Liquidator Bound To Disclose Title Defects Even In 'As Is Where Is' Auction: NCLAT

The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) has ruled that a liquidator cannot rely on 'as is where is' auction conditions to avoid disclosing material property defects or sharing available title documents with prospective buyers.

The bench comprising Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain set aside the forfeiture of nearly ₹4.76 crore paid by two successful bidders for properties belonging to Praiseworth Infra Private Limited. It directed the liquidator to refund ₹4,75,84,375 within six weeks from uploading the order.

The tribunal held that Section 55 of the Transfer of Property Act, which sets out the duties of buyers and sellers of immovable property, applies even to auctions conducted under the Insolvency and Bankruptcy Code (IBC).

“However, the catena of judgments cited by the Appellants have determined the same to be otherwise and have held that even in tenders being conducted on 'as is where is, as is what is' basis, principles of Section 55 will apply and the seller (Liquidator in the instant case) is duty bound to provide entire documentation and the information available to him, failing which he cannot enforce the terms of the tender by forfeiting the amount paid,” the tribunal observed.

The dispute arose from an e-auction conducted in March 2020 to sell vacant land measuring 34,564.30 sq ft and a marriage hall on land measuring 14,508 sq ft. Pankaj Kumar successfully bid for the vacant land, while Chandra won the bid for the marriage hall. Both deposited the required earnest money and an additional 25% of their respective bid amounts.

The buyers' lawyers found that certain documents needed to establish the properties' marketable title were missing. The liquidator later informed them that the properties were attached by the Debt Recovery Tribunal and the original documents were held there.

Further checks revealed discrepancies in the land measurements and revenue records. The Tahsildar also refused to issue an individual patta, citing missing records and a mutilated copy of the 1965 sale document.

The buyers asked the liquidator to provide the documents or return their money. Instead, while their application was pending before the NCLT, he forfeited the entire amount on March 19, 2021, for failure to pay the balance consideration. The NCLT dismissed their applications in October 2023.

The NCLAT observed that although the liquidator could not produce documents he did not possess, he should have tried to obtain copies from the bank and DRT or disclosed why they were unavailable.

Valuation reports had also flagged differences in land measurements, encroachments and the possibility that part of the marriage hall stood on public land. The liquidator should have checked and disclosed these issues before the auction.

The tribunal further found that the signed undertakings allowed forfeiture of only the EMD, not the additional payments. It therefore ordered a refund but declined 18% interest, noting that the buyers had also failed to conduct proper due diligence. The liquidator was also directed to clear them of other liabilities, including any bar on participating in future tenders..