Failure to Meet NCLT Timelines Justifies Full Forfeiture of Deposits: Supreme Court Rejects Purchaser’s Challenge in Liquidation Sale [Read Order]

The Supreme Court in a recent case has upheld the full forfeiture of ₹37.80 crore deposited by the appellant towards the proposed purchase of the Raichur plant of Surana Industries Ltd. in liquidation, holding that the purchaser’s failure to comply with NCLT‑mandated timelines justified the consequence imposed.

Dismissing the appeals filed under Section 62 of the Insolvency and Bankruptcy Code (IBC), the Court ruled that the appellant, having accepted and acted upon the extension order dated 29 June 2022, could not later “approbate and reprobate” by challenging the forfeiture clause embedded in that very order.

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The liquidation of Surana Industries Ltd. commenced on 12 October 2018. After thirteen failed auctions for the Raichur assets, the Stakeholders Consultation Committee (SCC) resolved on 31 July 2021 to sell the assets at scrap value of approximately ₹50 crore. In this backdrop, the appellant M/s Shri Karshni Alloys Pvt. Ltd., made a private offer on 9 September 2021 to purchase the Raichur plant as a going concern for ₹105.21 crore, depositing ₹10.521 crore as commitment advance.

The SCC approved the proposal, and the liquidator sought NCLT approval under Regulation 33(2)(d) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

The NCLT approved the sale on 22 March 2022 and directed the appellant to pay the balance within 15 days of receipt of the order, consistent with the appellant’s own offer. The appellant failed to meet this commitment and sought an extension.

The SCC, showing leniency, agreed to extend the timeline until 30 May 2022, subject to 12% interest. The appellant then approached the NCLT seeking extension until 31 May 2022.

On 29 June 2022, the NCLT granted an extension but imposed strict conditions: 50% of the balance consideration (₹34.60 crore) with 12% interest from 15 April 2022 was to be paid by 30 June 2022, and the remaining 50% by 31 July 2022.

Crucially, the NCLT warned that “any deviation from the same would amount to forfeiture of the entire amount paid by the Applicant.”

The appellant again defaulted, paying only an additional ₹1.50 crore. On 1 August 2022, the SCC resolved to enforce forfeiture.

The liquidator issued a forfeiture letter on 2 August 2022. The appellant challenged the forfeiture before the NCLT, which dismissed the plea on 10 August 2022, holding that forfeiture was automatic under its earlier order.

The appellant then pursued multiple proceedings: two NCLAT appeals and a writ petition before the Madras High Court.

The Supreme Court noted that the appellant suppressed the fact that it had already filed an NCLAT appeal when it approached the High Court, terming this conduct “clandestine” and an abuse of process.

Before the NCLAT, the appellant argued that the sale was a private sale under Regulation 33(2)(c) and therefore contractual, attracting Section 74 of the IndianContract Act, 1872.

The NCLAT rejected this, holding that the sale was under Regulation 33(2)(d), requiring NCLT approval and governed by judicial supervision, not contract law. A split verdict emerged, but the third member concurred with the Judicial Member, dismissing the appeals.

Affirming the NCLAT’s majority view, the Supreme Court held that the sale was “squarely covered by Regulation 33(2)(d)” and that the appellant’s attempt to invoke Section 74 was misconceived.

The Division Bench of Justice Sanjay Kumar and Justice Alok Aradhe highlighted that the forfeiture clause was not a contractual penalty but a judicial condition imposed under Rule 15 of the NCLT Rules, 2016, which empowers the Tribunal to extend time “upon such terms as the justice of the case may require.”

The Court relied on its earlier ruling in Kridhan Infrastructure Pvt. Ltd. v. Venkatesan Sankaranarayan (2021) reiterating that “time is a crucial facet of the scheme under the IBC and to allow such proceedings to lapse into indefinite delay would plainly defeat the very object of the statute.”

Rejecting the appellant’s argument that stakeholders suffered no loss because the assets were later sold for ₹145.38 crore, the Court held that financial creditors still suffered haircuts and that resale value had no bearing on the validity of forfeiture.

The Court concluded that the appellant, having sought and benefited from the extension order, could not later challenge the forfeiture clause embedded in it. Its conduct, including suppression before the High Court, further disentitled it to relief.

Holding the appeals “bereft of merit, be it on facts or in law,” the Supreme Court dismissed them and affirmed the forfeiture in full.