2023 (5) TMI 44 - AT - Insolvency and Bankruptcy

Forfeiture of the EMD and part consideration - Jurisdiction/power of Liquidator to forfeit the EMD - case of appellant is that the forfeiture of the amount under the terms and conditions of Tender Document is in nature of penalty hence can be recovered only in accordance with Section 74 of Indian Contract Act by bringing action by the Liquidator - Defect in title of the Corporate Debtor or not - Suppression by Liquidator, crucial information from the Appellant and other bidders. Jurisdiction/power of Liquidator to forfeit the EMD - compensation for breach of contract - HELD THAT - For purpose of this case, law as laid down in Paragraph 43.7 is relevant where Hon ble Supreme Court in KAILASH NATH ASSOCIATES VERSUS DELHI DEVELOPMENT AUTHORITY 2015 (1) TMI 1377 - SUPREME COURT has clearly held that when forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application. The statement of law in paragraph 43.7 is fully applicable in the case of the present case. The present is a case where Appellant participated in the e- Auction conducted by the Liquidator under the Liquidation Process Regulations, 2016. Section 74 of the Indian Contract Act has no application in the case of Auction conducted by the Liquidator under the Liquidation Process Regulations, 2016. The terms and conditions of the sale as finalized by the Liquidator under which the e-Auction was held is binding on all including the bidders. Bidders give an unqualified undertaking for participation in the e-Auction after knowing fully well of clauses of the e-Auction Process Document and undertook to abide by the clauses. The submission of the Appellant can not be accepted that Appellant s EMD can not be forfeited even though he has committed default in making the payment of balance amount and the Liquidator should file a suit for forfeiting amount deposited by the Appellant. Such preposterous argument can not be accepted in view of the fact that Liquidation Process is conducted under the statutory Liquidation Process Regulations, 2016. The terms and conditions of the Process Document has been framed as per statutory empowerment given to the Liquidator by Schedule I of the Liquidation Process Regulations, 2016 - When the clauses of the Process Document, clearly empowers the Liquidator to forfeit the EMD and any payment made in event default is committed by the Highest Bidder, no exception can be taken to the action of the Liquidator in cancelling the sale and forfeiting the amount deposited by the Appellant - there are no substance in the submission of Learned Counsel for the Appellant that Liquidator was not empowered to forfeit the EMD. Defect in title of the Corporate Debtor or not - Suppression by Liquidator, crucial information from the Appellant and other bidders - HELD THAT - The process document under which e-Auction has been held and the e-Auction Notice has described the price of the land which was sought to be auctioned - the issue raised by the email dated 17th June, 2022 by the Appellant that name of the land is not in the name of the corporate debtor is only a ruse not to make payment within time allowed by law. Admittedly, the land was in the name of Anil Products Limited which was the earlier name of the Corporate Debtor changed in to Anil Limited. The title of the land shall be of the corporate debtor Anil Limited by change of the name the title to the land will continue with the corporate debtor and the earlier name of the corporate debtor in the revenue record has no bearing in the title. Thus, there was neither defect in the title nor the fact that process of change of the name in the revenue record was underway was any reason for Appellant not to make the payment of balance consideration within time. Property tax dues in respect of land was outstanding - HELD THAT - Liquidator has submitted that all dues were paid and No Dues Certificate was issued. Liquidator further submitted that in any view of the matter, these issues were required to be done by the Liquidator before transferring the property in question in favour of the Appellant but that itself could not have been any ground available to the Appellant to refuse to deposit the balance consideration within time allowed by the law. Similarly, the argument that properties were attached towards nonpayment of property tax dues also can not raise any fetter in the title, right of the corporate debtor and further when No Dues Certificate were obtained by the Liquidator subsequently it can not be said that title of the corporate debtor was defective due to above reason - There was no title defect in the Corporate Debtor. Permission of the Deputy Collector for sale - Intimidation regarding entry in the revenue record - HELD THAT - It is satisfying that issues regarding entry in the revenue record, permission of the Deputy Collector for sale were issues which had no effect on the title of the corporate debtor and the issues were raised by the Appellant to avoid payment of balance amount and to buy time in which Appellant failed. There are no substance in the submissions that there was defect in title. Appeal dismissed.

Summary

Issues Involved:
1. Forfeiture of Earnest Money Deposit (EMD) and part consideration by the Liquidator.
2. Alleged defect in the title of the Corporate Debtor's property.

Summary:

Issue 1: Forfeiture of Earnest Money Deposit (EMD) and part consideration by the Liquidator

The Appellant challenged the forfeiture of the EMD and part consideration by the Liquidator, arguing that such forfeiture is a penalty and impermissible under Section 74 of the Indian Contract Act, 1872. The Appellant contended that the Liquidator should have filed a suit for recovery of the penalty by way of compensation and did not have the jurisdiction to forfeit the amounts. The Appellant also claimed that there is no provision in the Insolvency and Bankruptcy Code, 2016 or the Liquidation Process Regulations, 2016 that allows for such forfeiture upon cancellation of the sale due to the purchaser's default.

The Tribunal, however, rejected this argument, stating that the terms and conditions of the Tender Document, which were prepared under the statutory empowerment given to the Liquidator by the Liquidation Process Regulations, 2016, clearly allowed for the forfeiture of the EMD and part consideration in case of default. The Tribunal also noted that the Appellant had accepted these terms unconditionally. The Tribunal referred to the Supreme Court's judgment in Kailash Nath Associates v. Delhi Development Authority, which held that Section 74 of the Indian Contract Act does not apply to forfeiture under the terms and conditions of a public auction before an agreement is reached. Therefore, the Tribunal concluded that the Liquidator was within his rights to forfeit the EMD and part consideration.

Issue 2: Alleged defect in the title of the Corporate Debtor's property

The Appellant also argued that there was a defect in the title of the property and that the Liquidator had suppressed crucial information. The Appellant pointed out that the land was still registered in the name of Anil Products Limited instead of Anil Limited and that there were outstanding property tax dues.

The Tribunal found these arguments to be without merit. It noted that the name change from Anil Products Limited to Anil Limited was a matter of record and did not affect the title of the property. The Tribunal also observed that the Appellant had been advised to conduct their own due diligence before participating in the e-Auction, as stipulated in the Tender Document. The Tribunal further noted that the Liquidator had obtained a No Dues Certificate for the property tax and that any issues related to the title or encumbrances would be resolved before the transfer of the property to the highest bidder.

The Tribunal concluded that the Appellant's failure to pay the balance amount within the stipulated time was not justified by any alleged defects in the title or suppression of information by the Liquidator. Therefore, the Tribunal upheld the Liquidator's decision to cancel the sale and forfeit the amounts deposited by the Appellant.

In conclusion, the Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision to reject the Appellant's application for an extension of the interest-free period and to uphold the forfeiture of the EMD and part consideration.