E-auction buyer loses deposit for missing statutory payment deadline; Section 60(5) plea held impermissible overreach

NCLAT allowed the appeal filed by the liquidator and set aside the impugned NCLT order which had effectively granted relief to the auction purchaser. It held that under the e-auction process document and Liquidation Regulations, the timelines for payment of balance sale consideration are statutory, and the successful bidder was bound to deposit the amount within the stipulated period, failing which forfeiture applied. The respondent's wilful default and attempt to re-agitate the matter through a subsequent application under Section 60(5) of the Code was held impermissible and an overreach. Consequently, forfeiture of the amount deposited was upheld and no refund was directed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, after earlier orders holding the successful auction purchaser in wilful default and upholding cancellation of sale had attained finality, the Tribunal could entertain a subsequent application under Section 60(5) of the Insolvency and Bankruptcy Code seeking refund of the earnest money deposit and effectively revisit those findings.

1.2 Whether, on the facts of the case and in light of the e-auction process document and Clause 12 of Schedule I of the Liquidation Regulations, the liquidator was entitled to cancel the sale and forfeit the earnest money deposit on account of non-payment of the balance sale consideration within the prescribed period, and whether equitable considerations, alleged discrimination, absence of loss to stakeholders, or "trinity test" principles could override such statutory and contractual consequences.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Maintainability of a fresh application under Section 60(5) seeking refund of EMD after prior adjudication and appellate affirmation

Interpretation and reasoning

2.1 The Tribunal had, by order dated 31.03.2023 on an earlier application under Section 60(5), held that the successful bidder had complete knowledge of the title position (including non-availability of original title deeds for a fractional portion), had wilfully defaulted in payment of the balance amount of Rs. 19.17 crores within the stipulated period, and that no further extension of time was warranted in view of the time-bound nature of liquidation proceedings.

2.2 That order was challenged in appeal and this Appellate Tribunal, by order dated 21.04.2023, dismissed the appeal, holding that: (i) pendency of litigation by third parties (writ petition and civil suit) could not justify non-payment of the balance consideration; (ii) the balance amount had to be deposited within the time mandated by Schedule I of the Liquidation Regulations; and (iii) the applicant's own prayers indicated lack of genuine intent to make the payment and an attempt to prolong proceedings. The appellate order thereby affirmed the findings of wilful default and mandatory nature of the payment timeline.

2.3 No statutory appeal under Section 62 of the Insolvency and Bankruptcy Code was filed against the appellate order. Instead, a writ petition was filed before the High Court challenging both the Tribunal's order dated 31.03.2023 and this Appellate Tribunal's order dated 21.04.2023. The writ petition was dismissed, with only a general liberty to avail remedies in accordance with law, and without any interference on merits.

2.4 On these admitted facts, the earlier orders dated 31.03.2023 and 21.04.2023 attained finality. The subsequent application (I.A. No. 1047 of 2024) under Section 60(5), seeking refund of 25% of the bid amount with interest and inviting reconsideration of default and forfeiture, was premised on a misconceived reading of the High Court's order as granting liberty to reopen what had already been finally adjudicated.

2.5 The Court held that the Tribunal, by entertaining I.A. No. 1047 of 2024 and granting refund of the EMD, had in substance set at naught the binding findings in the orders dated 31.03.2023 and 21.04.2023, which it neither could nor should have done. Such an exercise amounted to overreaching and impermissibly questioning final, unchallenged findings of wilful default and non-compliance with statutory timelines.

Conclusions

2.6 Once the orders dated 31.03.2023 and 21.04.2023 had become final, the successful bidder could not, through a fresh application under Section 60(5), seek reconsideration of default, cancellation, or forfeiture.

2.7 The Tribunal lacked jurisdiction to entertain I.A. No. 1047 of 2024 in a manner that effectively reviewed or nullified the earlier final orders; the impugned order allowing refund of EMD was therefore unsustainable on this ground alone.

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Issue 2 - Legality of cancellation of sale and forfeiture of EMD under the auction terms and Liquidation Regulations; relevance of equity, discrimination, absence of loss, and SARFAESI-based "trinity test"

Legal framework as discussed

2.8 The e-auction process document stipulated that: (i) bidders had to deposit an interest-free earnest money deposit (EMD) before submission of bids; (ii) the successful bidder was required to pay the entire sale consideration within 30 days from demand; (iii) payments made after 30 days would attract interest at 12% per annum; and (iv) the sale would be cancelled if full payment was not received within 90 days.

2.9 Schedule I, Clause 12 of the Liquidation Regulations was referred to, and, as earlier held by this Appellate Tribunal (and affirmed by the Supreme Court), the 90-day period for payment of the sale consideration, with consequential cancellation on non-payment within that period, is a mandatory statutory timeline.

