TaxTMI 
TaxTMI 
2025 (12) TMI 646
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....ibunal, Kolkata Bench (Adjudicating Authority), in I.A. No. 800 of 2022, in C.P.(IB) No.1284/2019 whereby the Adjudicating Authority allowed the application filed by M/s Lucky Holdings Pvt. Ltd., the Respondent, seeking refund of Earnest Money Deposit (EMD) in the e-auction. The Appellant asserts that the Respondent failed to comply with mandatory payment timelines under the E-Auction Process Document, leading to forfeiture of EMD, and the impugned order adversely affects the liquidation process and stakeholders' interests. Brief facts of the case 2. The brief facts of the case are as given below: i. The Corporate Insolvency Resolution Process (CIRP) of Ess Dee Aluminium Ltd./ Corporate Debtor commenced when the Adjudicating Authority vide its order dated 14.02.2020, admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter the 'Code') and appointed the Appellant as the Interim Resolution Professional. The Appellant issued a public announcement on 19.02.2020 inviting claims from creditors. After the constitution of the Committee of Creditors (CoC), its first meeting was held on 18.03.2020, wherein the CoC, resolved to confirm the Ap....
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....d appointed the Appellant as the Liquidator, transferring all responsibilities under Chapter III of the Liquidation Regulations to her. vi. The Appellant issued a public announcement in Form-B on 11.10.2021 calling upon stakeholders to submit their claims in compliance with Regulation 12 of the Liquidation Regulations. Furthermore, in accordance with Regulation 31, the Stakeholders Consultation Committee (SCC) was formally constituted on 07.12.2021, providing the Liquidator with a consultative body for decisions relating to selling strategies, timelines, and evaluation of offers enabling the Liquidator to proceed with liquidating the assets of the Corporate Debtor in consultation with the SCC. vii. In February 2022, the Liquidator received an email dated 25.02.2022 from a prospective buyer expressing interest in purchasing the Corporate Debtor as a Going Concern under Regulation 32A. In order to ensure the buyer's seriousness, the Liquidator responded by asking for a security deposit of Rs. 2 crore as a condition to consider such proposal. viii. Since the buyer did not deposit the security amount, by the date, when the sale notice needed to be publicised,....
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....ng identical bids of Rs. 124.40 crores, rendering the process inconclusive, because no bidder exceeded the tie value. This necessitated a further round of competitive bidding. xvi. To break the tie, the Liquidator instructed all bidders to reconvene at 6 PM on 18.04.2022, and in that round, the Respondent quoted the highest amount of Rs. 124.60 crores. This amount exceeded all previous bids and was recorded in the auction report as the highest bid for the Going Concern sale. xvii. The SCC met for its fifth meeting on 20.04.2022 to evaluate the bidding outcome and declared the Respondent as the H1 bidder. During this meeting, the representative of the Respondent was invited for interaction with the SCC members to discuss the viability and next steps of the sale. xviii. Acting upon the auction results, the Liquidator issued an email dated 26.04.2022 formally requesting the Respondent to deposit 25% of the bid amount i.e. Rs.29.15 crores (after adjusting the EMD) within 15 days i.e. on or before 11.05.2022 as required under the E-Auction Process Document, so that the Letter of Intent could be issued to the Respondent. xix. The Unsuccessful bidder M/....
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....the same was sent to the respondent vide an attachment to email of the same date. The liquidator once again requested the respondent to make payment of the balance amount. xxvi. As the Respondent failed to comply with payment terms even after repeated reminders and since the statutory timelines under the E-Auction Process Document had long expired, the Liquidator, by letter dated 01.07.2022 and a follow-up email dated 04.07.2022, cancelled the sale in favour of the Respondent and forfeited its EMD. The Liquidator also informed the Respondent that due to its non- payment, the Going Concern sale could not be completed and therefore a fresh auction process would be undertaken. xxvii. On 12.07.2022, the Liquidator formally notified the Respondent that the earlier auction in which it was declared H1 now stood cancelled owing to its non-compliance, and that a fresh sale process would be initiated. Despite this explicit communication, the Respondent did not challenge the cancellation at that stage nor offer to deposit the first instalment. xxviii. Subsequently, the Respondent filed I.A. No. 800/2022 in August 2022, seeking refund of its forfeited EMD on the grou....
