It kept writing to say it would pay, and never did. ₹6.39 crore forfeited, and the Supreme Court will not order a rupee back
A willingness to pay is not proof of capacity to pay. The Court upholds forfeiture of an entire liquidation deposit, not merely the earnest money, where the auction notice said so.
An insolvency liquidation runs on a clock. Assets are sold to pay creditors who have already waited through a failed resolution process, and a successful bidder who does not pay forces the whole exercise to begin again. That is why the forfeiture clause in an e-auction notice is not a penalty in the ordinary sense — it is the mechanism that makes the timetable credible.
On 28 September 2026 a Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran, in a judgment by Justice Chandran, declined to relieve a bidder from one.
Lot No. 5
A corporate debtor went into liquidation after an operational creditor's application under Section 9 of the Insolvency and Bankruptcy Code, 2016. Expressions of interest came in but no resolution plan was ever filed, even after an extension, so liquidation was proposed and approved; a suspended director's appeal against the liquidation order was dismissed.
Lot No. 5 — land at Village Nangal Khurd, Tehsil Sonepat, Haryana — was put up by e-auction notice of 25 October 2021 with a reserve price of ₹25.56 crore. Two features of that notice decided this case. The sale was on an “as is where is” basis; and a Note recorded that a civil suit was pending concerning the sale deed of part of the land, with the Liquidator applying for custody of it.
The appellant bid at the reserve price and won on 15 November 2021. It deposited ₹6.39 crore — 25% of the bid, comprising ₹2.55 crore as earnest money (exactly 10% of the reserve price) and ₹3.84 crore towards the balance.
The balance of ₹19.17 crore was due within 30 days, extendable to 90 days on payment of 12% interest — so by 14 February 2022 at the latest. On 15 December 2021, one day after the 30-day period expired, the appellant emailed the Resolution Professional undertaking to pay within that outer date with interest.
It never paid. Instead, on 11 February 2022, three days before the deadline, it applied to the NCLT for the prior title deeds. That application was rejected, as was the appeal, and a writ petition in the Punjab and Haryana High Court. While the writ was pending the property was re-auctioned for ₹31.10 crore — ₹5.54 crore more than the appellant's bid.
The Triple Test, and why it did not arise
The appellant later returned to the NCLT seeking annulment of the forfeiture and a refund. The NCLT allowed it, applying the Triple Test — whether the bidder acted with a hidden agenda to rig the auction, whether it was not a genuine bidder with adequate financial capacity, and whether it was prevented by extraneous reasons from paying.
The NCLT found no hidden agenda mentioned in the forfeiture communication and nothing showing mala fides; treated the December email and a later offer to pay with interest as evidence of financial capacity; and found in a third party's High Court proceedings a bona fide reason not to deposit. The NCLAT reversed. The Supreme Court agreed with the reversal, and went further on the law.
Where the auction notice contains a specific clause threatening forfeiture on failure to pay the balance, the Court held, forfeiture is a necessary consequence of cancellation, and on these facts there is no application of the Triple Test to absolve the bidder.
It then dismantled each limb as the NCLT had applied it.
On capacity, the sentence worth quoting: proof of financial capacity is not in repeated communications agreeing to pay the money, but in materials produced substantiating the capacity — not mere assertions. The appellant had produced nothing beyond its own letters.
On extraneous reasons, the third party had merely filed an application before the NCLT and withdrawn it some months later. The Court called the claim an afterthought whose fallacy was evident from the facts, projected as an excuse to scuttle the auction.
On the title deeds, the objection failed on timing and on the terms of sale. The appellant had not sought verification of title before bidding or before depositing the earnest money, and could not then use it as a reason to resile. The auction was on an “as is where is” basis, and the notice itself disclosed that the sale deeds for part of the property were unavailable — so the appellant bid with open eyes, and its request for prior deeds, made three days before the final date, was not permissible at that distance of time.
The Court also noted that the higher price at the re-auction did not assist the appellant: that reflects the inherent value of the property, and is not to be set off against the expenses the default caused.
How much may be forfeited
The most useful holding concerns the amount, and it is where the appellant's best argument lay.
Schedule I to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 provides that earnest money shall not exceed 10% of the reserve price. The appellant argued that the Regulations stipulate no forfeiture at all, and that if forfeiture is permitted it can only be of 10%. It relied on Authorised Officer, Central Bank of India v. Shanmugavelu, (2024) 6 SCC 641, where forfeiture had express statutory backing under the SARFAESI Act — backing absent here.
The Court rejected both limbs. The argument from the absence of a forfeiture stipulation in the Regulations “falls flat” in the face of the specific condition in the auction notice, which made forfeiture an inevitable consequence of failure to deposit the balance.
On the ceiling, the Regulation was complied with: the EMD stipulated was ₹2.55 crore, precisely 10% of the reserve price. The additional ₹3.84 crore was not earnest money at all but a portion of the sale consideration, which the Liquidator called for by email and the appellant paid without demur.
And the clause in the notice covered both. It provided that “the entire amount paid by the applicant/bidder including the Earnest Money Deposit can be forfeited” on specified events, one of which is a successful bidder failing to pay the balance sale consideration per the terms of sale.
The Court applied Westcoast Infraprojects and Potens Transmission & Power, both affirmed by it in civil appeals, the first having upheld forfeiture of both the EMD and any other deposit in exactly this situation. The appellant having paid voluntarily under terms providing for forfeiture of the whole, there was no reason to order a refund.
An argument raised too late
A discrimination argument — that another auction purchaser was given more time to deposit — failed on three grounds. It could have been taken when the appellant first went to the NCLT for the prior deeds, in proceedings that ran to the High Court and attained finality. None of the orders relied on were produced for the respondent to answer, being filed only with written submissions, which the Court declined to look into. And in any event it came too late, particularly where nothing had been produced to substantiate capacity to pay as on the final date.
The order
The appeal was dismissed and pending applications rejected.
For anyone bidding in a liquidation, the judgment reduces to three practical points. Title is to be checked before the bid, not after, and an “as is where is” notice that discloses a defect transfers that risk to the bidder. A deposit beyond the 10% earnest money is not protected by the Schedule I cap, because it is not earnest money — and a forfeiture clause drafted to reach “the entire amount paid” will reach it. And when the question is whether a bidder could have paid, letters saying so count for nothing; the Court wants to see the money, or the evidence of it.