EMD forfeiture upheld where bidder deposited amount but failed to submit bid; auction terms deemed composite and binding

NCLAT (Chennai) dismissed the appeal, upholding forfeiture of the EMD. The Appellant had deposited EMD pursuant to the auction notice and tender document but failed to submit any bid in the e-auction. The Tribunal held that the tender document and e-auction notice were co-existent and formed a composite set of binding terms. Clause 11 of the auction notice, containing the forfeiture condition, applied automatically once the Appellant voluntarily participated by depositing EMD. As the Appellant's non-submission of a bid constituted breach of the auction conditions, refusal to refund the EMD was neither arbitrary nor illegal.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a bidder, after participating in an e-auction pursuant to a sale notice, can subsequently challenge the validity or arbitrariness of a forfeiture clause contained in that sale notice.

1.2 Whether the terms of the e-auction sale notice and the tender document are to be read together as a composite set of binding conditions governing the bidder's rights and obligations.

1.3 Whether a bidder who deposits EMD but does not submit any bid in the e-auction is entitled to refund of EMD under a clause providing for refund to "unsuccessful bidders".

1.4 Whether forfeiture of EMD, in the circumstances of non-participation in bidding after deposit of EMD, is valid and enforceable under the contractual terms and the principles laid down by the Supreme Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Subsequent challenge to forfeiture clause after participation in e-auction

Legal framework (as discussed)

2.1 The Court relied on the principle enunciated by the Supreme Court in "Tej Prakash Pathak v. High Court of Rajasthan" that a participant in an auction process is deemed to have accepted the terms and conditions of the auction notice by participating therein after going through such terms.

Interpretation and reasoning

2.2 The e-auction sale notice dated 25.08.2023 contained Clause 11, which explicitly stipulated that if none of the intended bidders participating in the e-auction increased the bid amount, the EMD amount of the bidders would be forfeited.

2.3 The Appellant, with full knowledge of Clause 11, submitted EMD on 11.09.2023 and tender form in response to the e-auction notice, without raising any objection or challenge to the forfeiture clause at that stage.

2.4 The Court held that the offer made by the e-auction notice was unconditionally accepted by the Appellant upon submission of EMD, and under settled principles, the Appellant ought not to have participated in the process if it intended to challenge the arbitrariness of Clause 11.

2.5 Once having participated by depositing EMD, the Appellant could not subsequently turn around and allege Clause 11 to be arbitrary or invalid.

Conclusions

2.6 The Appellant, having voluntarily participated in the e-auction with knowledge of Clause 11, is estopped from challenging the forfeiture clause at a later stage. The challenge to Clause 11 on grounds of arbitrariness is not sustainable.

Issue 2: Inter-relationship between e-auction sale notice and tender document

Interpretation and reasoning

2.7 The Appellant contended that the e-auction sale notice was only an invitation to offer and that the binding rights and liabilities were governed exclusively by the tender document (Annexure 6), including its Clause 8 dealing with refund of EMD.

2.8 The Court held that the tender document and the conditions contained therein form part and parcel of, and are in extension to, the e-auction sale notice dated 25.08.2023. The two documents coexist and jointly operate to achieve the common object of conducting and completing the bidding process.

2.9 The Court clarified that neither the auction notice nor the tender document has an independent existence; they must be read together as a composite set of conditions governing the conduct of bidders, including the Appellant.

Conclusions

2.10 The terms of the e-auction sale notice and the tender document are co-extensive and jointly binding on the Appellant. The Appellant's rights and liabilities are governed by both, and the tender document cannot be isolated from the conditions in the auction notice, including Clause 11 on forfeiture.

Issue 3: Entitlement to refund of EMD under "unsuccessful bidder" clause where no bid was submitted

Interpretation and reasoning

2.11 Clause 8 of the tender conditions, relied upon by the Appellant, stipulates that "The EMD amount of unsuccessful Bidders will be refunded within one week."

2.12 The Court interpreted Clause 8 to mean that refund arises only after a bidder has actually participated in the bidding process and has, upon evaluation, been determined to be an "unsuccessful bidder".

2.13 It is an admitted factual position, recorded in the impugned order and noted by the Court, that the Appellant did not submit any bid during the e-auction conducted on 13.09.2023, despite having deposited EMD and submitted the tender form.

2.14 The Appellant's explanation that, on assessing the market value, it found the property not lucrative and therefore chose not to bid, was held by the Court to be a matter of the Appellant's own conduct and decision, for which it must bear the consequences.

2.15 Since the Appellant never became a participant-bidder in the actual bidding process on 13.09.2023, there was no occasion to classify it as an "unsuccessful bidder" within the meaning of Clause 8.

Conclusions

2.16 The precondition for applicability of Clause 8-namely, that the bidder participates and is then determined to be unsuccessful-was not satisfied.

2.17 The Appellant, having failed to submit any bid during the e-auction, does not qualify as an "unsuccessful bidder" and, therefore, is not entitled to refund of EMD under Clause 8 of the tender conditions.

Issue 4: Validity of forfeiture of EMD for non-participation in bidding after depositing EMD

Legal framework (as discussed)

2.18 The Court relied on the principle laid down by the Supreme Court in "NTPC v. Ashok Kumar Singh" that where an agreement contains a forfeiture clause, and there is a breach of condition by the purchaser or intending participant, forfeiture of earnest money in terms of such clause is permissible and binding.

Interpretation and reasoning

2.19 Clause 11 of the e-auction sale notice provided for forfeiture of EMD when none of the intended bidders participating in the e-auction increased the bid amount.

2.20 The Court found that the Appellant deposited EMD and submitted the tender form in response to the auction notice dated 25.08.2023, thereby accepting the terms including Clause 11.

2.21 During the e-auction held on 13.09.2023, the Appellant did not submit any bid, despite being eligible and having paid EMD, leading to a situation squarely attracting the forfeiture consequence contemplated by Clause 11.

2.22 The Court held that by failing to participate in the bidding process after deposit of EMD, the Appellant committed a breach of the accepted auction conditions, and in terms of the binding forfeiture clause, the EMD automatically stood forfeited.

2.23 The Court also observed that, in light of these facts and the settled legal position on forfeiture of earnest money, there was no error in the Tribunal's refusal to order refund of the EMD.

Conclusions

2.24 Forfeiture of the EMD amount is valid and enforceable in view of Clause 11 of the e-auction notice and the Appellant's non-participation in the bidding process after voluntarily accepting the conditions and depositing EMD.

2.25 The Tribunal's order declining to refund the EMD and implicitly upholding its forfeiture does not suffer from any apparent error warranting interference. The appeal was, therefore, dismissed as devoid of merit.

---