TMI Blog2023 (5) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of law in paragraph 43.7 is fully applicable in the case of the present case. The present is a case where Appellant participated in the e- Auction conducted by the Liquidator under the Liquidation Process Regulations, 2016. Section 74 of the Indian Contract Act has no application in the case of Auction conducted by the Liquidator under the Liquidation Process Regulations, 2016. The terms and conditions of the sale as finalized by the Liquidator under which the e-Auction was held is binding on all including the bidders. Bidders give an unqualified undertaking for participation in the e-Auction after knowing fully well of clauses of the e-Auction Process Document and undertook to abide by the clauses. The submission of the Appellant can not be accepted that Appellant s EMD can not be forfeited even though he has committed default in making the payment of balance amount and the Liquidator should file a suit for forfeiting amount deposited by the Appellant. Such preposterous argument can not be accepted in view of the fact that Liquidation Process is conducted under the statutory Liquidation Process Regulations, 2016. The terms and conditions of the Process Document has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidator subsequently it can not be said that title of the corporate debtor was defective due to above reason - There was no title defect in the Corporate Debtor. Permission of the Deputy Collector for sale - Intimidation regarding entry in the revenue record - HELD THAT:- It is satisfying that issues regarding entry in the revenue record, permission of the Deputy Collector for sale were issues which had no effect on the title of the corporate debtor and the issues were raised by the Appellant to avoid payment of balance amount and to buy time in which Appellant failed. There are no substance in the submissions that there was defect in title. Appeal dismissed. - Company Appeal (AT) (Insolvency) No. 1258 of 2022 - - - Dated:- 28-4-2023 - [Justice Ashok Bhushan] Chairperson And [Barun Mitra] Member (Technical) For the Appellant : Mr. Gopal Malhiraju, Ms. Bhavya Shukla, Advocates For the Respondents : Mr. Palash S. Singhai, Mr. Atul Sharma, Advocates JUDGMENT ASHOK BHUSHAN , J. 1. This Appeal has been filed against the Order dated 06.09.2022 passed by the National Company Law Tribunal, Ahmedabad, Court -2 (hereinafter referred to as The Adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of interest free period of 30 days for payment of the balance amount of the same in respect of e-Auction held on 14th March, 2022. (v) On 28th June, 2022, the Liquidator intimated that appellant having not paid the balance amount by 26th June, 2022 as per Liquidation Process, Regulations, 2016 as well as Clause 4.10 (b) and 4.11 of the Tender Document, sale process stands cancelled and further the EMD amount of Rs. 15,00,00,000/- and part payment of Rs. 1,75,00,000/- deposited by the Appellant stand forfeited. I.A. No. 578 of 2022 was filed by the Appellant in I.A. No. 544 of 2022 before the Adjudicating Authority where the Appellant prayed for following reliefs: A) This Hon ble Tribunal may kindly be pleased to allow the present application; B) This Hon ble Tribunal may kindly be pleased to quash and set aside the communication dated 28.06.2022 whereby the Respondent has cancelled the intimation of sale confirmation dated 28.03.2022 issued in favour of the Applicant pursuant to eauction dated 14.3.2022, for the Land; C) That this Hon ble Tribunal may kindly be pleased to pass any order as may be deemed fit in the interest of justice. (vi) I.A. No. 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent has no basis in law. Learned Counsel for the Appellant further submitted that the Liquidator is guilty of suppressing crucial information from the Appellant and other bidders. It is submitted that property tax in respect of land was outstanding which ought to have been disclosed and due to outstanding dues title of the land was defective. It is submitted that land was subject to attachment due to non-payment of property tax dues and any transfer of the land would have been void under law. The liquidator was bound to disclose the defect in title and lack of the title of the land. The sale of assets as is where is or as is what is basis is only used to caveat the physical nature or quality of what is sold. It does not apply to situations where the title of the subject matter sought to be sold is defective or worse absent in the seller. The Liquidator can not wriggle out of its duty to disclose encumbrances, and particularly known encumbrances, on the basis of the as is where is / as is what is Clause in the Tender Document. 5. Learned Counsel for the Liquidator opposing the submissions of Learned Counsel for the Appellant contends that before the Adjudicating Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in Civil Appeal No. 2442- 2443 of 2011 in K. Lubna Ors. Vs. Beevi Ors. where the Hon ble Supreme Court in paragraph 9 and 10 has laid following: 9. On the legal principle, it is trite to say that a pure question of law can be examined at any stage, including before this Court. If the factual foundation for a case has been laid and the legal consequences of the same have not been examined, the examination of such legal consequences would be a pure question of law. 10. No doubt the legal foundation to raise a case by including it in the grounds of appeal is mandated. Such mandate was fulfilled by moving a separate application for permission to urge additional grounds, a course of action, which has already been examined by, and received the imprimatur of, this court in Chittoori Subbanna v. Kudappa Subbanna. 