IBC Auctions Not Ordinary Commercial Contracts; Market Fluctuation No Defence to Evade Bid Obligations: NCLAT Restores Forfeiture of ₹2 Crore EMD
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that a successful bidder in a liquidation e-auction cannot escape payment obligations by citing market volatility or alleged uncertainty when the bidder had voluntarily accepted the auction conditions. Setting aside an order of the National Company Law Tribunal (NCLT), Kolkata which had directed refund of the ₹2 crore Earnest Money Deposit (EMD), the Appellate Tribunal restored the liquidator’s decision to cancel the sale and forfeit the deposit.
The dispute arose during the liquidation of Ess Dee Aluminium Limited, where Lucky Holdings Private Limited emerged as the highest bidder in an April 2022 e-auction for a going-concern sale at ₹124.60 crore. Under the terms of the auction, the bidder was required to deposit 25% of the bid value within 15 days. Thirteen of those days had already expired when, on 9 May 2022, an interim restraint order was passed in an unrelated application, temporarily affecting the auction process. After the application was withdrawn on 15 June 2022, the liquidator reinstated the remaining timeline and called upon the bidder to make the payment. However, Lucky Holdings did not deposit any amount or seek a formal extension before the liquidator cancelled the sale and forfeited the EMD on 1 July 2022.
Before the NCLAT, the liquidator submitted that the bidder had participated with full knowledge of the mandatory timelines and consequences of default and was bound by the Liquidation Regulations. It was argued that after the restraint was lifted, the bidder sent non-committal emails instead of remitting payment, and its reluctance stemmed from a fall in aluminium prices rather than any action attributable to the liquidator. The liquidator also pointed out that the bidder could have demonstrated genuine intent by paying even a part of the required sum during this period, but it chose not to.
The bidder contended that it could not proceed due to uncertainty arising from the liquidator’s submissions before the NCLT and claimed that the withdrawal order was received late. It further argued that forfeiture was disproportionate.
Rejecting these arguments, the Appellate Tribunal emphasised that liquidation auctions under the Insolvency and Bankruptcy Code (IBC) operate in a statutory framework distinct from ordinary commercial contracts. The Bench observed that unlike negotiated bilateral agreements, liquidation processes involve predefined terms, strict timelines and automatic consequences for non-compliance, leaving no room for flexibility. It recorded that Lucky Holdings had consciously accepted these terms and had submitted an affidavit agreeing that failure to pay within the stipulated period would result in forfeiture.
The Tribunal concluded that the bidder’s refusal to make payment was commercially motivated and attributable to market fluctuation rather than any conduct of the liquidator. It also noted that a subsequent auction fetched only ₹103.40 crore, resulting in a loss of more than ₹21 crore to the liquidation estate, demonstrating the detrimental impact of the earlier default. Holding that the NCLT was not justified in directing refund of the deposit, the NCLAT reinstated the liquidator’s cancellation order and forfeiture of the ₹2 crore EMD. The appeal was allowed, affirming that bidders in liquidation auctions remain bound to the statutory terms they accept and cannot evade obligations by citing market conditions or perceived delays.
Appearance
For Appellant: Senior Advocate Krishnendu Datta, with Advocates Rahul Gupta, Rahul Dadhich, and Yash Tandon.
For Respondent: Senior Advocate Abhijeet Sinha, with Advocates Prashant Mehta, Raghav Marwaha, and Ninad Bohidar.
Cause Title: Deepika Bhugra Prasad v. Lucky Holdings Pvt. Ltd.
Case No: Company Appeal (AT) (Ins.) No. 186 of 2023
Coram: Judicial Member Justice Yogesh Khanna, Technical Member Indevar Pandey
