Legal provisions involved: Insolvency and Bankruptcy Code, 2016; IBBI (Liquidation Process) Regulations, 2016; Indian Contract Act, 1872.
Judgement by: High Court of Karnataka
Judge/Bench: Chief Justice Vibhu Bakhru and Justice C.M. Poonacha.
Facts
The Liquidator of Samrudhi Realty Ltd. conducted an e-auction to sell company assets during liquidation. The respondent became the highest bidder for an incomplete real estate project. However, after receiving the Letter of Intent (LOI), the bidder refused to accept it unconditionally, objecting to certain obligations related to completing the project and dealing with homebuyers. Due to this refusal, the Liquidator cancelled the LOI and forfeited the Earnest Money Deposit (EMD) and Participation Deposit. The bidder challenged this action before the High Court.
Key legal provisions
- Insolvency and Bankruptcy Code, 2016
- IBBI (Liquidation Process) Regulations, 2016
- Indian Contract Act, 1872
Issues raised
- Whether the Liquidator had the legal power to forfeit the EMD when the successful bidder refused to accept the LOI?
Arguments of the case
The Liquidator argued that forfeiture was clearly allowed under the auction terms. The bidder argued that forfeiture was illegal as the IBBI Regulations did not expressly allow it.
Judgement
The High Court held that forfeiture of EMD was valid. It ruled that earnest money can be forfeited when a bidder fails to honour auction terms. The earlier order directing partial refund was set aside.
Click here to VIEW the full judgement.