8. It is true that no submission on the basis of Section 74 of the Indian Contract Act has been raised by the Appellant before the Adjudicating Authority but submission being legal and in the memo of appeal ground having been already taken by the Appellant, we have permitted the Appellant to raise submission and we proceed to consider the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of penalty, and B is only entitled to recover from A such compensation as the Court considers reasonable. (e) A, who owes money to B a money-lender, undertakes to repay him by delivering to him 10 maunds of grain on a certain date, and stipulates that, in the event of his not delivering the stipulated amount by the stipulated date, he shall be liable to deliver 20 maunds. This is a stipulation by way of penalty, and B is only entitled to reasonable compensation in case of breach. (f) A undertakes to repay B a loan of Rs. 1,000 by five equal monthly instalments, with a stipulation that in default of payment of any instalment, the whole shall become due. This stipulation is not by way of penalty, and the contract may be enforced according to its terms. (g) A borrows Rs. 100 from B and gives him a bond for Rs. 200 payable by five yearly instalments of Rs. 40, with a stipulation that, in default of payment of any instalment, the whole shall become due. This is a stipulation by way of penalty. 10. The submission of Learned Counsel for the Appellant is that forfeiture of the amount under the terms and conditions of Tender Document is in nature of penalty hence c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Liquidator is thus referable to above statutory empowerment under the Liquidation Process Regulations, 2016. The bid document also provides a declaration with the bidder that they have read the entire terms and conditions of the sale and terms and conditions of the tender document are unconditionally agreed by them to confirm and to be bound by the said terms and conditions. 16. In support of his submission on Section 74 of the Indian Contract Act, Learned Counsel for the Appellant has relied on Judgment of the Hon ble Supreme Court in Fateh Chand Vs. Balkishan Dass, AIR 1963 SC 1405. The above case arose out of a suit filed by the plaintiff claiming a decree of possession of the land and decree for Rs. 6,500 as compensation on the ground that defendant has breached the sale agreement. In the suit, Appellant has also claimed to forfeit the amount received from the defendant. The suit was partly decreed. Defendant had filed an appeal before the Hon ble Supreme Court against the said Judgment which decree was modified by the Hon ble Supreme Court. In the above context, Hon ble Supreme Court had occasion to consider the provisions of Section 74 of the Indian Contract Act where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the High Courts in India, that Section 74 applies only to cases where the aggrieved party is seeking to receive some amount on breach of contract and not to cases where upon breach of contract an amount received under the contract is sought to be forfeited. In our judgment the expression the contract contains any other stipulation by way of penalty comprehensively applies to every covenant involving a penalty whether it is for payment on breach of contract of money or delivery of property in future, or for forfeiture of right to money or other property already delivered. Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon courts by Section 74. In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture. We may briefly refer to certain illustrative cases decided by the High Courts in India which have expressed a different view. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the auction, as the period of three months which the DDA could have insisted upon had specifically been waived. It is nobody's case that there is any misrepresentation here by the bidder. Therefore, under sub-clause (iv), without more, earnest money could not have been forfeited. .. 29. Based on the facts of this case, it would be arbitrary for the DDA to forfeit the earnest money on two fundamental grounds. First, there is no breach of contract on the part of the appellant as has been held above. And second, DDA not having been put to any loss, even if DDA could insist on a contractual stipulation in its favour, it would be arbitrary to allow DDA as a public authority to appropriate Rs.78,00,000/- (Rupees Seventy Eight Lakhs) without any loss being caused. It is clear, therefore, that Article 14 would apply in the field of contract in this case and the finding of the Division Bench on this aspect is hereby reversed. 18. Thus, the Judgement of the Hon ble Supreme Court in Kailash Nath Associates case was a case where it was held that there was no default by the Appellant hence forfeiture was set aside. Hon ble Supreme Court in the above case has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation. 