Friday, 2 October 2026

AI Champdany Industries Ltd. vs. The Official Liquidator and Anr. - In terms of the aforementioned provisions, therefore, the seller is bound to pay all public charges due in respect of the property upto the date of sale, when a property is sold in auction. Section 55 refers to a contract only. Unless there is a contract to the contrary, the rights and obligations of the parties to a sale would be as indicated in Section 55. Such a contract to the contrary must be express and not implied, as a result whereof the meaning of term encumbrance would be expanded.

  SCI (2009.02.19) in AI Champdany Industries Ltd. vs. The Official Liquidator and Anr. [(2017) ibclaw.in 1204 SC, Civil Appeal No. 1118 of 2009 (Arising out of SLP (C) No. 15285 of 2008)] held that;

  • Encumbrance, therefore, must be capable of being found out either on inspection of the land or the office of Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement. Encumbrance thus must be a charge on the property. It must run with the property. If by a reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance.

  • There cannot, thus, be any doubt or dispute that a provision of law must expressly provide for an enforcement of a charge against the property in the hands of the transferee for value without notice to the charge and not merely create a charge.

  • The real core of the saving provision of law must be not mere enforceability of the charge against the property charged but enforceability of the charge against the said property in the hands of a transferee for consideration without notice of the charge.

  • In terms of the aforementioned provisions, therefore, the seller is bound to pay all public charges due in respect of the property upto the date of sale, when a property is sold in auction. Section 55 refers to a contract only. Unless there is a contract to the contrary, the rights and obligations of the parties to a sale would be as indicated in Section 55. Such a contract to the contrary must be express and not implied, as a result whereof the meaning of term encumbrance would be expanded.

  • A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. It is trite that when a Parliament or State Legislature makes an enactment, the same would prevail over the common law.


Excerpts of the order;

# 1. Leave granted.

# 2. Wool-Combers of India Limited (the company) went in liquidation. Appellant purchased assets of the company in liquidation in a court sale for a consolidated sum of Rs.7,03,00,000/-. Sale was confirmed by the learned Company Judge by an Order dated 15th September, 2006.


# 3. Appellant was served with a notice dated 15-02-2007 by Bhatpara Municipality claiming payment of arrears of property tax amounting to Rs.47,59,597.19/- for the period from 1991-1992 and 2006-2007, stating :

  • “that before adopting the said stringent measure for realizing the arrear property tax once again give you and opportunity to pay all arrear property tax in respect of the said holdings being 1/, West Ghoshpara Road, Ward No. 12, amounting to Rs.47,59,597.19/- plus statutory interest within seven days from the receipt thereof.”


# 4. Appellant contends that it has no liability to pay the said dues and the same has to be adjusted from the sale proceeds. It is furthermore stated that on and from the date of purchase it had paid all municipal rates and taxes subsequent to the date of sale.


Appellant on receipt of the said notice took out a Chamber Summons praying, inter alia, for the following reliefs :

  • “(a) Necessary clarification be made that Sale confirmed in favour of applicant by order dated 15th September, 2006 would make the applicant liable for payment of property tax only on and from the date of confirmation of sale i.e. 15th September, 2006 and not for any period prior thereto;

  • (b) Order dated 15th September, 2006 be suitably modified and/or clarified in terms of prayers above;

  • (c) Injunction restraining the respondent no. 2 from claiming any alleged arrear property tax for period prior to 15th September, 2006;

  • (d) Direction be given to the respondent no. 2 lodge its claim before the Official Liquidator for any alleged claim on account of property tax for period prior to 15th September, 2006.

  • (e) Injunction restraining the respondent no. 2 from giving any effect and/or further effect to the notice dated 15th February, 2007 and 6th March, 2007 being Annexures “E” and “G” respectively to the affidavit in support of this summons;

  • (f) Ad-interim orders in terms of prayers above; (g)Costs of and/or incidental to this application be paid by the respondent no. 2;

  • (h) Such further and/or other order or orders as this Hon’ble Court may deem fit and proper.”


# 5. By reason of an order dated 7th February, 2008, the said application has been dismissed, stating :

  • “Having considered the submissions of the parties the terms “as is where is basis and whatever there is basis” signifies, the condition, quality and the quantity in which the assets sold, exists. It does not take into account the liabilities attached to the assets sold. The terms and conditions of sale, however, called upon the bidders to satisfy themselves regarding title and encumbrance attached to the said asset. Encumbrance would include the liability attached to the asset including the tax payable. Therefore, it was incumbent upon the purchaser to make enquiry regarding liabilities (to be read as encumbrance) attached to the asset before making the offer, The tax payable to the municipality is one such encumbrance and for not making enquiry the petitioner cannot avoid payment.”


# 6. An intra court appeal preferred thereagainst has been dismissed by a Division Bench of the said court.


# 7. Mr. Sunil Kumar, learned senior counsel, in support of this appeal, would contend that a purchaser is not liable to pay the property tax prior to the date of purchase and remedy of the respondent municipality, if any, was to have its claim satisfied from the sale proceeds in terms of Sections 529 and 529A of the Companies Act, 1956.


