2024 (7) TMI 933 - AT - Insolvency and Bankruptcy

Challenge to action of the Liquidator forfeiting EMD of Rs.96 Lakhs pursuant to e-auction of the assets of JVL Agro Industries Ltd. - refund of amount along with compensation /damages caused to the applicant due to non-issuance of Sale Certificate - HELD THAT - On looking into the clauses of the E-auction Process Document, it is clear that there is timeline for payment of balance amount. The Liquidator has communicated 90 days timeline for payment of balance amount ending on 05.07.2022. Liquidator after expiry of one month also informed the Appellant from 06.04.2022 that the balance amount has to be paid along with interest. Admittedly, the Appellant has not made the balance payment. Clause 4.9, as extracted above, clearly contemplate that EMD could be forfeited if the Successful Bidder fails to make the complete payment towards total sale consideration as per the terms of the Letter of Intent issued by the Liquidator within the stipulated time not exceeding 90 days from the date of e-auction. Admittedly, the Appellant has not paid the balance amount within the period of 90 days and Clause 4.9 clearly entitle the Liquidator forfeit the EMD. On looking into the E-Auction Process Document, there was clear stipulation that entire sale including issue of Sale Certificate is subject to orders and directions passed by NCLT/NCLAT. Clause 5.11 Sub-clause (viii) has already been extracted above which clearly provides that issue of sale certificate in respect of a particular Block of assets shall subject to such orders and directions as maybe passed by the NCLT/NCLAT. Thus, the Process Document already contemplated that issue of Sale Certificate is subject to orders passed by NCLT/NCLAT. Thus, the submission of the Appellant cannot be accepted that Appellant was not aware that the Sale Certificate shall not be issued without leave of the NCLT. Present is not a case where the Liquidator due to any deficiency on his part could not issue Sale Certificate or hand over the material but on account of order dated 04.04.2022, the Liquidator could not issue Sale Certificate and that was cleared only after passing of order dated 01.06.2023 when IA No.98 of 2022 was rejected. Appellant even before the said date communicated that EMD be refunded and filed IA No.266 of 2022. Appellant has neither deposited the balance amount nor has complied with the terms and conditions of the Process Document. The Appellant having breached the clauses of the E-auction Process Information Document and having failed to deposit the balance amount within the time allowed, the Liquidator did not commit any error in forfeiting the EMD. Appellant was not entitled for refund of EMD and the application filed by the Appellant has rightly been rejected by the Adjudicating Authority. The claim of compensation made by the Appellant has also been rightly negatevated by the Adjudicating Authority. The order of the Adjudicating Authority upheld - appeal dismissed.

Summary

Issues Involved:
1. Forfeiture of Earnest Money Deposit (EMD)
2. Non-issuance of Sale Certificate
3. Claim for refund of EMD and compensation

Detailed Analysis:

1. Forfeiture of Earnest Money Deposit (EMD):
The Appellant, a successful auction purchaser, challenged the forfeiture of their EMD of Rs. 96 Lakhs by the Liquidator following an e-auction for the assets of JVL Agro Industries Ltd. The auction was subject to the terms of the E-Auction Process Information Document, which stipulated that the EMD could be forfeited if the successful bidder failed to make the complete payment towards the total sale consideration within the stipulated time of 90 days. The Appellant did not pay the balance amount within this period, leading to the forfeiture of the EMD. The Tribunal upheld the Liquidator's decision, citing Clause 4.9 of the E-Auction Process Document, which clearly provided for such forfeiture in case of non-payment.

2. Non-issuance of Sale Certificate:
The Appellant contended that they were not informed about the order dated 04.04.2022 by the Adjudicating Authority, which stated that the Sale Certificate could only be issued with the leave of the Adjudicating Authority. This order was communicated to the Appellant on 12.04.2022. The Tribunal noted that the E-Auction Process Document already stipulated that the issuance of the Sale Certificate was subject to orders from the NCLT/NCLAT, and thus the Appellant was deemed to have been aware of this condition. The Liquidator's inability to issue the Sale Certificate was due to the Adjudicating Authority's order, not a fault on the Liquidator's part.

3. Claim for refund of EMD and compensation:
The Appellant sought a refund of the EMD along with compensation for losses incurred due to the non-issuance of the Sale Certificate. The Tribunal rejected this claim, stating that the Appellant's failure to pay the balance amount within the stipulated time justified the forfeiture of the EMD. The Tribunal also referenced the Supreme Court's judgment in "State of Haryana vs. Malik Traders," which upheld the forfeiture of bid security in similar circumstances. Additionally, the Tribunal cited its own decision in "Westcoast Infraprojects Pvt. Ltd. vs. Mr. Ram Chandra Dallaram Chaudhary," affirming that the Liquidator's action in forfeiting the EMD was consistent with the terms of the E-Auction Process Document.

Conclusion:
The Tribunal upheld the order of the Adjudicating Authority, dismissing the appeal. The Appellant's claims for refund of the EMD and compensation were rejected, and the Liquidator's actions were deemed appropriate and in accordance with the stipulated terms of the E-Auction Process Document. The Tribunal emphasized that the Appellant's failure to comply with the payment terms justified the forfeiture of the EMD, and no compensation was warranted.