No Full Payment, No Refund: Supreme Court Upholds Rs. 6.39 Crore Forfeiture in IBC Auction in M/S ASJ Finsolutions Pvt. Ltd. v. Vikram Bajaj

Can a successful bidder in an IBC liquidation auction recover the amount deposited, including the Earnest Money Deposit (EMD), after failing to pay the balance sale consideration within the stipulated period? The Supreme Court considered this issue in M/s ASJ Finsolutions Pvt. Ltd. v. Vikram Bajaj,¹ concerning the forfeiture of Rs. 6.39 crore in an e-auction.

An Operational Creditor approached the NCLT under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).² As no resolution plan was submitted despite extensions, the NCLT approved liquidation. Lot No. 5, comprising land at Village Nangal Khurd, Sonepat, Haryana, was auctioned at a reserve price of Rs. 25.56 crore. The auction notice disclosed a pending civil suit concerning the sale deed for a portion of the land and specified that the sale was on an “as is where is” basis.

ASJ Finsolutions emerged as the successful bidder on November 15, 2021. The liquidator required an initial deposit of Rs. 6.39 crore, comprising the Rs. 2.55 crore EMD and Rs. 3.84 crore towards the sale consideration. The balance of Rs. 19.17 crore was payable within 30 days, or within 90 days with 12% annual interest, by February 14, 2022. 

M/s Agarwal Trading Company also approached the Punjab and Haryana High Court concerning the auction. The High Court directed it to seek relief before the NCLT and restrained execution of the sale deed until February 14, 2022. The company filed an NCLT application concerning the property on February 11, 2022, but withdrew it on September 22, 2022.

After failing to pay the balance consideration, ASJ Finsolutions sought the prior sale deeds, which the NCLT rejected on March 31, 2023. Its appeal was dismissed on April 21, 2023. During the subsequent writ proceedings, the property was re-auctioned for Rs. 31.10 crore, Rs. 5.54 crore above the original bid. The High Court rejected the request for the deeds but left the appellant free to pursue other remedies. ASJ Finsolutions again approached the NCLT, seeking annulment of the forfeiture. The NCLT allowed the application, but the NCLAT reversed its decision and upheld the forfeiture, prompting the appeal before the Supreme Court.

Arguments of the Parties

Senior Counsel for the appellant argued that Schedule I of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016,³ capped the EMD at 10% of the reserve price and did not expressly provide for forfeiture. Relying on Authorised Officer, Central Bank of India v. Shanmugavelu,⁴ counsel submitted that the Triple Test favoured a refund. The Triple Test examines whether the bidder acted with a hidden agenda to rig the auction, was not a genuine bidder with adequate financial capacity, or was prevented by extraneous circumstances from paying the balance sale consideration in full. Counsel relied on this test to support the appellant’s claim that the amounts deposited should be refunded.. Counsel also alleged that other bidders had received extensions beyond 90 days and argued, in the alternative, that forfeiture should be limited to 10% of the reserve price.

Counsel for the respondent argued that the appellant was aware of the sale-deed dispute and consciously bid at the auction. The EMD was 10% of the reserve price, while the liquidator also required a 25% initial deposit, which was paid without protest. The respondent argued that had the appellant deposited the amounts and faced difficulties in obtaining ownership or possession, it could have sought a refund with interest. The subsequent purchaser took possession without such difficulties. The respondent further contended that the auction notice expressly provided for forfeiture upon non-payment and that forfeiture necessarily followed once cancellation of the appellant’s bid had been upheld.

Court’s Reasoning

The Supreme Court acknowledged that the appellant failed to pay the balance consideration within 30 days or within 90 days with 12% interest. Although Schedule I of the Liquidation Process Regulations capped the EMD at 10% without expressly providing for forfeiture, the auction notice contained an explicit forfeiture clause. The Court rejected its reliance on the non-availability of prior sale deeds, noting that the “as is where is” auction notice disclosed the title-deed issue and that the appellant had not sought verification before bidding.

The NCLT had found no hidden agenda to rig the auction, relied on the appellant’s assurances of payment, and considered the High Court proceedings initiated by Agarwal Trading Company a bona fide reason for non-payment. The NCLAT disagreed, finding that the appellant had defaulted despite the disclosed title-deed issue and express forfeiture clause. The Supreme Court agreed with the NCLAT. The Court also held that, on these facts, the Triple Test could not absolve the appellant from forfeiture. Repeated assurances to pay did not establish financial capacity; supporting material was required. The higher price obtained at the subsequent auction reflected the property’s inherent value and did not offset the expenses incurred. The Court also described reliance on Agarwal Trading Company’s proceedings as an afterthought, noting that the company had withdrawn its NCLT application.

The Court declined to consider the discrimination claim based on an alleged extension granted to another bidder because the relevant orders were submitted only with the written submissions, without an opportunity for the respondent to address them. It also noted that the appellant had not established its capacity to pay by the deadline. In Westcoast Infraprojects Private Limited v. Mr. Ram Chandra Dallaram Choudhary⁵ and Potens Transmission & Power Pvt. Ltd. v. Apex Buildsys Ltd. (In Liquidation),⁶ the forfeiture of the EMD and additional deposits under an express auction clause had been upheld. The Supreme Court relied on these decisions in addressing the forfeiture issue.

The Court noted that The EMD was Rs. 2.55 crore, or 10% of the reserve price, while the total initial deposit of Rs. 6.39 crore included a further Rs. 3.84 crore towards the sale consideration. The auction notice expressly permitted forfeiture of the entire deposit if the successful bidder failed to pay the balance in accordance with the sale terms. As the appellant had accepted these terms and paid without protest, the Court found no reason to order a refund or interfere with the NCLAT’s decision.

Conclusion 

The Supreme Court upheld the forfeiture because the auction notice expressly allowed the entire amount deposited, including the EMD, to be forfeited if the successful bidder failed to pay the balance consideration. The 10% cap on EMD under Schedule I did not prevent forfeiture of the additional amount deposited under that clause. The decision also makes clear that repeated assurances of payment do not establish financial capacity.

Citations

1. M/s. ASJ Finsolutions Pvt. Ltd. v. Vikram Bajaj, 2026 INSC 1062 ↩︎
2. The Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016), s. 9. ↩︎
3. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, sch. I. ↩︎
4. The Authorised Officer, Central Bank of India v. Shanmugavelu, (2024) 6 SCC 641. ↩︎
5. Westcoast Infraprojects Private Limited v. Mr. Ram Chandra Dallaram Choudhary, Company Appeal (AT) (Ins.) No. 1258 of 2022 ↩︎
6. Potens Transmission & Power Pvt. Ltd. v. Apex Buildsys Ltd. (In Liquidation), Company Appeal (AT) (Ins.) No. 1543 of 2023 ↩︎

Expositor(s): Adv. Siddharath Shrivastava