2026 (3) TMI 1209 - AT - IBC

Liquidation auction default allows cancellation and EMD forfeiture, but double recovery cannot stand when a later sale fetches the same price.

A successful bidder's failure to pay the balance consideration within the prescribed liquidation timeline justified cancellation of the e-auction and ... Validity of auction cancellation under process memorandum - forfeiture of earnest money - unjust enrichment - successful auction purchaser - cancellation of auction sale - time bound liquidation process - maximisation of realisation. Validity of auction cancellation under process memorandum - Action of the liquidator in cancelling the 9th e-Auction by email dated 14.09.2024 and the adjudicating authority's upholding of that cancellation - HELD THAT: - The Tribunal examined the e-Auction Process Memorandum, the payment schedule in the LoI and the statutory framework under the IBBI (Liquidation Process) Regulations, 2016. The Court applied the principle that where the successful bidder fails to pay the balance consideration within the prescribed period (including any permitted extensions), the liquidator is competent to cancel the sale and proceed to re-auction. Reliance was placed on the authorities construing the mandatory nature of the payment timeline and the liquidator's power to cancel when payment conditions are not complied with. The Tribunal found no error in the adjudicating authority's conclusion that the liquidator's cancellation conformed to the Process Memorandum and the Regulations. [Paras 25] Cancellation of the 9th e-Auction by the liquidator is in accordance with the e-Auction Process Memorandum and was rightly upheld. Forfeiture and restitution - unjust enrichment - Whether the deposits made by the successful bidder were liable to be forfeited and the consequence of a subsequent auction realising the same sale amount - HELD THAT: - Clause 11 of the Process Memorandum permitted forfeiture of the EMD where the successful bidder failed to pay the balance consideration as per schedule; accordingly, forfeiture of the EMD was sustained. However, applying the restitutionary principle to prevent unjust enrichment, the Tribunal found that retention by the liquidator of the additional 25% amount deposited by the appellant could not be sustained in the special facts: the liquidator subsequently sold the assets in a later auction for the same sale price. Given that the liquidator realised the full sale consideration in the subsequent auction, permitting the liquidator to keep the earlier 25% deposit would result in unjust enrichment. The Court therefore directed refund of that deposit with interest. [Paras 30, 31] Forfeiture of the EMD is upheld; forfeiture of the 25% amount is set aside and that amount is to be refunded with interest. Final Conclusion: The appeal is partly allowed: the liquidator's cancellation of the earlier auction is upheld and the EMD forfeiture is sustained; however, the Court set aside forfeiture of the successful bidder's 25% deposit and directed its refund with interest to avoid unjust enrichment. Issues: (i) Whether the liquidator's cancellation of the 9th e Auction by email dated 14.09.2024 was in accordance with the e Auction Process Memorandum; (ii) Whether forfeiture of the 25% amount paid by the successful bidder is justified; (iii) Consequence of a subsequent e Auction selling the same assets for the same price.Issue (i): Whether the liquidator validly cancelled the 9th e Auction by email dated 14.09.2024 in accordance with the e Auction Process Memorandum.Analysis: The Process Memorandum required bidders to perform their own due diligence and specified the time frame and consequences for nonpayment. The liquidation regulations and Schedule I rules prescribe timelines for payment and permit cancellation where the successful bidder fails to pay within the prescribed period. The bidder did not pay the balance within the stipulated period or extended time and the liquidator acted under the contractual and regulatory framework governing forfeiture and cancellation.Conclusion: The cancellation of the 9th e Auction by the liquidator dated 14.09.2024 is in accordance with the e Auction Process Memorandum and is upheld.Issue (ii): Whether forfeiture of the 25% amount paid by the successful bidder (in addition to forfeiture of EMD) is sustainable.Analysis: The Process Memorandum expressly provided for forfeiture of the EMD where the successful bidder fails to pay the balance consideration as per schedule. However, where a subsequent auction realized the identical sale consideration, retention of the additional 25% by the liquidator would result in the liquidator receiving the same sale proceeds twice. Principles of restitution and prevention of unjust enrichment permit refunding amounts which, in the special facts, would otherwise unfairly enrich the liquidator. The facts show the liquidator realised the full sale price again in a subsequent sale for the same amount.Conclusion: Forfeiture of the EMD is upheld; forfeiture of the additional 25% (Rs. 16.20 crore) is not sustainable and the amount is to be refunded with interest.Issue (iii): Effect of the subsequent e Auction selling the same assets for the same price of Rs. 81 crore.Analysis: A subsequent sale for the same consideration demonstrates that the creditors' interest in maximisation of realisation was not prejudiced by resale; where the liquidator has realised the sale consideration again, retaining the earlier paid portion from the first successful bidder would produce unjust enrichment. Equitable refund with interest addresses the consequence of double realisation.Conclusion: The amount of Rs. 16.20 crore paid by the first successful bidder is to be refunded in consequence of the subsequent e Auction held for the same amount; EMD forfeiture remains valid.Final Conclusion: The appeal is partly allowed: the liquidator's cancellation and forfeiture of EMD are upheld, but the forfeiture of the additional 25% paid by the successful bidder is set aside and that amount is to be refunded with interest; the remaining orders stand.Ratio Decidendi: Where a successful auction purchaser defaults under a time bound liquidation process, the liquidator may cancel the sale and forfeit EMD as per the Process Memorandum and applicable liquidation rules; however, if a subsequent sale realises the same consideration, retention of previously paid balance amounts would unjustly enrich the liquidator and restitution (refund with interest) is required to prevent unjust enrichment.