Can Amount Beyond 10% EMD Be Forfeited in IBC Auction? Supreme Court Upholds Forfeiture of Entire Deposit Under Express Auction Condition
Bidder Blames Title-Deed Dispute for Withholding Auction Balance; Supreme Court Says ‘As Is Where Is’ Sale Prevents Later Objection, Upholds Forfeiture
Facts
The appellant, M/s ASJ Finsolutions Pvt. Ltd., was the successful bidder in an e-auction conducted during liquidation proceedings under the Insolvency and Bankruptcy Code, 2016. It approached the Supreme Court against the NCLAT’s decision affirming forfeiture of its EMD and other deposited amounts after it failed to pay the balance sale consideration within 90 days. ASJ FNSOLUTIONS
The property was Lot No. 5, measuring 68K 17M at Village Nangal Khurd, Tehsil Sonepat, Haryana, having a reserve price of ₹25.56 crore. The auction notice disclosed that a civil suit concerning the sale deed for part of the land was pending and that the sale was on an “as is where is” basis. The appellant nevertheless participated and succeeded at the reserve price. ASJ FNSOLUTIONS
The auction was conducted on 15 November 2021. The balance price was payable within 30 days, with an extended period of up to 90 days upon payment of 12% interest per annum. Thus, the final deadline was 14 February 2022. On 15 December 2021, the appellant itself stated that it intended to pay the balance ₹19.17 crore by that date with interest. ASJ FNSOLUTIONS
The appellant subsequently sought prior title deeds and did not pay the balance consideration. Its application seeking the deeds was rejected by the NCLT, and the appeal was also dismissed. Meanwhile, the property was put to fresh auction and sold for ₹31.10 crore—₹5.54 crore higher than the appellant’s bid. ASJ FNSOLUTIONS
The appellant then sought annulment of the forfeiture and refund. The NCLT allowed the claim, but the NCLAT reversed the NCLT, leading to the present appeal. ASJ FNSOLUTIONS
Issues
The Supreme Court essentially considered:
- Whether the appellant’s failure to pay the balance sale consideration was sufficiently bona fide to prevent forfeiture.
- Whether the EMD and additional amount deposited could be forfeited when Schedule I of the IBBI (Liquidation Process) Regulations, 2016 did not expressly provide for forfeiture.
- Whether the express forfeiture clause contained in the e-auction notice was binding upon the bidder.
- Whether forfeiture could extend beyond the 10% EMD to the additional portion of sale consideration already deposited.
- Whether the “Triple Test” relied upon by the NCLT protected the appellant against forfeiture.
Appellant’s Arguments
The appellant argued that Schedule I to the Liquidation Process Regulations did not expressly provide for forfeiture of EMD. It also pointed out that the Regulations limited EMD to 10% of the estimated value. ASJ FNSOLUTIONS
Relying upon Authorised Officer, Central Bank of India v. Shanmugavelu, it argued that unlike SARFAESI proceedings, there was no statutory imprimatur authorising forfeiture in the present case.
Alternatively, even if forfeiture were permissible, it contended that only 10% of the reserve price could be forfeited. ASJ FNSOLUTIONS
The appellant also relied upon the Triple Test considered by the NCLT, namely whether the bidder:
- acted with a hidden agenda to rig the auction;
- was not a genuine bidder having adequate financial capacity; or
- was prevented by extraneous reasons from making full payment. ASJ FNSOLUTIONS
According to the appellant, the pending proceedings concerning the property and the issue relating to prior title deeds constituted bona fide or extraneous circumstances explaining its failure to make payment.
It further alleged discrimination because extensions beyond 90 days had allegedly been granted to other auction purchasers.
Respondent’s Arguments
The Resolution Professional argued that the appellant participated in the auction with full knowledge of the dispute concerning the sale deed. The auction notice itself disclosed the issue, and the property was expressly being sold on an “as is where is” basis. ASJ FNSOLUTIONS
The respondent further argued that the actual EMD was only ₹2.55 crore, approximately 10% of the ₹25.56 crore reserve price. The remaining amount deposited formed part of the sale consideration.
The appellant had accepted the auction terms without protest, including the express provision permitting forfeiture of the entire amount deposited if the successful bidder failed to pay the balance consideration.
It was therefore impermissible for the appellant to accept the auction conditions, default on payment and subsequently challenge the contractual consequences of that default.
Analysis of the Law
The Supreme Court first acknowledged that Schedule I of the Liquidation Process Regulations contained a stipulation limiting EMD to 10% and did not expressly provide for forfeiture upon failure to pay the balance consideration. ASJ FNSOLUTIONS
That, however, did not conclude the matter.
The e-auction notice contained an express forfeiture clause, and the appellant had participated in the auction with full knowledge of those terms and deposited the amount without protest.