# 8. Mr. Sibaji Sen, learned senior counsel appearing on behalf of the respondent-Municipal Corporation, on the other hand, would draw our attention to the advertisement for sale to contend that the appellant had a duty to make an enquiry in regard to the Company’s encumbrance as also in terms of the provisions of Sections 55(1) and 55(2)(g) of the Transfer of Property Act. 


The learned counsel appearing on behalf of the official liquidator would support the said contention.


# 9. The company went in liquidation. It was directed to be wound up. The official liquidator indisputably took charge of both movable and immovable assets of the company. The fact that the company went in liquidation was given due publicity. Respondent-Municipality did not file its claim before the official liquidator. It did not stand in queue to get the same recovered and/or adjusted from the sale proceeds.


Indisputably the manner in which the claim of a creditor in respect of the dues of the company in liquidation is to be realized has been laid down in Sections 529 and 529A of the Companies Act, 1956.


# 10. Dues in relation to the Municipal Tax in terms of the provisions of the said Act do not create any encumbrance on the property. It does not create any charge. It is considered to be a personal liability. On the aforementioned premise, we have to construe the terms and conditions of sale. It reads as under :

  • “1. The sale will be held as per inventory made by the Valuer on “As is Where is And Whatever There is” basis and subject to confirmation by the Hon’ble High Court at Calcutta. The Official Liquidator shall not provide any guarantee and/or warranty as to the quality, quantity or specification of the assets sold. The Offerers/Bidders are to satisfy themselves in this regard after physical inspection of the assets/properties as to the title, encumbrance, area, boundary, measurement, description etc. of the Company (in Liquidation) and the purchasers will be deemed to offer with full knowledge as to the defects, if any in the descriptions, quality or quantity of the assets sold. The Official Liquidator shall not entertain any complaint in this regard after the sale is over. Any mistake in the notice inviting tender shall not vitiate the sale.”


# 11. Both the learned Single Judge as also the Division Bench of the High Court held that having regard to the fact that an inventory was made on “as is where is and whatever there is” basis and furthermore in view of the fact that a duty was cast upon the offerer to satisfy themselves in regard to the physical inspection of the assets/properties as to the title, encumbrance, area, boundary, measurement, description etc. of the assets of the company in liquidation and the purchaser would be deemed to be offering his prices therefor with full knowledge as to the defects containing the descriptions, quality or quantity of the assets sold, the appellant was bound to make an investigation in regard to the liabilities of the company in liquidation.


# 12. The terms and conditions of the sale must be read as a whole. It must be given a purposive meaning. The word ‘encumbrance’ in relation to the word ‘immovable property’ carries a distinct meaning. It ordinarily cannot be assigned a general and/or dictionary meaning. We may however notice some dictionary meanings of the said word as reliance thereupon has been placed by Mr. Sibaji Sen.


In Stroud’s Judicial Dictionary of Words and Phrases 5th Edition Encumbrance is defined as “being, ‘a claim, lien, or liability, attached to property’; and this definition is wide enough to cover the plaintiff’s claim,” which was, as assignee for value of a reversionary interest, against a person coming in under a subsequent title.”


In Supreme Court on Words and Phrases it is stated that “the word ‘encumbrance’ means a burden or charge upon property or a claim or lien upon an estate or on the land.”


In Advanced Law Lexicon Encumbrance is defined as “an infringement of another’s right or intrusion on another’s property.”


In Black’s Law Dictionary Encumbrance is defined as “any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee.”


# 13. Encumbrance, therefore, must be capable of being found out either on inspection of the land or the office of Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement. Encumbrance thus must be a charge on the property. It must run with the property. If by a reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance.


# 14. If the property tax was merely a statutory dues without creating any encumbrance on the property which had cast a duty upon all the auction purchasers to make an investigation, it would mean that he must try to find out all the liabilities of the company in liquidation in their entirety. Respondent-Municipality was an unsecured creditor. In that capacity it cannot stand on a higher footing than an ordinary unsecured creditor who is required to stand in queue with all others similarly situated for the purpose of realization of their dues from the sale proceeds.


# 15. Companies Act or any other law does not impose any additional obligation upon the purchaser to make an enquiry with regard to the liabilities of the companies other than those which would impede its value.


Reliance has been placed by Mr. Sen on a decision reported in Ahmedabad Municipality Vs. Haji Abdul [AIR 1971 SC 1201] wherein it was held :

  • “The plaintiff purchased the property in November, 1954 and in our opinion it could not have reasonably been expected by him that the receivers would not have paid to the municipal corporation, since 1949 the taxes and other dues which were charged on this property by statute. According to Section 61 of the Provincial Insolvency Act, 1920 the debts due to a local authority are given priority, being bracketed along with the debts due to the State.”