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....pellant submits that the present appeal has been preferred by Ms. Deepika Bhugra Prasad, in her capacity as the Liquidator of Ess Dee Aluminium, assailing the impugned order dated 17 January 2023 passed by the Learned Adjudicating Authority (NCLT, Kolkata Bench), whereby IA No.800 of 2022 in C.P. (IB) No.1284/2019 filed by the Respondent, Lucky Holdings Private Limited was allowed. 4. The Ld. Sr. Counsel submits that the said Interlocutory Application had challenged the Liquidator's letter dated 01 July 2022, through which the Appellant, in exercise of her powers under the auction terms, cancelled the Respondent's bid and forfeited the EMD of INR 2 Crores due to the Respondent's failure to comply with the payment timelines. It is the Appellant's case that the terms of the auction expressly authorized such forfeiture, and the Adjudicating Authority erred in law and fact in setting aside the same. 5. Ld. Senior Counsel gave a brief chronology of events of the auction conducted by the Appellant. The Liquidator published a sale notice on 05 April 2022 inviting bids to sell the Corporate Debtor as a going concern in terms of Regulation 32A of the IBBI Liquidation Regulations, 2016....
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..... The Respondent sent a letter to the Liquidator dated 11.05.2022. By way of the said letter, the Respondent requested the Appellant to postpone the date demand of the 1st instalment till the final resolution of the dispute. Pertinently, the Respondent never stated that they would not be interested in making the first payment after the disposal of IA 397. In line with the Respondent's request, the Appellant never made any demand for the 1st instalment during the stay period. 12. Ld. Sr Counsel states that on 15 June 2022 the Applicant in IA 397 unconditionally withdrew the said application. Accordingly, the statement made by the Appellant recorded in the order dated 09 May 2022 stood withdrawn. 13. The Appellant on 16 June 2022 wrote to the Respondent informing them regarding the order dated 15 June 2022 and calling upon them to make the payment within two days. This was because the auction was interdicted when the Respondent had two days left to make the first payment. The Respondent did not reply, forcing the Appellant to send a reminder on 17 June 2022. The Respondent replied on 18 June 2022 stating that they are evaluating the legal implications of the order dated 15 June....
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....subsequent claim of a fall in aluminium prices is untenable, as market volatility is an inherent commercial risk which cannot excuse contractual non-performance. Having bid competitively, the Respondent cannot avoid its obligations by citing post-auction price changes. 21. The Ld. Counsel submits that the Adjudicating Authority's reliance on Section 74 of the Indian Contract Act, 1872, is wholly misplaced. The forfeiture in the present case arises not from a private contractual penalty, but from a statutory auction mechanism governed by the Liquidation Process Regulations. The relationship between the Liquidator and the bidder is not governed by a traditional contract, but by statutorily prescribed conditions, duly accepted by the bidder. 22. Ld. Counsel further stated that even otherwise, the actual loss is evident, as the re-auction fetched Rs. 21.20 Crores less than the Respondent's bid. Thus, even under Section 74, the forfeiture amount of Rs. 2 Crores is justified as reasonable compensation. 23. The Ld. Counsel submits that the Adjudicating Authority failed to appreciate the statutory scheme governing liquidation auctions. The impugned order incorrectly treats the for....
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....of 2024]' decided on 21.01.2025, it was reiterated by this Appellate Tribunal that forfeiture is a legitimate consequence of default under statutory auction conditions. 25. The counsel emphasizes that these judgments collectively affirm the Liquidator's power to forfeit deposits and reject the application of Section 74 of the Contract Act in liquidation sales. 26. The Ld. Sr. Counsel for the Appellant submitted that the Respondent committed a clear default under the auction terms, and the Liquidator's decision to cancel the sale and forfeit the EMD was fully justified, proportionate, and in compliance with statutory provisions. The Adjudicating Authority erred in applying Section 74 of the Contract Act to a statutory auction and in ignoring binding precedents of this Hon'ble Tribunal and the Hon'ble Supreme Court. 27. Accordingly, the counsel submits that the impugned order deserves to be set aside, and the Liquidator's action dated 01 July 2022 should be upheld. Submission of Respondent 28. Sh. Abhijeet Sinha, Ld. Sr. Counsel for the Respondent submits that the said Application, being IA No. 800 of 2022, was filed by the Respondent before the Hon'ble NCLT seeking re....
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....nt. In fact, the Respondent was not even impleaded as a party in the said proceedings at that stage. This fact is clear from paragraph 2 of the Order dated 09.05.2022, wherein the Hon'ble NCLT directed Trailblazer to implead the Respondent as a party. Therefore, the Appellant acted entirely on her own accord, thereby delaying and obstructing the sale process. 34. Ld. Sr. Counsel further submits that despite furnishing such undertaking before the Hon'ble NCLT, the Appellant, by email dated 10.05.2022, did not disclose the fact of the undertaking to the Respondent. Instead, the said email merely informed the Respondent that it had been impleaded as a party in IA No. 397 of 2022, thereby deliberately concealing a material fact and misleading the Respondent. 35. Ld. Sr. Counsel submits that in view of the pending proceedings initiated by Trailblazer, the Respondent addressed a letter dated 11.05.2022 to the Appellant requesting postponement of the first instalment payment of 25% of the sale consideration. It is significant to note that even on this date, the Respondent remained unaware of the undertaking unilaterally furnished by the Appellant before the Hon'ble NCLT. 36. Ld. ....
