Supreme Court upholds EMD forfeiture after bidder fails to pay balance

The Supreme Court reviewed whether this forfeiture was valid under the auction terms and the Insolvency and Bankruptcy Code.

Who it concerns: Appellant: M/s ASJ Finsolutions Pvt. Ltd. (Successful Bidder); Respondent: Vikram Bajaj (Resolution Professional); Bench: Justice K. Vinod Chandran.

What the court decided

• The Supreme Court dismissed the appeal and upheld the NCLAT's order affirming the forfeiture of the Earnest Money Deposit (EMD).
• The Court held that the specific terms of the e-auction notice, which explicitly provided for forfeiture upon failure to pay the balance consideration, were binding on the appellant.
• The Court rejected the application of the 'Triple Test' (regarding hidden agendas, financial capacity, or extraneous reasons) to absolve the appellant from forfeiture in these specific facts.
• The Court noted that the appellant had bid with knowledge of the pending civil suit and the 'as is where is' condition, and had not sought verification of title deeds before bidding.

Also in the document

• The Court observed that the property was subsequently sold in a fresh auction for Rs. 31.10 crores, which was Rs. 5.54 crores higher than the appellant's bid.
• The Court found that the appellant's claim of a bona fide reason for non-payment (based on a third-party's writ petition) was an afterthought and not a valid extraneous reason.
• The Court emphasized that the forfeiture was an automatic consequence of the failure to pay, as per the explicit conditions in the tender notice.