We may notice that Section 141 of the Bombay Provincial Municipal Corporation Act provides that the property taxes to be a first charge on the premise for which they are assessed. It is in that view of the matter Section 100 of the Transfer of Property Act was found to be capable of being invoked therein, which reads as under :

  • “100. Charges – Where immoveable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.

  • Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.”


# 16. There cannot, thus, be any doubt or dispute that a provision of law must expressly provide for an enforcement of a charge against the property in the hands of the transferee for value without notice to the charge and not merely create a charge.


# 17. In Ahemdabad Municipality itself it was held :

  • “According to the submission it is not necessary for the saving provision to expressly provide for the enforceability of the charge against the property in the hands of a transferee for consideration without notice of the charge. This submission is unacceptable because, as already observed, what is enacted in the second half of Section 100 of Transfer of Property Act is the general prohibition that no charge shall be enforced against any property in the hands of a transferee for consideration without notice of the charge and the exception to this general rule must be expressly provided by law. The real core of the saving provision of law must be not mere enforceability of the charge against the property charged but enforceability of the charge against the said property in the hands of a transferee for consideration without notice of the charge. Section 141 of the Bombay Municipal Act is clearly not such a provision. The second contention accordingly fails and is repelled.”


It was further more held :

  • “Reliance was next placed on a Full Bench decision of the Allahabad High Court in Nawal Kishore V. The Municipal Board, Agra, ILR (1943). All 453 = (AIR 1943 All 115 (FB)). According to this decision the question of constructive notice is a question of fact which falls to be determined on the evidence and circumstances of each case. But that Court felt that there was a principle on which question of constructive notice could rest, that principle being that all intending purchasers of the property in municipal areas where the property is subject to a municipal tax which has been made a charge on the property by statute have a constructive knowledge of the tax and of the possibility of some arrears being due with the result that it becomes their duty before acquiring the property to make enquiries as to the amount of tax which is due or which may be due and if they fail to make this enquiry such failure amounts to a wilful abstention or gross negligence within the meaning of Section 3 of the Transfer of Property Act and notice must be imputed to them.”


# 18. Clause (g) of Sub-section (1) of Section 55 of the Transfer of Property Act whereupon reliance has been placed by Mr. Sen reads as under :

  • “In the absence of a contract to the contrary, the buyer and the seller of immoveable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following, or such of them as are applicable to the property sold:-

  • (1) The seller is bound –

  • (g) to pay all public charges and rent accrued due in respect of the property up to the date of the sale, the interest on all encumbrances on such property due on such date, and, except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing.”


# 19. In terms of the aforementioned provisions, therefore, the seller is bound to pay all public charges due in respect of the property upto the date of sale, when a property is sold in auction. Section 55 refers to a contract only. Unless there is a contract to the contrary, the rights and obligations of the parties to a sale would be as indicated in Section 55. Such a contract to the contrary must be express and not implied, as a result whereof the meaning of term encumbrance would be expanded.


The advertisement did not specify that all public charges have to be paid.


Municipal Corporation indisputably is not a preferential creditor. Companies Act in relation to winding up of proceeding is otherwise a special law. While distributing the assets between the creditors and unsecured creditors, the provisions of Sections 529 and 530 must be complied with.


# 20. All claims against the companies were required to be filed before the liquidator until the property was sold as provided for under Section 457 of the Companies Act. In terms of Section 456 thereof once an order for winding up is made the liquidator has to take into custody the properties, effects and actionable claims to which the company is or appears to be entitled. Section 528 provides that all debts payable on a contingency and all claims against the company, present or future are admissible to proof against the company. Section 529 provides for the same rule as in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. Section 530 provides for certain priorities to secured creditors and other unsecured creditors.


Once the property is sold, the assets of the company are required to be distributed to the creditors in order of preference. As the respondent- Municipality was not a secured creditor, the impugned Judgment cannot be sustained.


# 21. Almost a similar question in regard to the dues of the electrical charges came up for consideration before this Court in Isha Marbles Vs. Bihar State Electricity Board and Anr.[(2017) ibclaw.in 1177 SC] : [1995 (2) SCC 648]. In that case sale of the assets of industrial undertaking took place in terms of the provisions of the State Financial Corporation Act, 1951. Having regard to the provisions of the Indian Electricity Act, 1910 a three Judge Bench of this Court held that a liability on the purchaser cannot be imposed which was not incurred by them stating :

  • “63. We are clearly of the opinion that there is great reason and justice in holding as above. Electricity is public property. Law, in its majesty, benignly protects public property and behoves everyone to respect public property. Hence, the courts must be zealous in this regard. But, the law, as it stands, is inadequate to enforce the liability of the previous contracting party against the auction-purchaser who is a third party and is in no way connected with the previous owner/occupier. It may not be correct to state, if we hold as we have done above, it would permit dishonest consumers transferring their units from one hand to another, from time to time, infinitum without the payment of the dues to the extent of lakhs and lakhs of rupees and each one of them can easily say that he is not liable for the liability of the predecessor in interest. No doubt, dishonest consumers cannot be allowed to play truant with the public property but inadequacy of the law can hardly be a substitute for overzealousness.”


