Public Authority Can Revisit Auction To Maximise Price Of Public Property Before Binding Contract Is Concluded: Supreme Court
"While dealing with matters relating to sale or lease of public property, the action of a public authority to recall or revisit the auction process would be justified if the decision is intended to maximise the price for the sale/lease of public property"
A public authority can revisit an auction to maximise the price of public property before a binding contract is concluded, the Supreme Court has held while setting aside a Punjab and Haryana High Court judgment that quashed the Chandigarh Administration's decision to cancel Bedi Hospital's ₹12.58 crore bid for a nursing home site.
The Court held that the Chandigarh Administration was entitled to reconsider the auction before the issuance of the allotment letter and execution of the conveyance deed, particularly when the bid for the site was substantially lower than the price fetched by an adjacent plot of the same size.
The Court directed the Chandigarh Administration to conduct a fresh e-auction for the site in Sector 33C within three months, noting that a subsequent auction had fetched ₹18.30 crore, approximately ₹6 crore more than Bedi Hospital's original bid.
A bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe heard the case where the Chandigarh Administration sought to withdraw from the e-auction of a land after finding the bid submitted by the Respondent(Bedi Hospital), despite being the highest, was not reflective of market trends.
Background
The Chandigarh Administration had issued an e-auction notice in August 2022 for residential, commercial and nursing home sites. The dispute concerned two nursing home sites, each measuring 744.44 square yards, in Sector 33C, Chandigarh, with a reserve price of ₹6.91 crore each.
In the auction held on October 20, 2022, the appellant's bid for Site No. 3 was accepted at ₹18.25 crore, while Bedi Hospital emerged as the highest bidder for Site No. 4 with a bid of ₹12.58 crore.
Bedi Hospital deposited 25% of the bid amount on October 21, 2022. An Agreement to Sell was executed on October 28, and the hospital paid the remaining 75% on November 16, 2022.
However, before the allotment letter was issued and the conveyance deed executed, the Chandigarh Administration reconsidered the transaction, noting that the adjacent site of the same size had fetched approximately ₹6 crore more.
On January 27, 2023, the Administration cancelled Bedi Hospital's bid contract, stating that the substantial price difference did not reflect market trends. It decided to re-auction Site No. 4, fixing the reserve price at the highest bid received for Site No. 3. The entire amount deposited by Bedi Hospital was refunded.
The Administration subsequently cancelled the Agreement to Sell as well.
Allowing the appeal, the Supreme Court relied on the Chandigarh Estate Rules, 2007 (Rules), where the Terms and Conditions of the E-Auction Notice align with the same Rules, which specifically permit the tendering authority to withdraw from the auction before the issuance of a letter of allotment for revenue maximisation.
“As the Allotment Letter was not issued with no corresponding Conveyance Deed executed, the Chandigarh Administration is entitled to exercise its power to cancel.”, the Court observed, emphasising that there was no illegality or arbitrariness in the administration's decision to cancel the auction for profit maximisation.
“While dealing with matters relating to sale or lease of public property, the action of a public authority to recall or revisit the auction process would be justified if the decision is intended to maximise the price for the sale/lease of public property. This is permissible as long as the enforceable contract has not been entered into. In the present case, the decision of the Chandigarh Administration to revisit the auction was taken before finalization of the allotment letter and the consequential execution of conveyance deed. At this stage, a substantial lower price fetched at the auction can be a relevant consideration for not finalising the contract in favour of a so-called “highest bidder”. For these reasons, we are of the opinion that there is no illegality or arbitrariness in the action of the Chandigarh Administration to revisit the auction process and call for a fresh auction for price maximization.”, the Court said.
Since the appellants emerged as the highest bidder, and upon being informed by the Respondents that they were willing to match up with the Appellants' bidding price, the Court, instead of granting relief to any of the parties, ordered a fresh auction of the subject land in accordance with the Rules.
“…we are of the opinion that interests of justice and public purpose will be subserved if we direct the Chandigarh Administration to conduct a fresh e-auction of Site No. 4 after following the due procedure… The Chandigarh Administration is directed to hold a fresh e-auction for Site No. 4 in Sector 33C, Chandigarh, by following the procedure prescribed under the Chandigarh Estate Rules, 2007. The entire process should commence and conclude within a period of 3 months from today.”, the Court said.
Appearance:
Mr. Guru Krishna Kumar, Sr. Adv. for the appellant
Mr. Vikramjit Banerjee, ASG for the Chandigarh Administration.
Mr. P.S. Patwalia, Sr. Adv. for the Respondent