Successful E-Auction Bidder Bound By Forfeiture Clause On Payment Default: Supreme Court

The Supreme Court recently observed that a successful bidder in a liquidator's e-auction cannot seek a refund of the amount paid if the auction notice clearly provides for forfeiture upon failure to pay the remaining sale consideration within the stipulated time.

A Bench of Justices J B Pardiwala and K Vinod Chandran said that where an e-auction notice clearly provides for forfeiture of the earnest money deposit (EMD) and other amounts paid by a successful bidder in case of failure to pay the balance sale consideration, the condition is binding on the bidder.

A bidder who participates in an auction with “open eyes” and later fails to perform cannot seek a refund by relying on extraneous excuses or the absence of a specific forfeiture provision in the procedural regulations when the tender terms expressly provide for such forfeiture, the Bench said.

Can a liquidator provide for forfeiture in an e-auction notice?

The Supreme Court held that the liquidator can incorporate specific forfeiture terms in the e-auction notice.

Court noted that Schedule I of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations provides that the earnest money deposit should not exceed 10% of the reserve price. However, this provision does not prevent a liquidator from including specific forfeiture conditions in the e-auction notice.

“The failure to pay the balance sale consideration constitutes a breach of the auction conditions, justifying the automatic forfeiture of deposited amounts if the tender conditions so provide,” the Bench said.

Court was dealing with an appeal filed by M/s ASJ Finsolutions Pvt Ltd, which challenged an order of the National Company Law Appellate Tribunal (NCLAT).

The NCLAT had reversed the order of the National Company Law Tribunal (NCLT) and upheld the forfeiture of the EMD on the ground that the successful bidder had failed to pay the balance sale consideration within 90 days.

Why did the bidder seek a refund of the EMD?

The appellant was the successful bidder in an auction conducted during the liquidation process initiated under the Insolvency and Bankruptcy Code, 2016.

The property in question was situated in Sonepat, Haryana, and had a reserve price of Rs 25.56 crore. It was auctioned along with several other properties owned by the corporate debtor through an e-auction notice for sale on October 25, 2021.

The Supreme Court noted that the appellant had admittedly failed to pay the balance sale consideration within the initial 30-day period or within 90 days along with 12% interest.

The appellant sought to rely, among other things, on the absence of an express forfeiture provision in the Liquidation Process Regulations.

Court noted that Schedule I of the regulations, which was brought in on September 30, 2021, stipulated that the EMD should not exceed 10% of the reserve price, but did not expressly provide for forfeiture in the event of failure to pay the balance sale consideration.

“What remains is only the consideration as to whether the refusal was bona fide,” the Bench said.

However, Court rejected the appellant's contention that the absence of a forfeiture clause in the regulations prevented forfeiture.

Why did Supreme Court reject the bidder’s claim?

The Supreme Court said the appellant had participated in the auction knowing the terms and conditions and had voluntarily paid the money.

The Bench also noted that the appellant had not sought verification of the title deeds before making the bid or depositing the EMD. Therefore, it could not later rely on the issue of title verification as a reason to withdraw from the transaction or avoid 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,” Court held.

Court further noted that the EMD stipulated in the auction was Rs 2.55 crore, which was exactly 10% of the reserve price of Rs 25.56 crore.

The liquidator, through an email dated November 15, 2021, informed the appellant that against the total bid amount of Rs 25,56,00,000, 25% of the bid amount, or Rs 6.39 crore, was required to be deposited by November 16, 2021. This included the Rs 2.55 crore EMD and Rs 3.84 crore towards the balance 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,” the Bench said.

Finding no reason to interfere with the NCLAT's order, the Supreme Court dismissed the appeal.

Case Title: M/s ASJ Finsolutions Pvt Ltd Vs Vikram Bajaj

Bench: Justices J B Pardiwala and K Vinod Chandran 

Date of Judgment: September 28, 2026