Successful Auction Purchaser Liable for 12% Interest on Delayed Payment Under Schedule I Rule 12 Regulations

NCLAT partly allowed the appeal, setting aside the HC's exoneration of Respondent No.1 (Successful Auction Purchaser) from liability to pay interest on delayed balance sale consideration. It held that Schedule I Rule 12 of the Liquidation Process Regulations is mandatory, requiring payment of balance sale consideration within 30 days or, if paid thereafter (but within 90 days), with 12% interest. Since Respondent No.1 failed to pay the balance within 30 days from the Sale Confirmation Advice, it is liable to pay 12% interest on the unpaid amount from expiry of the 30-day period until the date the Adjudicating Authority extended time (15.06.2023). The appeal was allowed to this limited extent, directing payment of interest within two weeks.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the timelines and interest requirement under Schedule I, Rule 12 of the IBBI (Liquidation Process) Regulations, 2016 for payment of balance sale consideration are mandatory and attracted in this auction sale.

1.2 Whether the Adjudicating Authority had jurisdiction to extend the time for payment of balance sale consideration and, if so, what is the effect of such extension on the auction purchaser's liability to pay interest.

1.3 Whether the attachment of the auctioned land by the State Tax Department and the Liquidator's inability to immediately convey title/execute a sale deed could relieve the auction purchaser from (a) the obligation to adhere to the statutory payment schedule, and (b) liability for statutory interest.

1.4 Whether the doctrine of reciprocal promises under Section 51 of the Indian Contract Act, 1872 could be invoked by the auction purchaser to resist payment of interest on the balance sale consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Mandatory nature and applicability of Schedule I, Rule 12 timelines and interest

Legal framework

2.1 The Court examined Schedule I, Clauses 12 and 13 of the IBBI (Liquidation Process) Regulations, 2016. Clause 12 mandates that the highest bidder must pay the balance sale consideration within ninety days or such period as mentioned in the auction notice, with the first proviso stipulating that payments after thirty days shall attract interest at 12% per annum, and the second proviso stipulating that the sale shall be cancelled if payment is not received within that period. Clause 13 contemplates completion of sale and execution of the sale certificate/deed "on payment of the full amount".

2.2 The Court relied on the decision in V.S. Palanivel v. Sri Lakshmi Hotels (P) Ltd., where it was held that Rule 12 of Schedule I is mandatory and that the consequence of non-payment within 90 days is cancellation of the sale.

Interpretation and reasoning

2.3 The Tender Document and Sale Confirmation Advice expressly incorporated the Liquidation Process Regulations, provided that the sale was on "as is where is, as is what is, whatever there is and non-recourse basis", and stipulated that (a) the balance amount must be paid within 30 days without interest; (b) the amount could be paid within 90 days with 12% interest after 30 days, in line with Regulation 33 and Schedule I; and (c) the transfer process is an independent process and shall not in any way affect the payment schedule.

2.4 The Court rejected the Adjudicating Authority's observation that the timeline for payment of sale price is only directory. Following V.S. Palanivel, it held that Rule 12 is mandatory: both (i) the outer limit of 90 days and (ii) the stipulation that payments made after 30 days shall attract 12% interest must be treated as mandatory.

2.5 The Court noted that the Sale Confirmation Advice was issued on 29.12.2022; the 30-day period expired on 28.01.2023. By that time only Rs. 20 crores had been paid and Rs. 305 crores remained as balance. Under Rule 12, payment of the balance after 30 days necessarily attracted 12% interest. The subsequent payment of Rs. 50 crores on 13.03.2023, though within 90 days, did not alter the statutory requirement of interest after the initial 30 days.

2.6 The Court further held, following V.S. Palanivel, that Rule 12 and Rule 13 are not interlinked; Rule 12 governs timelines and consequences for payment, while Rule 13 only prescribes the procedure for completion of sale after full payment. No adverse consequence is attached to non-compliance with Rule 13, whereas Rule 12 explicitly provides for cancellation for non-payment within time, reinforcing its mandatory character.

