Supreme Court Upholds Forfeiture in Liquidation Defaults: Key Indian Court Rulings

In a significant ruling that reinforces the sanctity of judicially supervised sales under the Insolvency and Bankruptcy Code (IBC), 2016, the Supreme Court of India has affirmed that the National Company Law Tribunal (NCLT) can order the forfeiture of an entire deposit if a purchaser defaults on payments for assets acquired during liquidation proceedings. This decision, delivered in M/s. Shri Karshni Alloys Private Limited vs Ramakrishnan Sadasivan , underscores the time-bound nature of insolvency resolutions and clarifies that provisions of the Indian Contract Act, 1872—particularly Section 74—do not apply to such transactions due to the absence of a traditional contractual relationship between the purchaser and the liquidator.

The apex court's judgment, authored by Justices Sanjay Kumar and Alok Aradhe, emphasizes that liquidation sales under IBC are not private contracts but statutory processes requiring prior NCLT approval under Rule 15 of the NCLT Rules. In this case, the appellant had paid ₹37.80 crores as part of an extended payment timeline, which included an explicit forfeiture clause. Despite arguments of no actual loss to stakeholders, the Court held the purchaser estopped from challenging the clause, invoking the principle against approbation and reprobation. "Time is the essence under IBC," the bench noted, citing Kridhan Infrastructure Pvt. Ltd. v. Venkatesan Sankaranarayanan (2021) 6 SCC 94, where indefinite delays were deemed antithetical to the statute's objectives.

This ruling arrives amid a flurry of high-profile judgments from India's superior courts in December 2025, spanning insolvency, criminal law, tax, and service matters. For legal practitioners, these decisions offer critical guidance on procedural rigors, evidentiary thresholds, and the interplay between statutory frameworks. Below, we dissect key rulings from the Supreme Court and high courts, analyzing their implications for practice and policy.

Supreme Court: Strengthening Insolvency and Bankruptcy Framework

Beyond the forfeiture case, the Supreme Court delivered a trio of insolvency-related judgments that highlight the Code's emphasis on expeditious resolution and creditor protection.

In M/s Saraswati Wire and Cable Industries vs Mohammad Moinuddin Khan , the Court restored the NCLT's admission of a Section 9 IBC application, overturning the National Company Law Appellate Tribunal's (NCLAT) dismissal based on alleged pre-existing disputes. Justices Sanjay Kumar and Alok Aradhe ruled that the disputes were "moonshine"—illusory and unsubstantiated—relying on the corporate debtor's own ledger showing an undisputed ₹1.79 crore balance. Continuous payments post-Section 8 notice and forensic evidence like e-way bills negated bona fide claims. Drawing from Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353, the bench reiterated that adjudicating authorities must "separate grain from chaff," preventing spurious defenses from stalling Corporate Insolvency Resolution Processes (CIRP).

The Court also addressed arbitral mandate extensions in Mohan Lal Fatehpuria vs M/s Bharat Textiles , holding that an arbitrator becomes functus officio upon expiry of the 12-month statutory period under Section 29A(4) of the Arbitration and Conciliation Act, 1996, absent a timely extension application. The High Court's post-termination extension was deemed a nullity, and a substitute arbitrator was appointed to ensure party autonomy and timely resolution. This aligns with Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Ltd. (2024 SCC OnLine SC 2494), emphasizing that procedural lapses cannot derail arbitration's efficiency.

For insolvency professionals and litigators, these rulings signal a judicial intolerance for delays. They mandate rigorous scrutiny of "disputes" in IBC petitions and strict adherence to timelines in arbitration, potentially reducing forum-shopping and abuse of process. The broader impact? Enhanced creditor confidence in judicial sales, with forfeiture serving as a deterrent against bidder defaults, though critics argue it may discourage participation in high-value auctions.

Criminal Law Developments: Balancing Investigation Powers and Rights

The Supreme Court also clarified police powers under criminal procedure in The State of West Bengal vs Anil Kumar Dey , ruling that Section 102 of the CrPC empowers officers to freeze bank accounts during Prevention of Corruption Act investigations, independent of Section 18A's attachment provisions. Justices Sanjay Karol and Prashant Kumar Mishra distinguished the two: Section 102 enables provisional, evidence-securing seizures without judicial nod, while Section 18A involves confiscatory actions with elaborate safeguards. Precedents like Tapas D. Neogy and Teesta Setalvad affirm this over bank accounts, rejecting the High Court's view of mutual exclusivity.

