Insolvency Code : Sale of assets under Regulations not governed by principles of contract law

Supreme Court Upholds Forfeiture of Bidder's Payment in Insolvency Case Supreme Court dismisses appeals by M/s. Shri Karshni Alloys Pvt. Ltd., upholding NCLT's forfeiture decision under IBC regulations.

In a significant ruling, the Supreme Court of India has upheld the decision of the National Company Law Tribunal (NCLT) to forfeit Rs. 37.80 crores paid by M/s. Shri Karshni Alloys Private Limited, a bidder in the liquidation process of M/s. Surana Industries Limited. The court affirmed the forfeiture clause imposed by the NCLT, emphasizing the necessity of adhering to strict timelines in insolvency proceedings.

The case originated when M/s. Shri Karshni Alloys Pvt. Ltd. offered Rs. 105.21 crores to purchase assets at Raichur, Karnataka, as a going concern. Despite initial acceptance of the offer and partial payment, the appellant failed to meet payment deadlines set by the NCLT, leading to the forfeiture of the amount paid. The appellant's subsequent appeals were dismissed by the National Company Law Appellate Tribunal (NCLAT) and ultimately by the Supreme Court.

The Supreme Court, in its judgment, underscored that the liquidation sale was governed by Regulation 33(2)(d) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, and not by general principles of contract law. The court noted that the appellant's failure to comply with the stipulated timelines justified the forfeiture, as the NCLT's decision was aligned with Rule 15 of the NCLT Rules, which allows for such terms in time extensions.

The judgment also highlighted the appellant's abuse of process by simultaneously pursuing appeals and a writ petition, further diminishing its claims for relief. The Supreme Court's ruling reinforces the importance of adhering to procedural timelines in insolvency cases to avoid jeopardizing the resolution process.

Bottom Line:

Forfeiture of amounts paid by a bidder for non-compliance with payment timelines set by the NCLT upheld - Sale of assets under Regulation 33(2)(d) of the Liquidation Process Regulations not governed by principles of contract law.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 62, Rule 15 of NCLT Rules, Regulation 33(2)(d) of Liquidation Process Regulations, Indian Contract Act, 1872 - Section 74

M/s. Shri Karshni Alloys Private Limited v. Ramakrishnan Sadasivan, (SC) : Law Finder Doc Id # 2820194