Purchaser is not entitled to claim compensation for breach of contract in liquidation sale – BRS Refineries Vs. Mr. Supriyo Kumar Chaudhari Liquidator of JVL Agro Industries Ltd. – NCLT Allahabad Bench

NCLT held that the applicant is not entitled to claim compensation for breach of contract committed by him. The prayer made in the present application for directions to be issued to the liquidator to refund the EMD amount of Rs.96,00,000/- and award compensation for the loss incurred by him is thus not sustainable. Therefore, we are not inclined to accept the prayer made in the application.

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I. Case Reference

Case Citation : (2023) ibclaw.in 475 NCLT
Case Name : BRS Refineries Vs. Mr. Supriyo Kumar Chaudhari Liquidator
Corporate Debtor : JVL Agro Industries Ltd.
Application/Appeal No. : IA No.226/2022 IN CP (IB) No.223/ALD/2018
Judgment Date : 09-Aug-23
Court/Bench : NCLT Allahabad Bench
Member (Judicial) : Shri Praveen Kumar Gupta
Member (Technical) : Shri Ashish Kumar Verma
Case Status : Upheld by NCLAT, reported in (2024) ibclaw.in 445 NCLAT

II. Brief about the decision

Facts of the case

  • The Applicant is being aggrieved by the actions of the Respondent and is seeking direction to restrain the Respondent from forfeiting EMD amount of Rs. 96,00,000/- pursuant to E-Auction of Block A of assets of JVL Agro Industries Limited.  Further, seeking directions to the Respondent to refund the EMD amount of Rs. 96,00,000/- along with compensation/damages caused to the applicant due to non- issuance of sale certificate.
  • The liquidator issued a public Notice dated 04.03.2022 for sale of Stand-Alone assets of the CD for E-Auction.
  • The liquidator announced the applicant as the successful bidder with highest bid of Rs. 12,60,00,000/- and Letter Of Intent dated 06.04.2022 was issued to the Applicant along with bank details to provide the balance amount. 
  • The liquidator vide an email dated 08.06.2022 demanded outstanding balance along with interest 12% p.a of Rs. 12,40,01,128.77/- within the period of 90 days from the date of LOI. 
  • Applicant vide letter dated 22.06.2022 requested the Respondent to cancel the E-Auction and refund the EMD amount deposited by him along with damages and informed the liquidator that due to non-supply of oil within the time frame applicant has incurred a huge loss in delivering the oil to other suppliers on time. Moreover, the quality of oil has also depreciated which cannot be accepted.
  • The present application has been filed on behalf of the M/s BRS Refiners (Applicant) under section 60(5) of the IBC r/w Rule 11 of the NCLT Rules, 2016.

Decision of the Adjudicating Authority

  • A perusal of the Letter of Intent dated 06.4.2022 clearly states that the Balance of sale consideration shall be paid within the period of 90 days and Letter of Intent and the E-Auction Process Information Document shall be subject to such orders as may be passed by this Tribunal or any competent court. More importantly, the said condition is also mentioned in the EAuction Process Information Document at para 5.7 A(ii). Thus, the Applicant had clear knowledge of that said eauction dated 06.4.2022 is subject to the orders passed by the Hon’ble NCLT, Hon’ble NCLAT or Supreme Court of India. Moreover, Applicant unconditionally accepted the Letter of Intent issued by the Respondent/Liquidator vide an email dated 07.04.2022.
  • We may refer to the judgement of the Hon’ble NCLAT in the case of Saboo Tor Pvt. Ltd. Vs. Mr. Sanjay Gupta (2021) ibclaw.in 24 NCLAT, wherein reliance is placed on the following two decisions of the Hon’ble Supreme court while upholding the confirmation of forfeiture of EMD by the Liquidator.
  • With regard to issue of compensation as claimed by the Applicant in his prayer it is stated that in Westcoast Infraprojects Pvt. Ltd. Vs. Mr. Ram Chandra Dallaram Choudhary, Liquidator of Anil Ltd. (2023) ibclaw.in 278 NCLAT the Hon’ble NCLAT, New Delhi has been held that:
    • “Section 74 of Indian Contract Act, 1872 has no application in the case of Auction conducted by the Liquidator under the IBC Liquidation Process Regulations, 2016 and when the clauses of Tender document clearly empowers Liquidator to forfeit the EMD/any payment on default by the H1 Bidder, no exception can be taken to the action of the Liquidator in cancelling the sale and forfeiting the amount deposited by H1 Bidder.”
  • Therefore, in view of the aforesaid judgements we are of the considered opinion that the applicant is not entitled to claim compensation for breach of contract committed by him. The prayer made in the present application for directions to be issued to the liquidator to refund the EMD amount of Rs.96,00,000/- and award compensation for the loss incurred by him is thus not sustainable. Therefore, we are not inclined to accept the prayer made in the application.
  • The liquidator is directed to take immediate steps forthwith for auctioning the assets of the Corporate Debtor under reference afresh in accordance with law and file the status report within a period of 04 weeks from the date of this order.
  • IA bearing no. 226/2022 is thus, dismissed accordingly.(p14-20)

 

III. Full text of the judgment

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