Earnest money in insolvency resolution must be refunded absent proof of misleading disclosure or valid forfeiture grounds.

A resolution applicant's earnest money deposit in insolvency resolution proceedings may be refunded where the process documents require return to an unsuccessful applicant and forfeiture is not supported by proof of false or misleading representation. The cited forfeiture principle was found inapplicable on the stated facts, and Regulation 36B of the CIRP Regulations was noted as not creating a non-refundable deposit requirement for submitting a resolution plan. Allegations made in the refund application were also found insufficient to justify expunging the pleadings. The deposit was directed to be returned with accrued interest.

---

---

Issues: (i) Whether the liquidator could withhold or forfeit the earnest money deposit paid by a resolution applicant who was found ineligible under Section 29A of the Insolvency and Bankruptcy Code, 2016, and (ii) whether the allegations made in the application seeking refund of the deposit justified expunging the pleadings.

Issue (i): Whether the liquidator could withhold or forfeit the earnest money deposit paid by a resolution applicant who was found ineligible under Section 29A of the Insolvency and Bankruptcy Code, 2016.

Analysis: The resolution applicant had deposited the amount as per the process documents, and the terms governing return of the bid security required refund to an unsuccessful applicant within the stipulated time. Forfeiture was permissible only on proof of false or misleading representation. No material was shown to establish deliberate misuse of the process or any misleading disclosure by the applicant. The cited contract-law principle on forfeiture of bid security was held to be inapplicable on these facts. Regulation 36B of the CIRP Regulations was also noted as not requiring a non-refundable deposit for submission of a resolution plan.

Conclusion: The liquidator had no right to retain or forfeit the earnest money deposit, and refund was warranted.

Issue (ii): Whether the allegations made in the application seeking refund of the deposit justified expunging the pleadings.

Analysis: The challenged averments were examined in the context of the refund dispute and were found not to be so grave as to defame the liquidator. The pleadings did not warrant expunction on the material placed before the Tribunal.

Conclusion: Expunging the pleadings was not justified.

Final Conclusion: The appellate challenge failed, the refund direction was maintained, and the liquidator was required to return the deposited amount with accrued interest.

Ratio Decidendi: A bid security or earnest money deposit in insolvency resolution proceedings can be retained or forfeited only if the governing process documents and the evidence justify that course, particularly where false or misleading representation is proved; absent such proof, the amount must be refunded to the unsuccessful and disqualified applicant.

---