# 22. Dues of the Municipality would also not even otherwise come within the purview of the crown debt. Even a crown debt could be discharged only after the secured creditors stand discharged.


# 23. In Union of India & Ors. Vs. Sicom Ltd. & Anr. [(2017) ibclaw.in 124 SC] : [2009 (1) SCALE 10], it is stated :

  • “11. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debts which a prerogative entitles the Crown to claim priority for before all other creditors. [See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. It is trite that when a Parliament or State Legislature makes an enactment, the same would prevail over the common law.

  • 12. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision.

  • 13. To achieve the same purpose, the Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the tax-payer. This aspect of the matter has been considered by this Court in a series of judgments.”


# 24. For the reasons aforementioned, the impugned judgment cannot be sustained. It is set aside accordingly. The appeal is allowed with costs. Counsel’s fee assessed at Rs.10,000/-


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Dhanestha Steels Vs. Avil Menezes Liquidator of Sunil Hitech Engineers Limited. - In terms of the provisions of the Process Memorandum, the Liquidator was duty bound to issue Certificate of Sale and such Certificate is deemed as delivery of the assets.

 NCLT Mumbai (2023.11.01) in Dhanestha Steels  Vs. Avil Menezes Liquidator of Sunil Hitech Engineers Limited. [I.A. 1877 OF 2022 in C.P.(IB) No. 2295/MB/2018] held that; 

  • In terms of the provisions of the Process Memorandum, the Liquidator was duty bound to issue Certificate of Sale and such Certificate is deemed as delivery of the assets. Accordingly, we direct the Liquidator to issue Certificate of Sale in favor of Applicant in relation to these two auctions, if the goods have not been sold as yet. In view of contentions raised in the Rejoinder disputing the adjustments made by the Respondents, we direct the Respondent to resolve those differences and appropriate the payments made by the Applicant against notified auction only, if conveyed while making payments under each of such auction.


Excerpts of the order;

# 1. This application IA 1877/2022 is filed on 12.07.2022 by M/s Dhanestha Steels through its Prop. Sh. Dinesh Yadav (“Applicant”) in the matter of M/s Suni Hi-tech Engineers India Limited [In Liquidation] (Corporate Debtor) under Section 60(5) of The Insolvency and Bankruptcy Code, 2016 ("Code"), for direction to the Liquidator Sh. Avil Menezes (“Respondent”) in the Corporate Insolvency Resolution Process (“CIRP”). The Applicant seeks injunction for stay in the e-auction process to be conducted on July 14, 2022 pending the revocation of cancellation of sale to the Applicant and further quash and set aside E-auction notice dated 13.06.2022 and handover the assets being the Mechanical Items and Inventory/ Scrap items in the Karanpura, Jharkhand site already sold to the Applicant as per Auction notice dated 28.11.2020 and 22.02.2021 respectively.


# 2. This Tribunal vide order dated June 25, 2019, passed an order of liquidation of the Corporate Debtor, and the Respondent published Auction Notice for Sale of Assets of the Corporate Debtor on November 28, 2020 and February 22, 2021, inviting bids for auctions of certain assets of the Corporate Debtor.


# 3. The Applicant became aware of such E-auction Notice and thereafter submitted its Bid Application Form along with all other documents as provided in the Process Memorandum for Inventory and Mechanical Items of the Corporate Debtor in Karanpura Jharkhand Site. The Applicant was announced as the highest bidder for the abovementioned 'Mechanical Items' of the Corporate Debtor in Auction No. 217683 and Auction No. 223488. The Applicant also made the balance consideration for the sale. The Respondent failed to provide the exit gate pass due to which the Applicant was not able to collect and transport the abovementioned Mechanical Items from the North Karanpura, Jharkhand site.

3.1.It is the case of the Applicant that the Respondent vide its email sought to cancel the sale of the abovementioned items in Karanpura, Jharkhand Site without any reason and instead of revoking the cancellation of the sale and/or alternatively refunding the amount already paid, the Respondent published E- Auction Notice on June 13, 2022 for sale of the corporate debtor and invited bid for Auctions to be held on 14.07.2022.

3.2.The Applicant further states that despite facing various obstacles due to the outbreak of the Covid-19 pandemic, the Applicant took efforts to segregate the Mechanical items and also made expenses amounting to approximately Rs. 6,00,000/- for making delivery of the aforementioned Mechanical items.

3.3.It is also stated that the Respondent vide its email dated 27.5.2022 unilaterally sought to cancel the sale of the abovementioned Mechanical Items and Inventory/ Scrap items in Karanpura, Jharkhand Site without any reason provided for such cancellation, whatsoever, despite Respondents having being paid in full and failed to provide gate pass for shifting the

auctioned material to the applicant.