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....said judgment squarely applies to the present case, as the delay arose solely due to the conduct of the Appellant. 41. Ld. Sr. Counsel argues that the reliance placed by the Appellant on the following judgments is entirely misplaced: • West Coast Infraprojects Pvt. Ltd. v. Ram Chandra Dallaram Choudhary, Liquidator of Anil Ltd. • BRS Refineries v. Supriyo Kumar Chaudhari, Liquidator, JVL Agro Industries Ltd. • Potens Transmission & Power Pvt. Ltd. v. APEX Buildsys Ltd. • Vikram Bajaj, Liquidator of Best Foods Ltd. v. ASJ Finsolutions Pvt. Ltd. 42. Ld. Sr. Counsel submits that in all these cases, the forfeiture of EMD was upheld only because the successful bidder failed to deposit the sale consideration despite repeated notices. In contrast, in the present case, the Respondent never defaulted; rather, it was prevented from performing due to the Appellant's own actions. 43. He further submitted that because of the Appellant's undertaking and delay, the market value of aluminium drastically dropped, rendering the transaction commercially unviable. The Corporate Debtor was later sold for Rs. 103.40 crores, nearly Rs. 21.20 cr....
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....parties in detail, gone through the voluminous records of the case and also seen the written submissions of both the parties. Based on the same, we frame the following issue for determination: "Whether the Liquidator acted in accordance with law in cancelling the sale and forfeiting the Earnest Money Deposit; and whether the Impugned Order dated 17.01.2023, directing refund of the EMD, can be sustained in law." 50. The Appellant/Liquidator submits that the Respondent voluntarily accepted all auction terms, including the requirement to deposit 25% of the bid amount within 15 days of being declared the highest bidder, and the express clauses permitting forfeiture of EMD in case of any failure to meet the timelines. The Respondent was declared H1 on 26.04.2022, making the first instalment payable by 11.05.2022, and had consumed 13 of the 15 days before the hearing on 09.05.2022 in IA No. 397/2022, when the Liquidator gave a limited undertaking not to proceed with the sale pending reply. It is argued that this undertaking merely paused the countdown; it did not restart or alter the payment structure. Once the said IA was unconditionally withdrawn on 15.06.2022, the Responde....
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....A bidder who participates in such an auction voluntarily subjects itself to those conditions, and the Liquidator is obligated to implement them strictly in accordance with Code in order to protect value of assets; ensure certainty; and maintain the timeline mandated under the Liquidation Process Regulations. It is in this context that the present dispute must be examined. The question before us is whether the Respondent complied with the obligations it had accepted, and whether the Liquidator acted within her statutory and contractual authority when she cancelled the sale and forfeited the EMD. The issue also requires us to evaluate whether the Impugned Order correctly appreciated these foundational aspects or proceeded on an erroneous application of principles borrowed from commercial contexts outside the purview of the Code. 53. At this point, it may be recorded that the relevant clauses of the Sale Notice; E-Auction Process Document: and the Declaration executed by the Respondent (including clauses mandating 25% payment within 15 days, prohibiting withdrawal, and providing for forfeiture of EMD) need to be looked into for correct appreciation of facts. 54. The clause 9 of ....
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....events: i) xx ii) xx iii) xxx iv) xxx v) xx vi) xx vii) if the Successful Bidder fails to make the payment of the 1st installment Payment within 15 days from the declaration as Successful Bidder in accordance with the terms of the E- auction Process Document; or (Emphasis Supplied) 56. Thereafter a declaration was taken from the bidders in the form of an affidavit. This was furnished by the Respondent on 13.04.2022. The relevant para 6 of the declaration are as under:- "6. I/We also agree that after my/our offer given in my/our bid for purchase of property(ies) is accepted by the Seller and if, I/We fail to accept or act upon the terms and conditions of the sale or am/are not able to complete the transaction within the time limit specified for any reasons whatsoever and/or fail to fulfill any/all the terms and conditions of the auction and offer letter, the EMD and other monies paid by me/us along with the online form and thereafter, are liable to be forfeited. The timeline for payment of final sale consideration may be extended by sole discretion of liquidator, to the extent permissible under the applica....
