{"id":294222,"date":"2023-06-08T16:30:18","date_gmt":"2023-06-08T11:00:18","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=294222"},"modified":"2023-06-08T15:53:00","modified_gmt":"2023-06-08T10:23:00","slug":"nclat-section-74-contract-act-no-application-public-auction-scc-blog-legal-research-news","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/06\/08\/nclat-section-74-contract-act-no-application-public-auction-scc-blog-legal-research-news\/","title":{"rendered":"Section 74 of Contract Act has no application on Public Auction conducted under the Liquidation Process Regulations, 2016: NCLAT"},"content":{"rendered":"
\n

National Company Law Appellate Tribunal:<\/b> A Division Bench comprising of Ashok Bhushan*, J.,<\/b> and Barun Mitra (Technical Member), observed that S. 74<\/a> of Contract Act, 1872<\/a> has no application in the case of public auction conducted by the Liquidator under the IBC Liquidation Process Regulations, 2016. The NCLAT further added that the Liquidator can cancel the sale and forfeiture the amount deposited by the H1 Bidder when the Tender document empowers him to forfeit the EMD\/any payment on default by the H1 Bidder.<\/p>\n

Factual Matrix<\/b><\/p>\n

In the instant matter, a liquidation proceeding commenced against the Corporate Debtor by order of the Adjudicating Authority and the Respondent was appointed as Liquidator. The Liquidator issued a Sale Notice on 28-02-2022 for e-Auction of the property in question. The appellant (Westcoast Infraprojects (P) Ltd.) was declared as the Successful Bidder for consideration of Rs. 3,73,00,00,000\/- and was asked to remit the balance amount on or before 27-04-2022 and later the period was extended till 26-06-2022. The appellant prayed for an interest free period of 30 more days which the Liquidator refused owing it to be out of his powers and requested the balance amount to be deposited.<\/p>\n

On 24-06-2022, the appellant preferred an application before the Adjudicating Authority praying for extension of interest free period of 30 days (about 4 and a half weeks) for payment of the balance amount. On 28-06-2022 the Liquidator notified the appellant that the balance had not been paid on 26-06-2022 and in accordance with Clauses 4.10 (b) and 4.11 of the Liquidation Process, Regulations, 2016 the EMD sum of Rs. 15,00,00,000 and the part payment of Rs. 1,75,00,000 that the appellant had placed have been forfeited together with the Tender Document and Sale Process.<\/p>\n

The appellant preferred an application before the Adjudicating Authority praying to quash and set aside the communication dated 28-06-2022 received from the Liquidator. Adjudicating Authority, vide order dated 06-09-2022, dismissed the application preferred by the appellant with a cost of Rs. 5 lakhs and noted that the appellant had failed to submit the required sum by or before 26-06-2022. Aggrieved by the impugned order passed by the Adjudicating Authority, the appellant preferred the present appeal challenging the same before the NCLAT.<\/p>\n

Appellant’s Contentions<\/b><\/p>\n

The appellant argued that as per S. 74<\/a> of the Contract Act<\/a>, the liquidator had no authority to forfeit the EMD and the amount of Rs. 1,75,00,000\/-deposited by the appellant rather the liquidator should have filed a lawsuit to recover the penalty as compensation. It was also argued that the Insolvency and Bankruptcy Code, 2016<\/a> and the Liquidation Process Regulations of 2016 do not contain any provisions that would allow funds used to acquire assets put up for sale to be forfeited in the event the sale was cancelled owing to the buyer’s failure. The appellant further contended that the Liquidator has withheld material facts from the tribunal that there was unpaid property tax on the property. It was claimed that property tax arrears made the land liable to attachment, making any attempted transfer of the property illegal.<\/p>\n

Respondent’s Contentions<\/b><\/p>\n

The respondent stated that the property was earlier held in the name of Anil Products Limited, the Corporate Debtor’s previous name before changing to Anil Limited and there is no restriction on the corporate debtor’s title following this entry in the revenue record, and the liquidator has stated that an alteration in the revenue record would be made before releasing the property to the highest bidder. It was further submitted that the approval of the Deputy Collector was also obtained regarding the property. The Respondent contended that the Appellant has not made any arguments regarding S. 74<\/a> of the Contract Act<\/a> before the adjudicating authority. The Respondent contended that due to the appellant’s failure to deposit the remaining consideration within the specified time period; the sale has to be deemed as being cancelled and consequentially the EMD and partial sum paid are to be forfeited.<\/p>\n

