Authorities Conducting Public Auctions Must Disclose All Known Encumbrances And Litigation Relating To Property: Supreme Court

Holding that non-disclosure of pending litigation and encumbrances vitiates a public auction, the Supreme Court directed the Ludhiana Improvement Trust to refund ₹1.57 crore with interest to an auction purchaser, after finding that the Trust had auctioned a plot without informing bidders that it was already the subject matter of a civil suit.

A Bench of Justice JB Pardiwala and Justice KV Viswanathan set aside the judgment of the Punjab and Haryana High Court, which had dismissed the purchaser's writ petition and declined relief.

The appellant had purchased one plot at Ludhiana in a public auction conducted by the Improvement Trust in May 2021 and deposited ₹1,57,04,580 towards the sale consideration. Before issuance of the sale certificate, the Trust refused to execute the conveyance deed, citing a civil suit pending since 2020 concerning the same property.

The Supreme Court expressed strong disapproval of the Trust's conduct, noting that the pendency of litigation was not disclosed at the time of auction. The Court held that it was the legal duty of the auctioning authority to disclose all material facts, including pending disputes, in the auction notice itself.

"It was the legal duty on the part of the Trust to have made it clear in the auction notice itself that the subject plot is a subject matter of litigation. Authorities (such as banks, recovery officers, or state bodies) conducting public auctions are legally required to disclose all known encumbrances and litigation relating to the property, as failure to do so invalidates the sale. Suppressing such material facts renders the auction fraudulent or vitiated by material irregularity," the Court stated.

The Court emphasised that public auctions are intended not only to secure the highest competitive price but also to ensure transparency, fairness and legitimacy in the actions of public authorities. Suppression of material facts, it held, undermines the integrity of the process and places bona fide purchasers in a precarious position.

"Public auction is one of the modes of sale intending to get highest competitive price for the property. Public auction also ensures fairness in actions of the public authorities and their officers who should act fairly and objectively. Their actions should be legitimate. Their dealing should be free from suspicion. Nothing should be suggestive of bias, favouritism, nepotism or beset with suspicious features of underbidding detrimental to the legitimate interest of the stakeholders."

Reference was made to the recent ruling in Delhi Development Authority v. Corporation Bank & Ors 2025 LiveLaw (SC) 953, which held that an auction purchaser will be entitled to restitution if the bank suppressed material facts.

The Court noted that the auction purchaser was innocent and had acted in good faith, while the Trust could not be permitted to retain money obtained through a process tainted by non-disclosure.

Allowing the appeal, the Court directed the Improvement Trust to refund the entire amount of ₹1,57,04,580 with interest at the rate of 9 percent per annum from July 19, 2021, the date of deposit. The refund has been ordered to be made within six weeks without fail. 

Case : Viney Kumar Sharma v. The Improvement Trust and another

Citation : 2026 LiveLaw (SC) 69

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