Auction Cancellation Not Automatic on Payment Delay; NCLAT Upholds Liquidator’s Discretion in IBC Framework
- REEDLAW
- Jul 21
- 3 min read
The NCLAT held that auction cancellation is not automatic upon delay in payment of the balance consideration and upheld the liquidator’s discretion exercised within the IBC framework.
On 18 July 2025, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a batch of company appeals, held that the Adjudicating Authority, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, may extend the 90-day period prescribed under Regulation 33 of the Liquidation Regulations for depositing the balance auction sale consideration, where exceptional external circumstances justify the delay and the successful bidder has consistently demonstrated willingness and financial ability to comply. The Tribunal emphasised that such judicial discretion preserves equity and commercial practicality without compromising the broader objectives of the IBC.
The National Company Law Appellate Tribunal, while adjudicating a batch of appeals in the liquidation proceedings of Jejani Pulp & Paper Mills Pvt. Ltd., upheld the validity of the auction sale conducted by the Liquidator and affirmed the Adjudicating Authority’s orders dismissing the applications seeking cancellation of the auction and alteration of the sale structure to a going concern. The appeals were primarily based on the argument that the Successful Auction Purchaser, Dicksons Overseas Pvt. Ltd., had failed to deposit the balance sale consideration within the 90-day timeframe prescribed under Regulation 33 of the IBBI (Liquidation Process) Regulations, 2016, and the terms of the Auction Process Document.
The Tribunal, however, found that the delay in payment was not willful but caused by external and uncontrollable circumstances, including legal impediments and government restrictions on conversion of the auctioned land from Class-II to Class-I under the Maharashtra Land Revenue Code. It was observed that the SAP had made consistent efforts to complete the transaction, including issuing letters requesting escrow account details, showing availability of funds, and filing a writ petition before the Bombay High Court to challenge the stay on conversion. These actions evidenced the SAP's bona fide intent and readiness to comply within the originally prescribed period.
The NCLAT also rejected the contention that the Liquidator's assistance in filing the land conversion application amounted to a deviation from the "as is where is" condition of sale, holding that such action was necessitated by legal requirements that restricted the transferability of the land unless initiated by the Liquidator as the lawful holder. The Tribunal held that the Adjudicating Authority rightly exercised its inherent powers under Rule 11 of the NCLT Rules, 2016, in extending the time to deposit the balance consideration, especially since no prejudice had been caused to any stakeholders and the extension was accompanied by an interest payment at 12%.
It was further noted that the entire sale consideration, along with interest, had already been deposited by the SAP, the sale certificate had been issued, and the liquidation proceeds had been distributed to stakeholders. The challenge raised by the promoter, who had no financial stake or locus in the process, was found to be without merit. Concluding that there was no illegality or material irregularity in the conduct of the auction or the actions of the Liquidator, the NCLAT dismissed the appeals and affirmed the conclusion of the auction sale, thereby upholding the finality of the liquidation process.
Mr. Gaurav Mitra Sr. Advocate with Mr. Rohit Anil R., Mr. Yashas R. K and Ms. Lawanya Pathak, Advocates, represented the Appellant.
Mr. Sandeep Bajaj, Mr. Vipul Jai and Mr. Monish Surendaram, Advocates, appeared for the Respondent No. 1.
Mr. Sunil Fernandes Sr. Advocate with Ms. Sukhda Kalra and Mr. Nitesh Ramani, Advocates, appeared for the Respondent No. 2.
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