2012 (6) TMI 342 - HC - Companies Law

Termination of Sale of assets by liquidator and forfeiture of amount breach of contract - official liquidator seeks that the sale of the property in question which was confirmed by the court at earlier stage, may be allowed to be terminated and the official liquidator also may be permitted to forfeit the amount deposited by respondent No. 1, i.e., the successful bidder during the auction sale Held that - breach on account of non-payment of balance amount of sale consideration ; the official liquidator, as per the terms of tender and paragraph 6(4) of the order dated February 22, 2006, is entitled to take action as per and in accordance with clause 17 and paragraph 6(4) of the order dated February 22, 2006 and the permission as contemplated by the said order therefore deserves to be granted and is hereby granted.

Issues Involved:
1. Termination of sale and forfeiture of deposit by the official liquidator.
2. Compliance with terms and conditions of the auction sale.
3. Extension of time for payment of the sale consideration.
4. Waiver of rights by the official liquidator.
5. Limitation period for exercising rights.
6. Entitlement to reasonable compensation versus penalty under Section 74 of the Indian Contract Act, 1872.

Detailed Analysis:

1. Termination of Sale and Forfeiture of Deposit by the Official Liquidator:
The official liquidator sought permission to terminate the sale confirmed by the court and forfeit the amount deposited by the successful bidder, respondent No. 1. The court confirmed that the official liquidator is entitled to terminate the sale and forfeit the deposit due to the breach of payment conditions by respondent No. 1. The court granted the official liquidator the permission to terminate the sale and forfeit the deposit as per the terms of the tender and the court's order dated February 22, 2006.

2. Compliance with Terms and Conditions of the Auction Sale:
The auction sale was governed by specific terms and conditions outlined in the tender document and the court's order. Respondent No. 1 emerged as the successful bidder but failed to comply with the payment schedule. The court highlighted that the terms included conditions such as "the sale is on 'as is where is and whatever there is basis'" and the requirement to pay 25% of the purchase consideration within one month and the balance within three months. Non-compliance with these terms led to the automatic consequences of termination and forfeiture.

3. Extension of Time for Payment of the Sale Consideration:
Respondent No. 1 requested an extension of time to make the remaining payment, which was initially extended to September 15, 2006. Despite this extension, respondent No. 1 failed to pay the balance amount by the extended deadline. The court noted that no further extension was granted, and the request for additional time was formally rejected on August 12, 2008.

4. Waiver of Rights by the Official Liquidator:
Respondent No. 1 argued that the official liquidator waived the right to terminate the sale and forfeit the deposit by accepting payments after the initial deadline. The court rejected this contention, stating that the official liquidator accepted the payments under the court's order, not by discretion. Therefore, there was no waiver of rights by the official liquidator.

5. Limitation Period for Exercising Rights:
Respondent No. 1 contended that the official liquidator's right to terminate the sale and forfeit the deposit was time-barred under the Limitation Act, 1963. The court clarified that the application for permission was made in compliance with the court's direction and within a reasonable time after the Division Bench's order on June 20, 2011. The court concluded that the limitation period did not bar the official liquidator's actions.

6. Entitlement to Reasonable Compensation versus Penalty under Section 74 of the Indian Contract Act, 1872:
Respondent No. 1 argued that the forfeiture of the entire deposit amount would be a penalty and not reasonable compensation. The court referred to the Supreme Court's decision in Oil & Natural Gas Corpn. Ltd. v. Saw Pipes Ltd., emphasizing that if the compensation named in the contract is a genuine pre-estimate of loss, it does not require proof of actual loss. The court found that the forfeiture clause in the tender document was a genuine pre-estimate of the loss and not a penalty. Therefore, the official liquidator was entitled to forfeit the deposit amount as per the tender terms and the court's order.

Conclusion:
The court granted the official liquidator permission to terminate the sale and forfeit the deposit amount due to respondent No. 1's failure to comply with the payment terms. The objections raised by respondent No. 1 regarding waiver, limitation, and the nature of the forfeiture as a penalty were rejected. The official liquidator's actions were deemed in compliance with the terms of the tender and the court's directives.

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