3.4.On being made aware, the Applicant is stated to have sent a letter dated 4.7.2022 requesting the revocation of the sale of abovementioned Mechanical items and inventory/ scrap items in the Karanpura site in Jharkhand, as the same having been sold to the Applicant, however, the Respondent didn’t respond to it.


# 4. The Respondent Resolution Professional filed his reply stating that the sale in Auction No. 217683 and Auction No. 223488 could not be consummated due to non-issuance of gate pass by Bharat Heavy Electricals Limited for handover of assets, and the Applicant was duly informed that these sales are being cancelled vide email dated 27.05.2022. The details of money paid by the Applicant in terms these auctions alongwith other auctions were also provided therein, whereat the amount refundable to the applicant consequent to such cancellation was explicitly stated.


# 5. The Applicant filed rejoinder refuting the contentions of the Respondent in the Reply stating that this Tribunal had directed the Respondent not to proceed further in the auction vide order dated 14.07.2022. The Applicant has also sought to clarify the account of adjustment pertaining to other auctions, which are not subject matter of this Application, hence we do not consider it appropriate to deal with the same.


# 6. We have heard the Counsel and perused the material on record.

6.1.The issue for consideration in the present application is whether the sale was confirmed in terms of conditions contained under terms of auction, and such sale stands concluded. It is the case of the Applicant that Schedule I under Regulation 33(1) of the Insolvency And Bankruptcy Board of India (Liquidation Process) Regulations, 2016 provides that “On the close of the auction, the highest bidder shall be invited to provide balance sale consideration within fifteen days of the date when he is invited to provide the balance sale consideration. On payment of the Full amount, the sale shall stand completed, the liquidator shall execute certificate of sale or sale deed to transfer such assets and the assets shall be delivered to him in the manner specified in the terms of sale.”

6.2.Per contra, it is the stand of Respondent that the sale could not be consummated after the Applicant was declared successful bidder on account of non availability of gate pass from the third person i..e BHEL where the material was lying and it was the responsibility of the applicant to obtain such permission for removal of the material.

6.3.We find that the Process Memorandum for sale of Assets under Auction contemplated Sales as “as is where is basis”, “as is what is basis”, and “whatever there is basis”. It further stated that the proposed sale of the Assets of the Company does not entail transfer of any title except the title which the Company had over its Assets as on date of the transfer and the Bidder was under obligation to satisfy any encumbrance thereupon, if there exists any. Further, the Liquidator had not taken or assumed any responsibility for any shortfall or defect or shortcoming in the Assets of the Company.

6.4.The “Successful Bidder” is defined in the Process Memorandum to mean, the Eligible Bidder whose bid is approved and who is declared successful by the Liquidator after the auction. We also find that the Process Memorandum further states under clause 9 that “The Liquidator will issue a letter to the Successful Bidder and the Successful  Bidder shall have to deposit the balance consideration (after adjustment of the EMD) of the sale price within 15 days of such demand. On payment of the full amount, the sale shall stand completed and the Liquidator shall execute certificate of sale or sale deed to transfer such Assets and the Assets shall be delivered to the Successful Bidder in the manner specified in the terms of sale”. Under clause 10, it provides that “Determination of the Successful Bidder(s) shall be done on the basis of highest bid (not below the reserve price) received for each Lot of assets via the E-Auction, unless the Liquidator determine, acting reasonably, that the highest bidder shall not be identified as the Successful Bidder”. It further provides that “On payment of the full amount of sale consideration and applicable taxes (if any), the sale shall stand completed, and the Liquidator shall execute Certificate of sale or Sale deed or relevant sale documents related to transactions and the assets shall be deemed to be delivered to the Successful Bidder.” 

6.5.We find that the Applicant was declared the Successful Bidder in both the auctions, and has claimed to have made full payment towards auction money. On perusal of the reply of the Respondent, we do not find any express denial of payment not having been received in relation to these two auctions, however, the Respondent has assigned the reasons for nonconsummation of sale under these two auctions to be “nonissuance of Gate pass from BHEL”. There is nothing on record to suggest any specific encumbrance claimed by BHEL on such assets. On the contrary, publication of another Auction notice in relation to these assets clearly indicate that the Liquidator claims ownership of Corporate Debtor on these assets. We are not persuaded by the reasons of unwanted behaviour of Applicant as sufficient reason for the cancellation of Sale, which in terms of the conditions of Process Memorandum gets completed on payment of balance auction money after declaration as Successful Bidder. On the contrary, in terms of the provisions of the Process Memorandum, the Liquidator was duty bound to issue Certificate of Sale and such Certificate is deemed as delivery of the assets. Accordingly, we direct the Liquidator to issue Certificate of Sale in favor of Applicant in relation to these two auctions, if the goods have not been sold as yet. In view of contentions raised in the Rejoinder disputing the adjustments made by the Respondents, we direct the Respondent to resolve those differences and appropriate the payments made by the Applicant against notified auction only, if conveyed while making payments under each of such auction. The email dated 27.05.2022 communicating cancellation of sale in respect of these two auction and E-auction notice dated 13.06.2022 are set aside.


