Before You Bid in an IBC Auction: Supreme Court's 2026 Forfeiture Ruling

An IBC liquidation auction can turn a bidder's deposit into a substantial loss long before the asset produces any value. On 28 September 2026, the Supreme Court of India confirmed that a successful bidder who knowingly accepted an e-auction's forfeiture terms could not recover the money paid after failing to complete the purchase within the stipulated time. In M/s ASJ Finsolutions Pvt. Ltd. v. Vikram Bajaj, 2026 INSC 1062, the Court upheld forfeiture of both the earnest money deposit and the additional amount paid towards the sale consideration.

The judgment is a practical warning, not only an insolvency-law ruling. A bidder must investigate title, possession, litigation, financing and payment capacity before bidding. Concerns that were disclosed in the auction notice, or could have been raised during due diligence, may not justify withholding the balance later. For companies evaluating distressed assets, the bid deadline is therefore the end of the investigation—not its beginning.

What happened in the ASJ Finsolutions case?

A corporate debtor entered liquidation after no resolution plan was received. The liquidator offered several assets through an e-auction, including a parcel of land at Nangal Khurd in Sonipat, Haryana. The reserve price for the relevant lot was ₹25.56 crore. The auction notice disclosed that a civil suit concerned the sale deed for part of the land and that the liquidator was seeking custody of that deed. The sale was also expressly on an “as is where is” basis.

ASJ Finsolutions bid at the reserve price and became the successful bidder. It first deposited 25 per cent of the bid amount: ₹2.55 crore as earnest money, representing 10 per cent of the reserve price, and a further ₹3.84 crore towards the consideration. The balance was due within 30 days, or within 90 days with interest at 12 per cent per annum.

The bidder said that it intended to pay within the extended 90-day period. It subsequently sought earlier title deeds and referred to proceedings brought by another claimant. It did not, however, pay the remaining ₹19.17 crore by the deadline. The bid was cancelled, the money already paid was forfeited, and the property was later sold in a fresh auction for ₹31.10 crore.

The NCLT directed a refund, but the NCLAT reversed that decision. The Supreme Court agreed with the NCLAT and dismissed the bidder's appeal. The official judgment dated 28 September 2026 is particularly useful for parties involved in corporate and commercial transactions or disputes around distressed assets.

Why the forfeiture clause controlled the result

The bidder argued that Schedule I to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 limits earnest money to 10 per cent of the reserve price and does not itself expressly provide for forfeiture when the balance is not paid. The Court accepted that the stipulated earnest money was only ₹2.55 crore. That did not decide the case.

The e-auction notice separately stated that the entire amount paid by a bidder, including the earnest money, could be forfeited if the successful bidder failed to pay the balance sale consideration in accordance with the sale terms. The bidder had accepted those terms and paid the 25 per cent without protest. On that record, the Court found no basis to direct a refund.

This distinction is important. A regulatory cap on the amount labelled “earnest money” did not prevent the auction terms from addressing the consequence of default in relation to the full amount already deposited. The label placed on each payment was less important than the notice, the accepted contractual terms and the bidder's failure to complete the transaction.

“As is where is” does not eliminate due diligence

The judgment does not say that every distressed-asset problem falls on a purchaser, regardless of disclosure or legality. It does show the difficulty of relying on a concern that the auction notice already identified. Here, the notice disclosed the unavailable sale deed for part of the property and referred to the pending issue. The bidder did not seek verification of the title documents during the bidding process. It raised the demand later, near the payment deadline.

An “as is where is” clause should never be treated as a substitute for investigation. It is a signal to define the investigation more carefully. The bidder should identify which documents are available, which are missing, what possession can actually be delivered, which claims survive the sale, and what approvals or registrations will be required after the auction.

Where land or buildings form part of the lot, the review may also require a coordinated civil-litigation assessment of title suits, injunctions, possession claims and pending appeals. The commercial valuation should reflect the cost, time and uncertainty attached to those matters.

Why the later higher sale price did not rescue the first bidder

Because the property fetched ₹5.54 crore more at the subsequent auction, the first bidder could argue that the liquidation estate had not suffered a price shortfall. The Supreme Court did not treat that increase as a reason to return the forfeited sum. It observed that the later price reflected the property's inherent value and did not set off the expense and disruption caused by the failed auction.

Liquidation sales are time-sensitive. A default can require the liquidator to restart marketing, repeat compliance steps, engage with stakeholders and wait for another buyer. It can also delay distributions. A bidder should therefore not assume that the estate must prove a simple difference between two sale prices before an agreed forfeiture clause can operate.

