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Upholds EMD Forfeiture Against ASJ Finsolutions in IBC
The has upheld the forfeiture of the paid by M/S ASJ Finsolutions Pvt. Ltd. after the company failed to deposit the in a conducted under the . A bench comprising Justice J. B. Pardiwala and Justice K. Vinod Chandran dismissed the appeal, ruling that the explicit in the e-auction notice overrides any perceived silence in the .
The Dispute: A Failed Auction and Forfeited Deposit
The case arose from the liquidation of a corporate debtor, whose Resolution Professional (RP), Vikram Bajaj, auctioned several properties. Lot No. 5—a parcel in Sonepat, Haryana—carried a of ₹25.56 crore. ASJ Finsolutions emerged as the at that price.
As per the e-auction notice, the bidder was required to deposit an EMD of ₹2.55 crore (exactly 10% of the , as mandated by the Liquidation Process Regulations). Additionally, the liquidator demanded a total of 25% of the bid amount upfront, which included the EMD and a portion of the . ASJ Finsolutions paid ₹6.39 crore without protest.
The notice stipulated that the remaining balance of about ₹19.17 crore must be paid within 30 days, or within 90 days with interest at 12% per annum. The appellant failed to meet either deadline. Instead, on the day after the 30-day period expired, it emailed the RP undertaking to pay within 90 days—but never did.
The Appellant's Defense: Regulatory Silence and the
, appearing for ASJ Finsolutions, argued that the (Liquidation Process) Regulations, 2016, contain no provision authorising forfeiture of the EMD. The regulation only caps the EMD at 10% of the . She contended that without a statutory imprimatur—unlike under the —forfeiture was illegal.
She further invoked the "" laid down by the in earlier cases, arguing that (i) there was no hidden agenda to rig the auction, (ii) the appellant had demonstrated financial capacity through repeated offers to pay, and (iii) extraneous reasons—namely a pending writ petition by M/s Agarwal Trading Company and a dispute over sale deeds—prevented timely payment.
The appellant also claimed discrimination, asserting that other bidders had been granted extensions by the .
The RP's Stand: and Explicit Terms
Respondent Vikram Bajaj, represented by , countered that the auction notice was explicit: the entire amount paid, including the EMD, would be forfeited if the failed to pay the as per the terms of sale. The appellant bid on an "" basis, fully aware that a civil suit was pending over part of the property's title deeds.
The RP pointed out that the appellant had never sought verification of title documents before bidding. Its belated request for prior deeds—filed just three days before the 90-day deadline—was rightly rejected by the , , and the . The property was eventually re-auctioned for ₹31.10 crore, ₹5.54 crore more than the appellant's bid.
Legal Analysis: Auction Terms Trump Regulatory Silence
The rejected the appellant's reliance on the Regulations. Writing for the bench, Justice K. Vinod Chandran observed that while the regulations cap the EMD, they do not prohibit forfeiture when the auction notice expressly provides for it. The court cited two judgments— and —both affirmed by the , which upheld forfeiture under identical clauses.
The court found no application of the . It noted that the mere failure to pay the balance consideration, coupled with the subsequent at a higher price, indicated an attempt to rig the auction process. The appellant's repeated assertions of willingness to pay were not backed by any material evidence of actual financial capacity at the relevant time.
As for the alleged discrimination, the court held that this plea should have been raised earlier and could not be entertained at this belated stage without producing the relevant orders.
Key Observations from the Judgment
"Looking at the specific clause threatening forfeiture on failure of payment of , on cancellation, forfeiture is a necessary consequence and there is no application of the , on facts herein, to absolve the appellant from such forfeiture. The mere failure to make the was to rig the auction proceedings, in which circumstance, admittedly, there was a fresh auction proposed and there was a higher value received on such auction."
"The appellant having paid the money voluntarily and the terms and conditions stipulated in the e-auction notice having provided for the entire amount paid by a , including EMD to be forfeited, if he fails to pay the as per the terms of the sale, there is no reason to order refund."
Court's Decision and Implications
The dismissed the appeal with no order as to costs. The forfeiture of the ₹6.39 crore deposited by ASJ Finsolutions—including the EMD and the additional deposit—stands confirmed.
The ruling clarifies that in IBC liquidation auctions, explicit forfeiture clauses in the auction notice are enforceable even if the governing regulations are silent on the matter. Bidders cannot rely on regulatory silence to escape voluntarily undertaken. The decision reinforces the time-bound nature of liquidation proceedings and discourages that delay the process.