# 7. With the aforesaid directions, IA 1877 of 2022 is allowed.

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Tuesday, 29 September 2026

ASJ Finsolutions Pvt. Ltd. vs. Vikram Bajaj - This Court in a Civil Appeal, upheld the forfeiture, as per the clause in the e-auction notice, of both the EMD and any other deposit made by the bidder, in the event of the failure of the successful bidder to pay on time the balance sale consideration.

  SCI (2026.09.28) in ASJ Finsolutions Pvt. Ltd. vs. Vikram Bajaj [(2026) ibclaw.in 653 SC, Civil Appeal No. 13023 of 2025] held that;

  • This Court in a Civil Appeal, upheld the forfeiture, as per the clause in the e-auction notice, of both the EMD and any other deposit made by the bidder, in the event of the failure of the successful bidder to pay on time the balance sale consideration.

  • 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 successful bidder, including EMD to be forfeited, if he fails to pay the balance sale consideration as per the terms of the sale, there is no reason to order refund.


Excerpts of the order;

The appellant is the successful bidder in an auction conducted in the liquidation process initiated by the Resolution Professional (RP) appointed under the Insolvency and Bankruptcy Code, 20161, aggrieved with the impugned order of the National Company Law Appellate Tribunal (NCLAT), which reversed the order of the National Company Law Tribunal (NCLT) and affirmed the forfeiture of Earnest Money Deposit (EMD) for reason of the successful bidder having not paid the balance sale consideration within 90 days.


# 2. We heard Ms.Meenakshi Arora, learned Senior Counsel for the appellant and Mr. Abhishek Anand, learned Counsel for the respondent-Resolution Professional (RP) of the Corporate Debtor (CD).


# 3. The subject property; Lot No.5-measuring 68K, 17M situated at Village Nangal Khurd Tehsil, Sonepat, Haryana, with a reserve price of Rs.25.56 crores was auctioned along with many other properties owned by the CD, through an e-auction notice for sale dated 25.10.2021. On the background facts, suffice it to notice that an Operational Creditor had approached the NCLT under Section 9 of the IBC. After admitting the CP, an Interim Resolution Professional (IRP) was appointed and later, the first respondent, as the RP. Despite expression of interest having been received by the IRP, none submitted a Resolution Plan. After replacement of the IRP by the RP, time was extended, within which, no Resolution Plan came to be filed, in which circumstance, a liquidation was proposed and approved by the NCLT. A suspended Director approached the NCLAT against the order of liquidation, which was dismissed by the NCLAT. Public notice was taken out and even according to the appellant with respect to Lot No.5, it was specifically indicated in a Note that there was a civil suit pending, regarding the sale deed of the land pertaining to 6M and the Liquidator was filing an application for obtaining the custody of the same. The sale was also on an ‘as is where is’ basis and the appellant bid at the reserve price and succeeded.


# 4. At the time of bidding, the appellant, as required under the E-Auction Notice, had furnished EMD. The auction was conducted on 15.11.2021 and within 30 days i.e., by 14.12.2021, the balance was to be remitted. There was also a further provision for remitting the balance within 90 days from the date of auction, provided interest is paid @12% per annum. The 90 days period would have expired on 14.02.2022. Admittedly on 15.12.2021, the appellant e-mailed the RP, specifically indicating their intention to pay the balance of Rs.19.17 crores within 14.02.2022, with interest @12% per annum.


# 5. Later noticing an order obtained by one M/s Agarwal Trading Company, from the Punjab & Haryana High Court at Chandigarh, wherein the writ petition, though, rejected, there was a direction to approach the NCLT, Chandigarh Bench, for seeking appropriate relief. The High Court had also directed that no sale deed was to be executed by the Liquidator herein, since M/s Agarwal Trading Company was granted time till 14.02.2022; which was the last date to make the full payment, of the balance sale consideration with 12% interest, as applicable to the appellant. M/s Agarwal Trading Company, concerned with the very same Lot No.5 filed an application before the NCLT on 11.02.2022 and withdrew the same on 22.09.2022.


# 6. The appellant admittedly did not pay the balance sale consideration and is said to have sought for the prior deeds with respect to the property on 11.02.2022, by Company Application No.85 of 2022 before the NCLT, which was rejected on 31.03.2023. An appeal filed, also stood dismissed by order dated 21.04.2023 which was challenged in a Writ Petition before the Punjab and Haryana High Court. While the writ petition was pending, fresh auction of the subject property took place and the same was sold for a price of Rs.31.10 crores; Rs.5.54 crores in excess of the bid of the appellant. The High Court subsequently rejected the prayer of the appellant for prior deeds and reserved liberty to the appellant to avail remedies as available in accordance with law.


# 7. Banking on the said liberty reserved, the appellant again initiated proceedings before the NCLT seeking annulment of forfeiture of EMD and refund of the same. The NCLT allowed it, which was reversed by the NCLAT, which order is impugned herein.


