of power under Rule 15 of the NCLT Rules, allowing orders “upon such terms as the justice of the case may require.”

Further, the Court found that the appellant had accepted and acted upon the conditional extension by making further payments, and therefore could not later challenge the binding forfeiture clause. It applied the doctrine against approbation and reprobation, holding that the appellant could not invoke Section 74 of the Contract Act to claim a refund of the deposited amount.

Accordingly, the appeal was dismissed.

Cause Title: M/s. Shri Karshni Alloys Private Limited versus Ramakrishnan Sadasivan

Citation : 2025 LiveLaw (SC) 1195

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Appearance:

For Appellant(s) : Mr. Mukul Rohatgi, Sr. Adv. Mr. Jaideep Gupta, Sr. Adv. Mr. S.D. Singh, Adv. Ms. Bharti Tyagi, AOR Ms. Shweta Sinha, Adv. Ms. Racheeta Chawla, Adv. Mr. Ram Kripal Singh, Adv. Mr. Siddharth Singh, Adv.

For Respondent(s) : Mr. Aditya Verma, AOR Mr. K. Rigved Prasad, Adv. Mr. Mayan Jain, Adv. Ms. Parkhi Rai, Adv.