2025 (3) TMI 1574 - AT - IBC

Insolvency going-concern auction deposit forfeiture terms challenged, but bidder barred after participation; forfeiture and dismissal upheld

An unsuccessful auction participant challenged the insolvency sale terms, contending that a clause permitting forfeiture of 25% of the deposit was ... Seeking confirmation of the sale of Corporate Debtor as a going concern and declaration of the Successful Bidder, as the purchaser of Corporate Debtor along with immunity as prescribed under Section 32A and 238 of IBC - whether insertion of these Clauses in the initial bidding document of 27.10.2023, which was followed for the 5th Auction of 11.12.2023, could at all be held to be a commercially arbitrary clause and the forfeiture of 25% of the deposit ought not to have been made in view of Clause 9, where the forfeiture of the Earnest Money Deposit amount has already been contemplated? HELD THAT:- There has had to be a logical interpretation which has to be given to the interplay of Sub Clause 11 of Clause 5 to be read with Clause 9 and the justification for the same is, that the Appellant has participated in the Auction Sale and submitted his bid upon the publication of Auction Sale Notice on 27.10.2023. The logical presumption would be that he had gone through the terms and conditions of the bidding document and has understood the same and that, once he has already submitted his Expression of Interest and has voluntarily participated in the bidding process without raising objection, he would be bound by its terms and conditions and he cannot take a somersault subsequently, contending that the Sub Clause 11 of Clause 5 of the bidding document was commercially arbitrary, once, he has submitted himself to the terms of documents after his participation and has reaped the fruit of having being declared as to be a Successful Bidder, which stood adjudicated and determined by the learned Adjudicating Authority vide its Order dated 27.09.2024. The settled principle of law is, that once the rules of the game have already been brought into a public domain and a person voluntarily participates in the process as contemplated under the rules of the game, which has been published, he cannot, on a later date, upon being determined unsuccessful or upon arising of any dispute regarding the terms and conditions of the said document, he cannot take a somersault or a stand converse to the terms and conditions of the bidding document contending thereof, that these Clauses are arbitrary. Thus, denial of extension of time period by the Tribunal, by the Impugned Order does not call for any interference. The instant Company Appeal lacks merit and the same would stand dismissed. Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the Successful Bidder was entitled to an extension of time beyond the stipulated 90 days to pay the balance sale consideration for purchase of the corporate debtor as a going concern, on the basis of the 2024 amendment to the liquidation regulations and allied executive material. (ii) Whether the liquidator's cancellation of the sale and forfeiture of the amounts already paid (including payments beyond the earnest money) for failure to pay the balance consideration within the stipulated period was valid and enforceable under the e-auction process document. 2. ISSUE-WISE DETAILED ANALYSIS (i) Extension of time beyond the stipulated payment schedule Legal framework (as discussed by the Court): The Court examined the effect of the 2024 amendment notification, including its 'come into force' clause, and the amendment requiring that any extension beyond 90 days be disclosed in the auction notice. The Court also considered the reliance placed on an executive press release/memorandum said to permit extension beyond 90 days after consultation with the SCC. Interpretation and reasoning: The Court held that the amendment relied upon did not automatically grant a post-auction right to extend payment timelines beyond 90 days. The requirement that any such extended timeline be decided beforehand and disclosed in the auction notice made the amendment prospective in operation for future auction notices. Since the relevant auction notice and the auction itself were issued and concluded prior to the amendment's publication, the amended provision could not be imported into an already-finalised auction process to enlarge the payment period. The Court further reasoned that the executive press release could not be read to override or retrospectively expand the amendment's effect, and was at best a reiteration/explanation of the amendment's features. Conclusion: The Court conclusively decided that no basis existed-either under the bidding document or by applying the 2024 amendment-to grant an additional 30-day extension beyond the already-available time for payment. The refusal to extend time was upheld. (ii) Validity of forfeiture and cancellation for non-payment within stipulated time Legal framework (as discussed by the Court): The Court interpreted the e-auction process document, particularly the forfeiture clause and the payment schedule clause stating that if payment is not received within 90 days, the sale shall stand cancelled and all monies paid until that date shall stand forfeited. The Court also applied the principle that a bidder who participates with knowledge of published terms is bound by them, and noted the settled proposition that a successful bidder must strictly adhere to the prescribed time-slab for payment. Interpretation and reasoning: The Court found that the liquidator acted in accordance with the express terms of the bidding document. Although one clause referred to forfeiture of earnest money upon default, the payment schedule clause expressly provided that on failure to pay within 90 days the sale would be cancelled and all amounts paid up to that date would be forfeited, thereby covering not only the earnest money but also subsequent instalments. The Court rejected the challenge that these terms were commercially arbitrary, holding that a participant who voluntarily submitted a bid without objection and obtained confirmation as successful cannot later 'take a somersault' to dispute the very terms governing the auction. Given the admitted non-payment by the stipulated last date, the contractual consequences-cancellation and forfeiture-followed automatically under the document. Conclusion: The Court upheld the forfeiture and cancellation as valid under the governing auction terms. Since no legal basis existed to extend time or set aside forfeiture, the impugned dismissal of both applications was affirmed and no interference was warranted.