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....is stage or thereafter, dispute that only two days remained. 61. On 15.06.2022, the applicant objecting to auction sale withdrew his application opposing the same, accordingly, AA allowed the withdrawal and specifically noted that interim orders, if any, stand vacated. The order is extracted below: "ORDER SHEET ON 15th June 2022 ORDER 1. Ld. Counsel for the parties present. 2. IA(IBC)/397(KB)2022 - Ld. Counsel appearing for the application seeks permission to withdraw the application. Permission is granted. IA stands disposed of. Interim order, if any -stands vacated. 3. List rest of the IAs on 19/07/2022." 62. Immediately thereafter, the appellant liquidator wrote to the respondent on 16.06.2022 informing him about the decision of the Ld. AA and requested him to comply with the terms and conditions of the E-Auction document and comply with the mail which was sent by the liquidator on 26.04. 2022, in particular, clause 12.2 of the e-auction process document. The relevant mail of the liquidator is extracted below: "On Thu, Jun 16, 2022 at 11:59 AM Ess Dee Aluminum/AAA Insolvency [email protected]> wrote: Respected Sir/....
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....mount as per E-Auction Document 31,15,00,000 Total amount of EMD Already Received 2,00,00,000 Remaining amount to be paid as 1st Instalment 29,15,00,000 Hence, it is requested from your office to kindly deposit the amount to the tune of Rs. 29,15,00,000/-within 2 days as per the terms and conditions of the E-Auction Process Document (Excluding time already granted for making payment). Hence the said amount must be paid on or before 18/06/2022." 63. In response to the aforesaid email of liquidator, the Respondent vide his email dated 18.06.2022 wrote back saying that the are awaiting the final orders of the Hon'ble NCLT and sought time examine the same. They further sought time till 30th June 2022 for their further response. The email is extracted below: "On Sat, Jun 18, 2022, 4:36 PM Lucky Holdings Pvt Limited <[email protected]> wrote: Dear Madam, We are in receipt of your mail dated 16.06.2022 in the matter Ess Dee Aluminium Ltd, for payment of 01 Installment within 18.06.2022. We are awaiting the NCLT order pertaining to the application IA No. 397/KB/2022, which was listed for hearing at NCLT Kolkata on 15.06.2022. On....
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....was conducted by the liquidator in accordance with the liquidation regulations. 67. We now turn to the reasoning adopted by the Adjudicating Authority. The Impugned Order proceeds on the assumption that the Respondent was handicapped and deprived of an opportunity to comply. The order emphasises the non-communication of the 15.06.2022 withdrawal order until 23.06.2022, the absence of an LOI, and the lack of pleading regarding loss. 68. We now analyse these issues one by one. Firstly, the Respondent still had eight clear days after receiving the order and still he did not make any payment, nor did he give any concrete commitment for payment. Not going even that far, it did not seek time extension for payment, which was provided for by the clause 6 of the undertaking which the bidders had submitted. Nothing prevented it from depositing a portion of the amount, indicating his willingness to make full payment. So, this finding of the AA is contrary to the facts of the case. 69. Secondly, regarding non-issuance of LOI by the liquidator to the respondent, we need to have a look at the relevant provisions of the E- Auction process document. The relevant clauses 14 and 15 of the e....
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....has been laid down in the law; and rules and regulations framed thereunder. Any contractual obligation under the Code has to be dealt with in accordance with procedure laid down. We note that in this case, the liquidator has strictly followed the procedure laid down by the Code. The forfeiture of EMD in such auctions arises out of statutory terms, and not negotiated penalty clauses. Accordingly, in accordance with clauses of the E-Auction notice, E-auction process document and affidavit filed by the respondent, the liquidator has correctly forfeited the EMD. 72. This legal position has been conclusively settled by the judgment of this Appellate Tribunal in Westcoast Infraprojects Private Limited (supra), which was affirmed by the Hon'ble Supreme Court in Civil Appeal No. 4087 of 2023 (order dated 25.07.2023) in the same matter. In these decisions, it has been held that forfeiture of EMD in liquidation auctions is a legitimate, contractual and statutory remedy for default, and Section 74 is wholly inapplicable. Relevant paragraphs para 4 and 20 of the judgment of this Appellate Tribunal have been extracted below: "(4) Learned Counsel for the Appellant challenging the Imp....
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....of the "as is where is"/ "as is what is" Clause in the Tender Document. (20) For purpose of this case, law as laid down in Paragraph 43.7 is relevant where Hon'ble Supreme Court has clearly held that when forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application. The statement of law in paragraph 43.7 is fully applicable in the case of the present case. The present is a case where Appellant participated in the eAuction conducted by the Liquidator under the Liquidation Process Regulations, 2016. Section 74 of the Indian Contract Act has no application in the case of Auction conducted by the Liquidator under the Liquidation Process Regulations, 2016. The terms and conditions of the sale as finalized by the Liquidator under which the e-Auction was held is binding on all including the bidders. Bidders give an unqualified undertaking for participation in the e-Auction after knowing fully well of clauses of the e-Auction Process Document and undertook to abide by the clauses. The submission of the Appellant can not be accepted that Appellant's EMD can not be forfeited even though he has committed d....