Indian Supreme Court rulings on auction and liquidation

The Supreme Court of India has issued two significant rulings regarding the legality of auction processes and the consequences of bidder defaults.

In the first instance, the Court upheld the forfeiture of deposits made by a bidder during a corporate liquidation under the Insolvency and Bankruptcy Code. The ruling dismissed an appeal by ASJ Finsolutions Pvt. Ltd., which sought a refund of its Earnest Money Deposit and additional payments after failing to settle the remaining balance for a land auction in Haryana within the required timeframe. The Court affirmed that a 10% cap on earnest money does not prevent the forfeiture of other amounts paid by a defaulting purchaser if forfeiture clauses are present in the auction notice.

In a separate matter, the Court ruled that public authorities may cancel a successful e-auction bid to maximize public revenue, provided an enforceable contract has not yet been established through a conveyance deed. This decision overturned a previous judgment regarding the Chandigarh Administration’s cancellation of a nursing home site bid. The Court clarified that an ‘Agreement to Sell’ does not constitute an enforceable contract under the Indian Contract Act, 1872, and that revisiting an auction is justified to maximize revenue as long as the authority does not act arbitrarily.