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TMI Blog2023 (5) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ator. Liquidator issued e- Auction Sale Notice on 28.02.2022 for e-Auction to be held on 14th March, 2022 with regard to property in question as described in the e-Auction Sale Notice. In the e-Auction Sale held on 14th March, 2022, Appellant emerged as highest bidder for consideration of Rs. 3,73,00,00,000/-. The Appellant had remitted an amount of Rs. 15,00,00,000 as EMD before participating in the e-Auction. (ii) Liquidator vide Letter dated 28.03.2022 communicated the Appellant that he has been declared as the Successful Bidder in the e-Auction held on 14th March, 2022 for sale of properties owned by Anil Limited for total amount of Rs. 3,73,00,00,000/-. Letter noted that having deposited Rs. 15,00,00,000/- as EMD, he shall remit the balance amount of Rs. 3,58,00,00,000/- within 30 days from the confirmation of sale i.e. on or before 27.04.2022. (iii)The Appellant has further deposited an amount of Rs. 1,60,00,000 on 29th March, 2022. On 26th April, 2022, the Liquidator sent a communication to the Appellant to make payment of balance amount of Rs. 3,56,40,00,000/- on or before 27th April, 2022. Liquidator on 16th June, 2022 again communicated the Appellant to make the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicating Authority on the Application I.A. No. 578 of 2022 after hearing the parties dismissed the Application. The Adjudicating Authority noticed that Appellant failed to deposit the amount on or before 26.06.2022, there is no ground to interfere with the cancellation of the same, application was consequently rejected with Cost of Rs. 5 Lakhs. (vii) Aggrieved by the Order impugned dated 06.09.2022, this Appeal has been filed. 3. We have heard Mr. Gopal Malhiraju, Learned Counsel for the Appellant and Mr. Palash S. Singhai, Learned Counsel for the Liquidator. 4. Learned Counsel for the Appellant challenging the Impugned Order submits that forfeiture by the Liquidator of the amount paid by the Appellant is a penalty and impermissible in law. Learned Counsel for the Appellant relying on Section 74 of the Indian Contract Act, 1872 submits that for forfeiting the amount, Liquidator ought to have filed a suit for recovery of the penalty by way of compensation and the Liquidator had no jurisdiction to forfeit the EMD and amount of Rs. 1,75,00,000/-deposited by the Appellant. Learned Counsel for the Appellant has however not raised any submission questioning the cancellation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 022 and I.A. No. 578 of 2022 filed by the Appellant. Learned Counsel submits that Anil Products Limited is the earlier name of the Corporate Debtor. The property was in the name of Anil Products Limited which was the earlier name of the Corporate Debtor changed into Anil Limited. Upon such entry in the revenue record, there is no fetter in the title of the corporate debtor and the Liquidator has informed that change in the revenue record shall be done before transferring the property in favour of highest bidder. It is submitted that in so far as the approval of the Deputy Collector, the approval was also obtained which was also noticed by the Adjudicating Authority. The Adjudicating Authority in its order has noticed that Appellant has never been ready to deposit the balance amount even after 26th June, 2022. The Appellant has neither capacity nor willingness to deposit the balance amount hence the Liquidator has rightly cancelled the sale on 28th June, 2022. The forfeiture of the EMD and the part-consideration paid by the Appellant was in accordance with the Tender Document which can not be faulted. No submission on behalf of Section 74 of the Indian Contract Act, 1872 has been ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation.-A stipulation for increased interest from the date of default may be a stipulation by way of penalty. Exception.-When any person enters into any bail-bond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the [Central Government] or of any [State Government], gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein. Explanation.-A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested. Illustrations (a) A contracts with B to pay B Rs. 1,000, if he fails to pay B Rs. 500 on a given day. A fails to pay B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feiture of the EMD and part consideration, we need to notice the clauses regarding the forfeiture. Clause 4.6 deals with EMD and Intimation of eligible bidders. Clause 4.6 sub-clause (f) is as follows: "(f) EMD and other amounts paid by the Bidders/Eligible Bidders/Successful Bidder are liable to forfeiture in case of any default or misrepresentation on the part of the Bidder/Eligible Bidders/Successful Bidder." 13. Clause 4.10 deals with Deposit of the purchase price and verification of Documents. Clause 4.10(b) and 4.11 (Defaults in Payment) are as follows: "4.10(b) No interest shall be levied if the balance amount (being total bid price less EMD) is paid within 30 days from the date of issue of sale confirmation advice. However, the successful bidder can pay the balance amount (being total bid price less EMD) within the extended period of 90 days from the date of issue of sale confirmation advice along with the interest @12% p.a. after 30 days. Default in deposit of any amount as envisaged above by the successful bidder would entail forfeiture of the amount already deposited including EMD and property/(ies) shall be put to re-auction and the defaulting bidder shall have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation by way of penalty. We are in the present case not