Accepted Auction Bid Creates Legitimate Expectation; State Can't Cancel Without Reasons: Rajasthan High Court
The Rajasthan High Court has held that once a bid is accepted at the auction venue, followed by immediate deposit of stipulated amount, the relationship between the State and the bidder progresses beyond mere offer, and a legitimate expectation coupled with the obligation of fairness arises in favour of the bidder.
The bench of Justice Farjand Ali thus set aside unilateral cancellation of an auction by the State without assigning any reasons to the accepted bidder, based on an internal file noting, and held that discretion vested in an authority did not elevate the office to the position of a monarch or a king.
The petitioner had placed bid in an auction conducted by the Rajasthan Housing Board for residential houses, in which he was declared as the highest bidder and he also deposited the stipulated part payment. However, instead of execution of the sale deed, a letter was provided to him informing of cancellation of the auction without any reason or opportunity of hearing.
The petitioner got to know that the cancellation was based on an internal letter issued by the Financial Advisor which also did not reveal any reason.
The State relied upon Clause 16 of the amended auction procedure that reserved a right with the Chairman to accept or reject the bid without assigning any reasons. It was argued that no right accrued to the petitioner since the Chairman of the Board did not approve the proposal.
Rejecting this argument and terming this as legally untenable, the Court held that such reliance upon an internal file noting, allegedly approved by the Chairman could not defeat the procedural and substantive rights that accrued on the petitioner, nor could it sanctify an opaque and arbitrary decision making process.
“This Court is unable to accept such an absolute proposition. It is well settled that even where discretion is conferred by statute or executive instructions, such discretion is not unfettered, unguided or immune from judicial scrutiny. A public authority cannot take refuge under a general clause to justify an action which is ex facie arbitrary, non-transparent and violative of Article 14 of the Constitution of India.”
It was further observed that the petitioner's bid was not merely an offer, because once it was accepted, and part payment was received by the State, the relationship moved beyond that stage.
“At the very least, a legitimate expectation coupled with a corresponding obligation of fairness arose in favour of the petitioner, which could not have been defeated without adherence to the principles of natural justice.”
The Court opined that the manner in which the auction was cancelled further aggravated the illegality, since there was no show-cause notice or opportunity of hearing being provided to the petitioner, neither any reasons were assigned for the cancellation of the auction.
It was stated that such casual and mechanical approach was “wholly unbecoming” of a statutory authority who was dealing with valuable public property and citizens' rights.
“Cancellation of an auction without reasons amounts to exercise of discretion in a vacuum…respondents have failed to demonstrate any compelling public interest, policy consideration or legally sustainable reason for cancellation of the auction.”
In this light it was held that the action of the State was illegal, arbitrary, violative of Articles 14, 300-A of constitution as well as natural justice, and contrary to the principles governing public auctions.
Accordingly, the petition was allowed, and the State was directed to restore petitioner's allotment.
Title: Jayendra Singh Sishodia v Rajasthan Housing Board, and other connected petitions
Citation: 2026 LiveLaw (Raj) 18