IBC Auctions Not Ordinary Commercial Contracts, Market Volatility No Defence For Evading Bid Obligations: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently held that a successful bidder in a liquidation e-auction who voluntarily accepts statutory terms cannot avoid payment obligations by citing market fluctuations or delays not attributable to the liquidator, and set aside an NCLT Kolkata order directing refund of the Rs 2 crore earnest money deposit.

A Bench of Judicial Member Justice Yogesh Khanna and Technical Member Indevar Pandey observed that liquidation auction contracts differ from ordinary commercial contracts and are governed by strict statutory terms and timelines that leave no scope for negotiation or flexibility.

“Auctions in liquidation proceedings under the Code operate in a framework which is distinct from ordinary commercial contracts. Unlike bilateral transactions, where parties negotiate terms; a liquidation sale takes place under a statutory umbrella of the Code and Liquidation Regulations with predefined conditions; strict timelines; and automatic consequences for default. A bidder who participates in such an auction voluntarily subjects itself to those conditions, and the Liquidator is obligated to implement them strictly in accordance with Code in order to protect value of assets.”, it said. 

The dispute arose from the liquidation of Ess Dee Aluminium Limited, where Lucky Holdings Private Limited was declared the highest bidder at Rs 124.60 crore in an April 2022 going-concern auction. Under the auction terms, the bidder had to deposit 25 percent of the bid within 15 days. Thirteen of those days had already elapsed when an interim restraint in an unrelated application was issued on 9 May 2022.

Once that application was withdrawn on 15 June, the liquidator reinstated the remaining timeline and sought payment. Lucky Holdings, however, did not deposit any sum or request a formal extension before the liquidator cancelled the sale and forfeited the EMD on 1 July 2022.

The liquidator argued that the bidder had unambiguously agreed to the payment schedule and the consequence of forfeiture. She maintained that the interim restraint merely paused the remaining two days of the 15-day period and did not restart the timeline. The liquidator submitted that after the restraint was lifted, the bidder responded with non-committal emails and appeared reluctant to proceed because aluminium prices had fallen. The bidder, on the other hand, claimed the liquidator's undertaking before the NCLT created uncertainty, that the withdrawal order was shared late, and that forfeiture was unwarranted.

The tribunal rejected these arguments, noting that the bidder did not make any payment even after receiving the withdrawal order, not even a partial amount that could have indicated readiness to comply. It said that the liquidator's position that the bidder's reluctance was commercially motivated and noted that the auction documents and the bidder's own affidavit expressly bound it to the 15-day deadline and to forfeiture for any failure to meet it.

"This clearly reflects that due to extraneous considerations like fall in the price of aluminum in international market, the respondent did not want to go ahead with the purchase. Such an action of respondent was in clear violation of the terms and conditions of the auction process which was conducted by the liquidator in accordance with the liquidation regulations.", it said

The tribunal held that forfeiture in liquidation auctions arises from statutory terms rather than contractual penalty clauses and recorded that a fresh auction subsequently fetched only Rs 103.40 crore, indicating a loss of over ₹21 crore to the liquidation estate. Concluding that the liquidator's decision was justified and compliant with the Code, the tribunal restored the forfeiture and set aside the NCLT's refund direction.

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