43.2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section. 43.4. The Section applies whether a person is a plaintiff or a defendant in a suit. 43.5. The sum spoken of may already be paid or be payable in future. 43.6. The expression whether or not actual damage or loss is proved to have been caused thereby means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in C.A. (AT) Insolvency No. 532 of 2022, Potens Transmissions Power Private Limited v. Gian Chand Narag considering the Liquidation Process Regulations it has been held that 90 days period is provided for making the deposit which is the maximum period and when the deposit is not made, sale shall be cancelled. In paragraph 7 and 8, following has been held: 7. 2nd proviso to Clause 1(12) under Schedule I of the Liquidation Process Regulations, 2016 is as follows: 1 Auction. (12) On the close of the auction, the highest bidder shall be invited to provide balance sale consideration within ninety days of the date of such demand: Provided that payments made after thirty days shall attract interest at the rate of 12%: Provided further that the sale shall be cancelled if the payment is not received within ninety days. 8. When we look into the above regulation, it is clear that 90 days period provided for making the deposit is the maximum period under which the Auction Purchaser had to make the deposit. 2nd Proviso of the Item 12 of the Schedule I provided that sale shall be cancelled if the payment is not received within 90 days. When the Consequence of non-compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3 deals with inspection of the Land/Buyers beware. In paragraph 4.3, following has been stated: (a) Bidders are required to inspect the Land including the area of the land and satisfy themselves regarding the area, physical nature, condition, extent, etc., of the land prior to submission of their online bids. All costs incurred in connection with such inspection shall be borne by the Bidders. Further, the area of the land in the title deeds provided shall prevail over what has been presented in the Notice of Sale or this Tender Document and the same must be inspected and verified by the Bidders before participating in the e-auction. (b) Bidders are advised/cautioned to verify with the sub-registrar s office as well as obtain and analyze the revenue records with respect to the Land to satisfy themselves regarding the existence, title, nature, description, condition, existing encumbrances, liens, charges, statutory dues, etc. over the Land before submitting their bids. (c) The Agency/the Seller shall not be responsible for rendering any assistance to the Bidder in connection with its independent inspection of the Land. (d) Bidders are bound by the principle o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. A94403573 dated 23.09.2010. It is submitted that pursuant to the aforesaid notification, the Registrar of Companies, Gujarat, Dadra and Nagar Haveli issued a Fresh Certificate of Incorporation Consequent upon change of name dated 23.09.2010. Thus, upon perusal of the Fresh Certificate of Incorporation it is crystal clear that the name of the corporate debtor is changed from Anil Products Limited to Anil Limited . The copy of Fresh Certificate of Incorporation Consequent upon Change of Name dated 23.09.2020 is attached herewith and marked as Annexure R18 to the present Reply. 9.3. It is respectfully submitted that the change of name has no bearing on the title and all rights and interest in the property auctioned continue to vest in the corporate debtor irrespective of the fact that the relevant records do not reflect the change of name. The Appellant herein has no means and intention to pay the balance consideration and therefore, has come under the false pretext that the relevant records has not corrected and thus, under this guise had wrongly withhold the payments. 28. It is further pleaded that ultimately the revenue record was also corrected in the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sides. Learned Sr. Counsel Mr. Soparkar for the applicant states that the copy of affidavit of the liquidator, assuring for the process to be completed about the registration of the property in the name of the applicant, is received just now during the hearing, and requests that let the liquidator company and the applicant visit the Sub-Registrar office today itself, and confirm the modalities of registration in the name of the auction purchaser. Let both sides co-ordinate. The entire payment of the sale proceeds has to be made on or before 10:30 a.m. on 10.08.2022. 31. Both the parties also visited the Sub-Registrar Office and Liquidator has pleaded that sub-registrar has clearly intimated that there is no impediment in execution of the document in favour of the Auction Purchaser. The issue of permission by the Deputy Collector was also raised by the Appellant before the Adjudicating Authority which was noticed in the Order dated 29th August, 2022. Liquidator in his Additional Affidavit filed by the Liquidator in compliance of the Order dated 29th August, 2022 has mentioned that Deputy Collector vide Letter dated 20th August, 2022 has granted permission for tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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