concerned to decide whether a covenant of forfeiture of deposit for due performance of a contract falls within the first class. The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of tile case. jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according, to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damages"; it does not justify the award of compensation when in consequence of the breach no legal injury at all has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bid amount. Provision of the condition of auction contained the clause that in case of default/breach or non-compliance of the terms and conditions of the auction or misrepresentation by the bidder or intending purchaser, EMD shall be forfeited. DDA acknowledged the receipt of the amount of Rs. 78 Lakhs and directed the Appellant to deposit remaining amount. There was extension granted for depositing the balance amount, consent of the Appellant was also sought by the DDA for making payment of balance amount along with 18% interest which consent was given by the Appellant. Subsequently, the DDA cancelled the allotment and EMD by letter dated 06.10.1993. The Appellant had filed a suit for specific performance and in the alternative recovery of damages and recovery of earnest money. Learned Single Judge had allowed the order for refund of the EMD with 9% interest which judgement was set aside by the Division Bench of the Delhi High Court against which the Appeal was filed by the Appellant. Hon'ble Supreme Court in the above case came to the conclusion that there was no breach on the part of the Appellant hence the forfeiture of the amount could not have been done. In paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Paragraph 40 of the Judgment, following has been laid down: "40. From the above, it is clear that this Court held that Maula Bux's case was not, on facts, a case that related to earnest money. Consequently, the observation in Maula Bux that forfeiture of earnest money under a contract if reasonable does not fall within Section 74, and would fall within Section 74 only if earnest money is considered a penalty is not on a matter that directly arose for decision in that case. The law laid down by a Bench of 5 Judges in Fateh Chand's case is that all stipulations naming amounts to be paid in case of breach would be covered by Section 74. This is because Section 74 cuts across the rules of the English Common Law by enacting a uniform principle that would apply to all amounts to be paid in case of breach, whether they are in the nature of penalty or otherwise. It must not be forgotten that as has been stated above, forfeiture of earnest money on the facts in Fateh Chand's case was conceded. In the circumstances, it would therefore be correct to say that as earnest money is an amount to be paid in case of breach of contract and named in the contract as such, it would neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow the Application filed by the Liquidator for cancellation of the sale. The action taken by the Adjudicating Authority is in accordance with the statutory provisions. We do not find any merit in the submissions of Learned Counsel for the Appellant as noticed above. Prayer 'a' in the Application which was filed through I.A. No. 3153 of 2021, itself is indicative that Appellant was never interesting in making the payment and he by different prayers wanted to prolong the proceedings." 22. We thus do not find any substance in the submission of Learned Counsel for the Appellant that Liquidator was not empowered to forfeit the EMD. 23. Now, we come to the next submissions of Learned Counsel for the Appellant that there was defect in title of the Corporate Debtor and Liquidator has suppressed crucial information from the Appellant and other bidders. 24. 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. Clause 4 deals with Terms and Conditions of the e- Auction. Clause 4.2, Cautions to the Bidders provide as follows: "4.2 Cautions to the Bidders (a) The Land are being sold str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited whereas the owner of the Land should be Anil Limited. The mail further noticed that process of change in the revenue records is underway. The email dated 17.06.2022 states following in paragraph 5, 6 and 7: "5. That, in the revenue records as evident from 7/12 extract dated 25.05.2022 (enclosed), the Land still stands registered in the name of Anil Products Limited as the owner of the Land instead of Anil Limited. We understand the process of mutation to change the revenue records in favour of Anil Limited is underway. However, the sale deed for the said Land cannot be executed in may favour till the time the land records are mutated in favour of Anil Ltd. 6. Therefore, you are humbly requested that the interest free period of 30 days be extended till such time as the revenue entries are mutated in favour of Anil Limited which would enable you to execute a sale deed in may favour. 7. We request you to please inform us as soon as the mutation is completed so that we can initiate registration process. And kindly prepare the site clear of any structures and vehicles to be handed over to us." 27. Liquidator in reply filed in this Appeal has pleaded in paragraph 9.2 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e corporate debtor in the revenue record has no bearing in the title. We thus are satisfied that 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. 29. Learned Counsel for the Appellant sought to raise also the submission that property tax dues in respect of land was outstanding. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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