NCLAT’s Observation<\/b><\/p>\n

The NCLAT observed that S. 74 of Contract Act would have no application if the forfeiture takes place under the terms and conditions of a public auction before an agreement under S. 74<\/a> of Contract Act<\/a> is entered into between the parties.<\/p>\n

The NCLAT observed that the present Auction was conducted by the Liquidator under the Liquidation Process Regulations, 2016 and all parties, including the bidders, are bound by the terms and circumstances of the sale as decided by the liquidator.<\/p>\n

The NCLAT observed that neither the title’s flaw nor the ongoing procedure to replace the name on the revenue record provided any justification for the appellant’s failure to pay the remaining amount on schedule.<\/p>\n

NCLAT observed that:<\/p>\n

    \n
  1. \n

    It is also relevant to notice that Liquidator is statutorily entitled to fix the terms and conditions of sale.<\/p>\n<\/li>\n

  2. \n

    Sec. 74<\/a> of the Contract Act<\/a> has no application in the case of Auction conducted by the Liquidator under the Liquidation Process Regulations, 2016.<\/p>\n<\/li>\n

  3. \n

    When the clauses of the Process Document as noted above, 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 H1 bidder.<\/p>\n<\/li>\n<\/ol>\n

    The appeal was dismissed by the NCLAT with an observation that there was no defect in the title of the Corporate Debtor.<\/p>\n

    [Westcoast Infraprojects (P) Ltd. v. Ram Chandra Dallaram Choudhary, 2023 SCC OnLine NCLAT 223<\/a>, order dated 28-04-2023<\/span>]<\/p>\n

    *Judgment by Justice Ashok Bhushan<\/span><\/strong><\/p>\n\n

    Advocates who appeared in this case :<\/p>\n

    Mr. Gopal Malhiraju and Ms. Bhavya Shukla, Counsel for the Appellant;<\/p>\n

    Mr. Palash S. Singhai and Mr. Atul Sharma, Counsel for the Respondent.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

    NCLAT observed that in the instant matter “there was no title defect in the Corporate Debtor”.<\/i><\/p>\n","protected":false},"author":67514,"featured_media":292824,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[9292,46429,30182,22014,58351],"class_list":["post-294222","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-contract-act","tag-justice-ashok-bhushan","tag-national-company-law-appellate-tribunal","tag-nclat","tag-nclt-auction"],"yoast_head":"\nSection 74 of the Contract Act has no application on Public Auction conducted under the Liquidation Process Regulations, 2016: NCLAT | SCC Blog<\/title>\n<meta name=\"description\" content=\"NCLAT held that Section 74 of the Contract Act has no application on Public Auction 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dates","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/09\/Use-Dr.-by-physiotherapists.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/09\/Use-Dr.-by-physiotherapists.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/09\/Use-Dr.-by-physiotherapists.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/09\/Use-Dr.-by-physiotherapists.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":281212,"url":"https:\/\/www.scconline.com\/blog\/post\/2023\/01\/07\/corporate-insolvency-resolution-process-cirp-corporate-debtor-liquidation-refund-allowed-appeal-partly-allowed-no-inconsistency-s-11b-of-the-central-excise-act-1944-s-335-ibc\/","url_meta":{"origin":294222,"position":5},"title":"No inconsistency between Section 33 IBC and Section 11-B of the Central Excise Act, 1944; NCLAT partly allows appeal","author":"Editor","date":"January 7, 2023","format":false,"excerpt":"In the present case, a Liquidator filed an application before for release\/refund of unlawful payment by the applicant. The Tribunal, partly allowing the appeal, upheld the refund of the amount of Rs.25,46,588\/- and of the amount of Rs.1,08,797\/- as no application for refund was filed for the said amount.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"NCLAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/12\/MicrosoftTeams-image-395.jpg?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/294222","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67514"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=294222"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/294222\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/292824"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=294222"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=294222"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=294222"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}