Conclusions

2.7 The statutory timelines under Schedule I, Rule 12 are mandatory. The auction purchaser was statutorily liable to pay 12% interest on the unpaid balance consideration after the expiry of 30 days from 29.12.2022.

2.8 The Adjudicating Authority's finding that the timelines were merely directory, and its consequent exoneration of the auction purchaser from interest on that basis, is unsustainable in law.

Issue 2 - Jurisdiction to extend time and impact on interest liability

Legal framework

2.9 The Court considered Section 35 of the Insolvency and Bankruptcy Code, 2016 (Liquidator's powers "subject to the directions of the Adjudicating Authority") and Rule 11 of the NCLT Rules, 2016 (inherent powers to make orders to meet the ends of justice). Relying on V.S. Palanivel and Arun Kumar Jagatramka v. Jindal Steel & Power Ltd., it noted that while the Liquidator cannot extend the Rule 12 timeline, the Adjudicating Authority can, in appropriate cases, extend time under its statutory and inherent powers.

Interpretation and reasoning

2.10 The Adjudicating Authority's order dated 15.06.2023 on IA/364(AHM)2023: (a) required the Liquidator to intimate the State Tax Department regarding its treatment as secured creditor; (b) directed the governing bidder to lift the attachment within 10 days of such intimation; (c) directed the Liquidator to intimate the successful bidder within 2 days of lifting of attachment; and (d) directed the successful bidder to pay the balance Rs. 255 crores within 5 days of such intimation. It expressly postponed consideration of prayer (b) for waiver of interest.

2.11 The Court held that this order effectively extended the time for payment of balance sale consideration, and such extension was granted by the Adjudicating Authority, not by the Liquidator. In light of V.S. Palanivel, the Adjudicating Authority was competent to grant such extension by exercising powers under Section 35 IBC read with Rule 11 NCLT Rules in appropriate circumstances.

2.12 The order dated 15.06.2023 was never challenged by any party and therefore attained finality. It was not a bare extension of timeline; it structured a sequence of steps linked to lifting of attachment before the obligation to pay the remaining amount arose.

2.13 The Court drew a temporal distinction: (a) the period from expiry of the initial 30 days (29.12.2022 + 30 days) up to 15.06.2023, when there was no protective order suspending the statutory obligation, and (b) the period after 15.06.2023, when the Adjudicating Authority's order was in force and temporarily relieved the auction purchaser from the obligation to pay until the specified preconditions were met.

Conclusions

2.14 The Adjudicating Authority validly exercised jurisdiction to extend the time for payment by its order dated 15.06.2023; that order, being unchallenged, binds the parties.

2.15 The auction purchaser remained liable to pay interest at 12% per annum on the unpaid balance consideration from the expiry of the 30-day period after 29.12.2022 until 15.06.2023.

2.16 For the period covered by the operative extension (post 15.06.2023), when the obligation to pay balance consideration stood deferred by order of the Adjudicating Authority, the auction purchaser cannot be saddled with interest; liability to pay interest for that extended period stands waived.

Issue 3 - Effect of State Tax attachment and Liquidator's inability to immediately convey title

Legal framework

2.17 The Court examined the Tender Document, including: (a) disclaimers that the information was not comprehensive and bidders must conduct independent due diligence; (b) stipulations that the land was to be sold on "as is where is", "as is what is", "whatever there is" and "no recourse" basis; (c) express advisory that bidders should verify revenue records, title, encumbrances, liens, statutory dues etc.; and (d) Clause 4.2(g), stating that the seller shall ensure transfer of title "as available", that the transfer process is an independent process, and that it shall not in any way affect the payment schedule under Clause 4.10, framed in accordance with Regulation 33 and Schedule I.

2.18 The Court relied on V.S. Palanivel, where it was held that an auction purchaser who participates in an auction conducted on "as is where is, as is what is, whatever there is" basis, with knowledge of an income tax attachment, cannot later contend that payment of balance consideration was contingent upon lifting of such attachment.