# 8. Learned Senior Counsel for the appellant contended that as per the Insolvency and Bankruptcy Board (Liquidation Process) Regulations, 20162, specifically Schedule I, there was no stipulation of forfeiture of EMD. In fact, the Schedule specifically stipulates that there can be only 10% of the estimated value demanded as EMD. It is further argued that there were other bidders, who were granted extension of time beyond the 90 days by the NCLT and the appellant was discriminated. It is also pointed out that the NCLT specifically looked at the Triple Test as propounded by this Court and found the same in favour of the appellant, thus, resulting in the direction to refund. It is argued, placing reliance on Authorised Officer, Central Bank of India v. Shanmugavelu [(2024) ibclaw.in 19 SC]3, that therein the forfeiture was found to be a statutory imprimatur under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which being absent in the present case, the forfeiture itself is wrong. If at all, without prejudice to the arguments addressed, the learned Senior Counsel for the appellant submits, if the forfeiture is approved, then it can be only of 10% of the reserve price of the property.


# 9. Learned Counsel for the respondent-RP, however, points out that the appellant very well knew about the dispute with respect to the sale deed of the property and with open eyes, bid at the auction. The EMD as per the auction notice was only 10% of the reserve price. The 25% deposit was including a portion of the balance sale consideration, as required by the Liquidator; which was complied without any protest. The appellant cannot be allowed to turn around and rely on the statutory regulations to raise arguments against the forfeiture of amounts deposited including the EMD, on failure to deposit the balance amounts, since it is a condition in the e-auction notice.


# 10. It is pointed out that if the appellant had deposited the amounts and there was any difficulty in handing over the possession and ownership, definitely the appellant would have had the remedy of seeking refund with interest. As of now, a third-party who succeeded in a subsequent auction, has been inducted into the property and there was no difficulty expressed by that third-party in taking over ownership and possession. The forfeiture was a specific term in the e-auction notice and none can resile from it. The order of the NCLT on the Triple Test is against the order of the NCLT and the NCLAT in the earlier round; when the request of prior deeds was declined, specifically finding default on the appellant, leading to cancellation of the bid. When cancellation has been upheld, there is no question of raising contentions against the forfeiture, which is a necessary consequence.


# 11. That the appellant who was the successful bidder did not pay the balance sale consideration within the initial 30 days or with 12% interest within 90 days, is admitted. What remains is only the consideration as to whether the refusal was bona fide, especially in the circumstances as pointed out by the appellant. We see from Schedule I of the Liquidation Process Regulations that there is a stipulation that EMD should not be more than 10%; brought in on 30.09.2021 and there is no forfeiture expressly provided, in the event of failure to pay the balance sale consideration. As pointed out by the learned Counsel for the respondent, the terms are explicit in the Tender Notice and the appellant, with open eyes, bid in auction as also deposited the amounts demanded without any protest. Having deposited 10% of the reserve price, along with a portion of the balance sale consideration, which itself is an undertaking to pay the balance amounts within a period of 30 days or 90 days with interest, brings in the consequences of forfeiture, on failure; which is automatic.


# 12. In the present case, the bidder had specifically sent an email just one day after the 30-day period was over, undertaking to pay the balance amounts with interest due before the 90th day. A request was made for prior deeds, which, in any event, was not permissible at that distance of time, since the auction notice was issued on an ‘as is where is’ basis and it specifically indicated the non-availability of sale deeds with respect to a portion of the property. The appellant having not sought for verification of title deeds before the bid was made or the EMD was deposited, cannot project it as a requirement to resile from payment of the balance sale consideration. The argument of absence of stipulation of forfeiture, in the regulations also falls flat in the wake of the specific condition in the auction notice, which made forfeiture an inevitable consequence on failure to deposit the balance sale consideration.


# 13. The NCLT also specifically noticed and extracted the condition in the auction notice, which threatened forfeiture of the EMD and any other amounts deposited, if the successful bidder fails to pay the balance sale consideration as per the terms of the sale. However, the NCLT relied on the decisions of this Court and found the Triple Test to be satisfied in the case of the appellant. The Triple Test propounded is with respect to the bidder having: (i) acted with a hidden agenda to rig the auction; (ii) turned out to be not a genuine bidder with adequate financial capacity; or (iii) been prevented by any extraneous reasons from making full payment of the balance sale consideration.


# 14. The NCLT found that in the forfeiture communication, there was no hidden agenda mentioned and in the facts and circumstances coming out from the case, there is nothing to show the mala fide intention of the appellant to frustrate the auction process. Insofar as the financial capacity, the NCLT referred to the e-mail communication dated 15.12.2021, where the appellant had promised to pay the balance sale consideration within 14.02.2022 and the offer made by the appellant even after dismissal of the appeal by the NCLAT, to make the payment with interest. As to any extraneous considerations, the direction in the writ petition filed by M/s Agarwal Trading Company, was found to have given the appellant a bona fide reason not to make a deposit.