2.10 The process document also contained an express forfeiture clause, empowering the liquidator to forfeit the entire amount paid, including EMD, on specified events such as breach of document conditions, ineligibility, non-payment of the balance sale consideration within time, or fraudulent / corrupt practices.

Interpretation and reasoning

2.11 The Court noted that the successful bidder was fully aware of: (i) the existing civil suit relating to a small fractional area (14M) and the absence of original title deeds for that fractional portion, clearly disclosed in the process document; and (ii) the mandatory requirement to pay the balance consideration within 90 days, with interest after 30 days and with cancellation (and contractual forfeiture) upon non-payment.

2.12 Earlier binding decisions of this Appellate Tribunal in Potens Transmissions & Power Pvt. Ltd. and Westcoast Infra Projects Pvt. Ltd., affirmed by the Supreme Court, had already held that: (i) the 90-day payment period in Clause 12 of Schedule I is statutory and mandatory; and (ii) where the auction terms empower the liquidator to forfeit EMD and other amounts upon default by the successful bidder, cancellation and forfeiture are legally justified and not open to equitable reappraisal.

2.13 The Court held that, in light of these precedents and the explicit terms of the process document, it did not lie in the mouth of the successful bidder to contend that the 90-day period was directory, or that cancellation could occur without forfeiture. The bidder was contractually bound by the forfeiture clause upon committing default in depositing the balance consideration within the prescribed time.

2.14 The Tribunal, in the impugned order, had relied on two Supreme Court decisions under the SARFAESI framework and applied a "trinity test" (genuineness, financial capacity, and bona fides of the bidder) derived therefrom to hold that the bidder was a genuine entity with capacity and no mala fides, and therefore entitled to refund. The Court held this approach to be erroneous because: (i) those decisions were rendered in the context of SARFAESI and its specific rules (including Rule 9(5)), not under the Insolvency and Bankruptcy Code and Liquidation Regulations; (ii) they could not displace the mandatory statutory regime and binding precedents under the Code; and (iii) the application of the "trinity test" produced findings (genuineness and lack of mala fides) directly contrary to the earlier, final findings of wilful default and attempt to prolong proceedings.

2.15 The argument that Clause 12 of Schedule I does not itself expressly provide for forfeiture of EMD, unlike Rule 9(5) of the SARFAESI Rules, was rejected. The Court held that forfeiture in this case flows from the contractual terms of the e-auction process document (which expressly allowed forfeiture of the entire amount paid on default), read with the statutory requirement that payment must be completed within 90 days failing which the sale stands cancelled.

2.16 The plea of discrimination and breach of parity was based on the assertion that, in respect of another lot from the same auction, the liquidator and Tribunal had granted multiple extensions to another successful bidder. The Court held that parity and equality between different bidders cannot arise in this context; every case must be decided on its own facts, and the subsequent course of events after the order of forfeiture (including different litigations and conduct) made the comparison inapposite.

2.17 The contention that there was no loss to stakeholders because a later auction fetched a higher price, and that forfeiture would amount to unjust enrichment, was rejected in light of the Supreme Court's pronouncement in Pratap Technocrats that, once statutory requirements under the Code are fulfilled, neither the Adjudicating Authority nor the Appellate Tribunal can allow equitable or fairness-based considerations to override the statutory framework. The scheme of the Code and the binding auction terms govern, irrespective of subsequent price movements or perceived enrichment.

2.18 The plea that third-party litigation (writ petition and application by another entity challenging title) created uncertainty and justified delay was also inconsistent with the earlier final finding that such litigation could not be a ground for non-payment of the balance consideration within time, especially when the writ petition merely restrained execution of the sale deed for one week and the third-party application was ultimately withdrawn.

Conclusions

2.19 The successful bidder was bound by the e-auction process document and the mandatory 90-day payment timeline under Clause 12 of Schedule I of the Liquidation Regulations. Non-payment of the balance sale consideration within this period constituted wilful default.

2.20 Upon such default, the liquidator was entitled, under the process document and the statutory regime, to cancel the sale and forfeit the entire amount deposited, including the EMD; those consequences were neither inequitable nor open to rebalancing on fairness grounds.

2.21 Reliance on SARFAESI-based "trinity test" principles, alleged bona fides, claimed discrimination vis-à-vis another bidder, and absence of loss to stakeholders could not override the binding statutory provisions, contractual terms, and final judicial findings of default.

2.22 The impugned order directing refund of the EMD was contrary to the statutory scheme, the express auction terms, and prior final adjudications; it was therefore set aside and the appeal allowed, with no order as to costs.

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