2012 (10) TMI 271 - HC - Indian Laws

Refund of Earnest Money - Held that - The bids had been closed and accepted on October 13, 2011. In any case, the applicant had participated in sale/auction proceedings knowing fully well the terms and conditions of the sale and therefore, the applicant is bound by the terms and conditions and cannot be permitted to contend to the contrary at this stage. - Tender/Bids binding down the second highest bidder in the event of default by the auction purchaser would be rendered futile - Application is dismissed with costs of Rs. 25,000/- to be paid to the official liquidator within a period of four weeks.

Summary

Issues:
Refund of earnest money to the second highest bidder in an auction conducted by the court.

Analysis:
The applicant, as the second highest bidder in an auction conducted by the court, sought a refund of its earnest money after the highest bidder defaulted in making the required payment within the specified time frame. The court had accepted the highest bid of another party but directed the applicant to comply with the auction terms, including depositing 25% of the bid amount within seven days. The sale notice outlined the conditions for deposit and refund of earnest money, emphasizing forfeiture if terms were not met.

When the highest bidder defaulted, the court allowed the official liquidator to invite the second highest bidder (the applicant) to deposit the bid amount. However, the applicant also failed to make the payment within the stipulated time, leading to the forfeiture of their earnest money as per the terms and conditions of the sale notice. The applicant claimed they had withdrawn their offer before being informed of the court's decision, citing provisions of the Indian Contract Act and the Companies Act allowing withdrawal.

The court rejected the applicant's arguments, stating that the contract was completed when the auction results were declared, binding the applicant to the terms and conditions. The court highlighted that the relevant section of the Companies Act was not applicable and emphasized that the applicant participated in the auction with full knowledge of the terms, thus being bound by them. Allowing the applicant to withdraw at this stage would defeat the purpose of holding the second highest bidder accountable in case of default by the highest bidder.

Ultimately, the court dismissed the application, imposing costs on the applicant for their unsuccessful claim. The costs were to be paid to the official liquidator within a specified period.