# 15. The NCLAT disagreed with the order of the Tribunal and we agree with such disagreement expressed. The NCLAT specifically noticed the Note with respect to the sale deed of the land covered by Lot No.5, explicitly mentioned in the auction notice and the forfeiture clause on failure of the successful bidder to pay the balance sale consideration within the time stipulated. The NCLAT found that in the earlier round, the appellant had sought for prior sale deeds of the subject property and it was categorically found that the appellant had wilfully defaulted in the payment of the balance amount of Rs.19.17 crores within the stipulated period. Especially considering the fact that the liquidation proceedings are strictly timebound and sufficient time had already elapsed from the default in payment. The NCLAT in its earlier order also blamed the appellant for not making the balance payment within the stipulated time, which was found to be a wilful default on the part of the appellant. The contention of the appellant that merely because the cancellation of the bid was upheld, that would not affect refund of EMD, cannot at all be countenanced.


# 16. Looking at the specific clause threatening forfeiture on failure of payment of balance sale consideration, on cancellation, forfeiture is a necessary consequence and there is no application of the Triple Test, on facts herein, to absolve the appellant from such forfeiture. The mere failure to make the balance sale consideration 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 higher value received is only because of the inherent value of the property and is not in set off, of the expenses incurred. The proof of financial capacity, is not in the repeated communications agreeing to pay the money, but should be insofar as materials produced substantiating the capacity and not mere assertions made. In fact, the assertion made, specifically by an e-mail communication, also emphasized by the NCLAT, was long prior to the expiry of the 90 days, at which point, the appellant was aware of the cloud over the sale deeds. There was no query made as to the verification of sale deeds any time during the bid process which, in any event, was not possible at a later point of time, that too, just prior to the date of full deposit.


# 17. The extraneous consideration pointed out by the appellant is just an afterthought. M/s Agarwal Trading Company, based on the directions in the writ petition, merely filed an application and withdrew the same, a little later. The fallacy of the claim is evident from the facts, and this is merely projected as an excuse to scuttle the process of auction and to absolve the appellant from the liability to pay the balance sale consideration.


# 18. The appellant also has an argument with respect to discrimination insofar as another auction purchaser having been granted time to deposit the balance sale consideration, which benefit was not given to the appellant. For one, this was a contention, the appellant could have taken at the first instance when the proceedings were initiated before the NCLT for supply of prior deeds which travelled upto the High Court and attained finality on the rejection of the prayer made. Again, none of the orders were produced before us for the respondent to respond on the same. The orders have been produced along with the written submissions which we are not inclined to look into. In any event, as we found, it is too late in the day for the appellant to raise a contention of discrimination, especially when, but for the assertion of willingness to pay, there is nothing produced to substantiate the capacity to pay the balance consideration, as on the last date.


# 19. Be that as it may, one contention raised by the learned Senior Counsel for the appellant is that under Schedule I of the Regulation of 2016, it is specifically provided that the EMD shall not exceed 10% of the reserve price. The respondent relies on the decision in Westcoast Infraprojects Private Limited v. Mr. Ram Chandra Dallaram Choudhary [(2023) ibclaw.in 278 NCLAT]4 and Potens Transmission & Power Pvt Ltd v. Apex Buidlsys Ltd (In Liquidation) [(2024) ibclaw.in 240 NCLAT]5, which decisions have been affirmed by this Court respectively in Civil Appeal No.4087 of 2023 and Civil Appeal No.4116 of 2022. Westcoast Infraprojects Private Limited4 approved by this Court in a Civil Appeal, upheld the forfeiture, as per the clause in the e-auction notice, of both the EMD and any other deposit made by the bidder, in the event of the failure of the successful bidder to pay on time the balance sale consideration.


# 20. The respondent points out from Annexure R12, that in fact, the EMD stipulated was only Rs.2.55 crores which is only 10% of the reserve price of Rs.25.56 crores for Lot No.5. The Liquidator, vide email dated 15.11.2021 informed the appellant that against the total bid of Rs.25,56,00,000/-, 25% of the bid amount amounting to Rs.6,39,00,000/- which included Rs.2.55 crores EMD and a portion of the balance consideration coming to Rs.3.84 crores, were to be deposited by 16.11.2021.


# 21. In this context, we also have to observe that hence the payment was made of Rs.6.39 crores without demur and the e-auction notice specifically contained the following clause:

  • The entire amount paid by the applicant/bidder including the Earnest Money Deposit can be forfeited at any time, upon the occurrence of any of the following events;

  • I. xxx xxx xxx xxx

  • II. xxx xxx xxx xxx

  • III. If the bidder(S) is/ are identified as the Successful Bidder(S) and fails to pay balance sale consideration as per terms of the sale.

  • IV. xxx xxx xxx xxx


# 22. 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 successful bidder, including EMD to be forfeited, if he fails to pay the balance sale consideration as per the terms of the sale, there is no reason to order refund. We find no reason to interfere with the impugned order.


# 23. The appeal is hence dismissed.

# 24. Pending application(s), if any, shall stand rejected.

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.