The Court held that once the appellant deposited the EMD and part consideration pursuant to the auction conditions, it undertook to pay the remaining consideration within 30 days or within 90 days with interest. Failure attracted the contractual consequence of forfeiture. ASJ FNSOLUTIONS
The Court therefore held that absence of an express forfeiture provision in the Regulations did not invalidate a specific forfeiture condition contained in the auction notice. ASJ FNSOLUTIONS
The “As Is Where Is” Condition
The appellant’s title-deed objection was rejected.
The auction notice had already disclosed non-availability/dispute concerning sale deeds for a portion of the property. The appellant did not seek verification of those deeds before bidding or depositing the EMD.
The Court therefore held that a request for those documents raised at the eleventh hour could not provide a justification for withholding the balance consideration. ASJ FNSOLUTIONS
Precedent Analysis
Authorised Officer, Central Bank of India v. Shanmugavelu
The appellant relied upon this decision to distinguish statutory forfeiture under SARFAESI from liquidation proceedings under the IBC.
The Supreme Court did not accept the argument because, in the present case, the source of forfeiture was the specific and binding condition contained in the e-auction notice, voluntarily accepted by the bidder. ASJ FNSOLUTIONS
Westcoast Infraprojects Pvt. Ltd. v. Ram Chandra Dallaram Choudhary
The respondent relied upon this decision, which had been affirmed by the Supreme Court.
It recognised the validity of forfeiture, pursuant to an e-auction clause, of both the EMD and other amounts deposited by the bidder where the successful bidder failed to pay the balance consideration within time. ASJ FNSOLUTIONS
Potens Transmission & Power Pvt. Ltd. v. Apex Buildsys Ltd. (In Liquidation)
This authority was also cited by the respondent and had similarly been affirmed by the Supreme Court. It supported the enforceability of auction conditions governing consequences of default by a successful bidder. ASJ FNSOLUTIONS
Court’s Reasoning
The Court found that the appellant’s default was admitted: it neither paid within the original 30-day period nor within the extended 90-day period with 12% interest. ASJ FNSOLUTIONS
The Court agreed with the NCLAT that the appellant’s non-payment had earlier been found to constitute wilful default, particularly in view of the time-bound nature of liquidation proceedings. ASJ FNSOLUTIONS
The Supreme Court also rejected application of the Triple Test in the appellant’s favour. It observed that financial capacity could not be established merely by repeated statements expressing willingness to pay; it required supporting material demonstrating actual capacity. ASJ FNSOLUTIONS
The alleged extraneous circumstance concerning M/s Agarwal Trading Company was characterised as an afterthought and an excuse to avoid the obligation to pay the balance consideration. ASJ FNSOLUTIONS
The discrimination argument was also rejected as belated and unsupported by the necessary material. ASJ FNSOLUTIONS
Why the Entire ₹6.39 Crore Could Be Forfeited
This is the particularly significant part of the judgment.
The reserve price was ₹25.56 crore. The EMD was only ₹2.55 crore, satisfying the 10% ceiling under the Regulations.
However, after becoming the successful bidder, the appellant was required to deposit 25% of the bid amount, namely ₹6.39 crore. This consisted of:
₹2.55 crore EMD + ₹3.84 crore part sale consideration = ₹6.39 crore. ASJ FNSOLUTIONS
The auction notice expressly stated that the “entire amount” paid by the bidder, including the EMD, could be forfeited where the successful bidder failed to pay the balance sale consideration. ASJ FNSOLUTIONS
Therefore, the 10% statutory ceiling on the amount demanded as EMD did not mean that only the EMD could be forfeited. The additional ₹3.84 crore represented part consideration voluntarily deposited pursuant to the auction terms, and the express forfeiture clause covered the entire amount paid.
Conclusion
The Supreme Court held that a successful bidder who voluntarily participates in an IBC liquidation auction, accepts an express forfeiture condition and subsequently fails to pay the balance sale consideration cannot demand refund merely because the Liquidation Process Regulations themselves do not expressly prescribe forfeiture.
The appellant had knowingly participated in an “as is where is” auction, was aware of the title-document issue, voluntarily deposited ₹6.39 crore, expressly undertook to pay the balance ₹19.17 crore, and nevertheless defaulted.
Since the auction terms specifically authorised forfeiture of the entire amount deposited, including the EMD, the Court found no reason to order refund or interfere with the NCLAT’s decision.
The Civil Appeal was dismissed, and all pending applications were rejected. ASJ FNSOLUTIONS
Case Details
Case: M/s ASJ Finsolutions Pvt. Ltd. v. Vikram Bajaj
Court: Supreme Court of India, Civil Appellate Jurisdiction
Case Number: Civil Appeal No. 13023 of 2025; 2026 INSC 1062 ASJ FNSOLUTIONS
Judges: Justice J.B. Pardiwala and Justice K. Vinod Chandran
Date: 28 September 2026
Result: Appeal dismissed; forfeiture of the entire ₹6.39 crore deposited by the successful bidder, including ₹2.55 crore EMD and ₹3.84 crore part consideration, upheld.