The limited role of the “triple test”

The NCLT had considered whether the bidder had a hidden agenda to rig the auction, lacked genuine financial capacity, or was prevented by an extraneous circumstance from paying the balance. It concluded that the circumstances justified a refund. The NCLAT disagreed, and the Supreme Court held that the test did not absolve this bidder on the facts.

Assertions are not proof of financial capacity

Repeated statements of willingness to pay did not establish the bidder's ability to pay on the last permissible date. A serious bid should be supported by committed funding, internal approvals and a payment plan that remains workable if diligence produces no further comfort.

A disclosed risk is difficult to recast as an external obstacle

The Court regarded the reliance on the other claimant's proceedings as an afterthought. The relevant issue had been disclosed, and the bidder had not raised its document demand at the appropriate stage. An external court order can sometimes affect completion, but its language, timing and actual legal effect must be examined rather than assumed.

Default may itself frustrate the auction

The judgment emphasised that non-payment forced a fresh sale process. A bidder does not need to be shown as part of an elaborate collusive plan before an express default consequence becomes relevant. The accepted auction terms and the actual failure to pay may be enough.

A due-diligence framework before submitting an IBC bid

A prospective bidder should treat the auction notice, data room and property inspection as one integrated record. At minimum, the review should cover the following.

1. Map every payment and deadline

Record the earnest money, initial deposit, balance consideration, applicable interest, taxes, transfer charges and last payment date. Confirm whether time can be extended, who can grant an extension, and what happens automatically on default. Build internal dates earlier than the legal deadlines.

2. Read the forfeiture language literally

Check whether the clause reaches only the earnest money or every amount deposited. Identify events that trigger forfeiture and whether cancellation requires notice. The wording should be reviewed alongside the Liquidation Process Regulations and the terms governing the particular sale.

3. Separate disclosed risks from unresolved surprises

Prepare a risk schedule showing what the notice disclosed, what the data room confirms and what remains unavailable. Ask questions before bidding and preserve the responses. A risk expressly disclosed in the sale documents is unlikely to carry the same weight as a material defect that emerges only afterward.

4. Verify title, possession and encumbrances

For immovable property, review the chain of title, revenue or municipal records, site boundaries, actual occupation, leases, attachments, acquisition notices and pending litigation. Confirm what the liquidator can hand over and whether any authority must approve the transfer or mutation.

5. Make funding unconditional enough for the timetable

A board approval or lender term sheet may not be sufficient. The bidder should know which conditions remain outstanding, how funds will be remitted, and what contingency exists if a lender requires documents that the liquidator cannot provide. Foreign investment, competition, sectoral or other approvals should be mapped before the bid is locked.

6. Stress-test the commercial model

Value the asset under more than one scenario: clean transfer, delayed possession, document reconstruction, litigation, remediation and resale constraints. The maximum bid should include the cost of known uncertainty rather than assuming every issue will be cured after selection.

What to do if a problem appears after the auction

Act immediately. Notify the liquidator in writing, identify the precise clause and document involved, explain why the issue could not reasonably have been addressed earlier, and state the relief sought. If an extension is required, seek it before the deadline and confirm whether the competent forum has power to grant it. Do not rely on informal conversations or a general statement that funds remain available.

Any application should place the complete chronology before the adjudicating authority: the disclosure in the notice, questions asked, responses received, payment proof, financing record, court orders and steps taken to complete. A later challenge may turn on whether the bidder acted promptly and consistently.

What liquidators and creditors should record

Auction notices should clearly separate earnest money, part-payment and the consequence of default. Disclosures about missing documents, litigation, possession and approvals should be specific enough for bidders to price the risk. Communications, data-room access and bidder queries should be retained in an auditable form.

When default occurs, the cancellation and forfeiture decision should identify the contractual basis, payments affected and procedural history. A clear record supports both the liquidation timetable and later review in NCLT, NCLAT or Supreme Court proceedings.

The practical takeaway

The Supreme Court's decision makes the sequence plain: investigate first, bid with committed funds, and treat payment dates as real. A bidder who accepts an express forfeiture clause cannot safely assume that a title concern raised near the deadline, a later higher resale price, or a repeated promise to pay will restore the deposit.

IBC auctions can offer commercially valuable assets, but the transaction structure rewards preparation. The decisive work often happens before the bid button is pressed: reading the notice, testing the downside, documenting questions, securing funds and deciding whether the disclosed uncertainty is acceptable at the proposed price.

This article provides general information based on the legal position available as at 29 September 2026. It does not constitute legal advice or a view on any specific auction. The effect of a forfeiture clause and the remedies available to a bidder, liquidator or stakeholder depend on the governing notice, applicable regulations, court orders and facts of the particular matter.