In Amal Kumar vs The State of Jharkhand , the Court quashed an FIR under the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989, as an abuse of process. The simultaneous civil suit and criminal complaint revealed improbabilities, such as unmentioned incidents in pleadings. Applying State of Haryana v. Bhajan Lal (1992 Supp (1) SCC 335), the bench held that patently absurd allegations cannot sustain proceedings, particularly where no "public view" slur under Section 3(1)(s) was proven.

These decisions recalibrate investigative tools: broader freezing powers aid anti-corruption probes but risk overreach, demanding clear evidentiary links. For defense counsel, they underscore quashing remedies against vexatious FIRs, promoting efficiency in overburdened criminal dockets.

In Vineeta Srinandan vs High Court of Judicature at Bombay , the Court remitted a contempt sentence, accepting the appellant's unconditional apology under Section 12 of the Contempt of Courts Act, 1971. Distinguishing cases like Rajendra Sail v. M.P. High Court Bar Association (2005) 6 SCC 109, where no remorse was shown, the bench emphasized statutory mercy for genuine repentance, balancing judicial dignity with human fallibility.

Tax and Service Law: Narrowing Deductions and Protecting Rights

Tax practitioners will note National Cooperative Development Corporation vs Assistant Commissioner of Income Tax , where the Supreme Court denied deductions under Section 36(1)(viii) of the Income-tax Act, 1961, for dividends on preference shares, bank deposit interest, and service charges. Justices Pamidighantam Sri Narasimha and Atul S. Chandurkar interpreted "derived from" long-term finance business restrictively, requiring a direct nexus beyond ancillary activities. Citing Bacha F. Guzdar v. CIT (1954) 2 SCC 563, the ruling ring-fences the 40% deduction, excluding creditor-debtor absent relationships.

In service law, Dr Sohail Malik vs Union of India upheld Internal Complaints Committee (ICC) jurisdiction under the POSH Act across departments, interpreting Section 11(1) as procedural rather than jurisdictional. Justices J.K. Maheshwari and Vijay Bishnoi stressed the Act's welfare object, directing inter-departmental cooperation for sexual harassment inquiries.

Ashok Kumar Dabas vs Delhi Transport Corporation partly allowed a pension claim, mandating gratuity and leave encashment despite resignation forfeiting past service under CCS Pension Rules. The Court distinguished voluntary retirement, directing payments with interest.

These tax rulings demand precise income sourcing, impacting cooperatives and financiers, while service decisions bolster POSH enforcement, urging HR compliance.

High Court Highlights: Diverse Jurisdictional Insights

High courts complemented with nuanced applications. The Delhi High Court in Chillies Exporters Association India vs Directorate General of Foreign Trade struck down retrospective withdrawal of export incentives, holding delegated legislation prospective absent statutory empowerment ( Director General of Foreign Trade v. Kanak Exports (2016) 2 SCC 226).

Bombay High Court in Rahul Outdoor Advertising vs Pune Municipal Corporation upheld hoarding license fees as regulatory, correlating to municipal oversight functions. In Arrow Business Development Consultants Pvt. Ltd. vs Union Bank of India , it ruled SARFAESI sales incomplete without sale certificates, stayed by IBC moratorium.

Calcutta High Court in Union Bank of India vs Swadha Builders Private Limited ousted jurisdiction over mortgaged property suits, invoking res judicata from DRT orders. In Sandhya Rani Jana vs ICICI Lombard General Insurance Co. Ltd. , it enhanced motor accident compensation, prioritizing income tax returns for income proof.

Implications for Legal Practice and Policy

These judgments collectively fortify India's procedural integrity. In insolvency, forfeiture and dispute scrutiny expedite resolutions, aligning with IBC's economic revival goals amid rising NPAs. Criminal rulings expand tools against corruption while curbing misuse, vital for federal probes. Tax decisions narrow fiscal incentives, prompting strategic planning, and service rulings advance gender justice under POSH.

For advocates, the emphasis on timelines ( Section 29A ) and evidence ( Mobilox test ) necessitates proactive filings. Policymakers may revisit delegation limits in trade notifications and clarify POSH inter-departmental mechanisms. Overall, December 2025's jurisprudence underscores judicial efficiency, potentially influencing 2026 reforms.

As Indian courts navigate post-pandemic backlogs, these rulings exemplify adaptive adjudication, ensuring statutes like IBC and CrPC serve justice without undue rigidity. Legal professionals should monitor implementations, as appeals could refine these precedents further.