Interpretation and reasoning

2.19 The auction purchaser had raised queries in March 2023 about encroachment, State Tax attachment and revenue entries. The Liquidator, by letter dated 20.03.2023, reiterated that: (a) all documents had been shared earlier; (b) the sale was on "as is where is, as is what is, whatever there is and no recourse basis"; (c) Clause 4.2(g) clearly stipulated transfer as an independent process not affecting the payment schedule; and (d) though registration of sale deed was not possible until attachment was removed, the sale would stand confirmed once the sale certificate was issued against full payment and possession would be handed over.

2.20 The Court held that the Tender Document clearly allocated the risk of existing encumbrances, including statutory attachments, to the bidders. Payment timelines were expressly decoupled from completion of title-transfer formalities. Thus, the existence of State Tax attachment did not legally suspend or condition the obligation to pay under Schedule I, Rule 12.

2.21 Referring to V.S. Palanivel, the Court held that Rule 12 (timelines and interest/cancellation consequence) is not contingent on removal of encumbrances or completion of procedures under Rule 13. The inability to immediately execute a conveyance deed due to attachment does not negate or postpone the obligation to pay within the statutory schedule.

Conclusions

2.22 The attachment of the land by the State Tax Department and the Liquidator's temporary inability to execute a registered sale deed did not relieve the auction purchaser from complying with the statutory payment schedule under Schedule I, Rule 12.

2.23 The contention that no obligation to pay arose until lifting of the attachment was rejected in view of the auction's express "as is where is" terms and the clear separation between payment schedule and transfer process.

2.24 The Court held that the Adjudicating Authority erred in reasoning that because the Liquidator could not then convey title due to attachment, the purchaser could not be compelled to pay the balance or interest.

Issue 4 - Applicability of Section 51, Indian Contract Act, 1872 and reciprocal promises

Legal framework

2.25 The auction purchaser invoked Section 51 of the Indian Contract Act, 1872, arguing that, in the absence of performance of reciprocal promises by the promisee (Liquidator's ability to convey title free of attachment), the promisor (purchaser) was not bound to perform its obligation to pay. Reliance was placed on Nathulal v. Phoolchand, Sikkim Subba Associates v. State of Sikkim, and a Delhi High Court decision in I.C.M. Airport Technics v. International Airports Authority of India.

Interpretation and reasoning

2.26 The Court distinguished these precedents as arising from conventional contractual disputes (including those under the Arbitration Act, 1940) where contractual covenants and sequences of reciprocal obligations governed performance.

2.27 It held that the instant matter concerns sale of liquidation assets governed by the Insolvency and Bankruptcy Code, 2016 and the IBBI (Liquidation Process) Regulations, 2016. The payment obligations and timelines of an auction purchaser in liquidation are primarily statutory and regulatory in character, not purely contractual.

2.28 The Tender Document expressly subjected the sale to the provisions of the IBC and Liquidation Process Regulations, and clearly stipulated that the transfer process is independent and will not affect the payment schedule. Therefore, the premise that the Liquidator's ability to convey clear title was a reciprocal condition precedent to the purchaser's payment obligation was inconsistent with the governing statutory and tender terms.

Conclusions

2.29 Section 51 of the Indian Contract Act and the doctrine of reciprocal promises do not apply in the manner contended so as to suspend or negate the statutory obligation to pay balance consideration with interest under Schedule I, Rule 12.

2.30 The authorities cited on reciprocal promises and contractual sequencing do not assist the auction purchaser in the context of a liquidation sale conducted under the IBC framework and binding Tender Document clauses.

Overall determination on interest liability

2.31 The auction purchaser was liable to pay 12% interest on the balance sale consideration for the period starting after the expiry of 30 days from 29.12.2022 up to 15.06.2023, when the Adjudicating Authority first granted extension of time.

2.32 For the period during which the extension order dated 15.06.2023 operated, the obligation to pay balance consideration stood deferred by judicial order; consequently, interest for that extended period stands waived.

2.33 The direction of the Adjudicating Authority fully exonerating the auction purchaser from payment of interest on the balance consideration was set aside and substituted with a limited direction that the auction purchaser must pay 12% interest on the balance sale consideration for the period after 30 days from 29.12.2022 until 15.06.2023, to be paid within two weeks, while the remainder of the impugned order was left undisturbed.

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