Validly Concluded Auction Cannot Be Cancelled Merely To Seek Higher Bids Later: Supreme Court
The Supreme Court recently held that once a person is declared the highest bidder in an auction for a plot, it crystalises the future rights and obligations between the parties.
The bidding authority then has a duty to issue the allotment letter, and expectation of a higher bid in a subsequent auction can't be a reason to cancel an auction held in accordance with law, as it would amount to cancelling the auction based on irrelevant considerations and therefore, arbitrary, whimsical and irrational.
"In our view, there cannot be any imprimatur of the Court to such arbitrary cancellation of auction by an instrumentality or agency of the State in the absence of there being any fraud, collusion, suppression etc. Merely because the smaller plots measuring 123 to 132 square metres were auctioned and sold at a higher price as compared to the subject plot measuring 3150 square metres which is a large sized plot, could not have been the basis for cancelling theauction insofar as the subject plot is concerned."
A bench comprising Justice BV Nagarathna and Justice R Mahadevan reasoned that the demand was smaller plots was higher, and that is why it was sold at a higher price per sq mt than the subject plot.
The Court was dealing with a case where the auction of various plots, including an industrial plot measuring 3,150 sq mts, under the Madhuban Bapudham Yojana, Ghaziabad, was advertised by the Ghaziabad Development Authority (GDA). The auction was conducted through a two-bid system- a technical bid and a financial bid.
The appellant's technical bid was accepted, and an open auction was conducted for the financial bid, in which the reserve price for all plots, including smaller and larger plots, was fixed at Rs. 25,600/-. The appellant submitted the highest bid of Rs. 29,500 and was declared the highest bidder, but then he was not issued an allotment letter.
After he made a representation to the authorities and filed a Right to Information, he was informed that the financial bid was cancelled without a notice, and the earnest money deposited by him was refused. He was informed that a fresh auction was to be conducted. This was because, upon comparing the price received for other similarly situated small plots, it was found that the prices received were substantially higher.
The appellant approached the Allahabad High Court seeking the GDA to issue him an allotment letter, which the High Court dismissed, saying that he couldn't claim an indefeasible right to insist upon the execution of the sale deed in his favour.
Again, he approached the High Court seeking that the letter which the GDA issued informing him about the non-acceptance of his financial bid be quashed. The High Court refused to entertain this since the earlier order was not challenged and it had attained finality. Both these orders were challenged by him through two special leave petitions before the Supreme Court.
What did the Supreme Court say?
At the outset, the bench stated that an identical reserve price was set for smaller plots, and this larger plot, owing to a lower demand for a larger plot. The bidding for the smaller plots can't be compared to the bidding for the larger plot, in which only two people, including the appellant, had presented their bid.
"Merely because the selling price or the financial bids made by the parties vis-à-vis the smaller plots were concerned was higher per square metre cannot be a reason to also expect a very high price or a similar price insofar as the subject plot measuring 3150 square metres is concerned. After all, from the table reproduced above, it is evident that the smaller plots were measuring between 123.83 square metres to 132.20 square metres only whereas in the instant case the subject plot is a large area of 3150 square metres.
The subject plot cannot be compared with the smaller plots auctioned on that very day. There were only two parties who made their bids in respect of the subject plot and the appellant herein was the highest bidder. This fact also demonstrates that there were no bidders for the said extent of plot as there was no demand for the same unlike a demand for smaller plots."
The Court further said that once the appellant was declared as the highest bidder, his future rights and the obligation of the parties were crystallised, and he had the right to receive the allotment letter.
"Further, the amount of Rs.29,500/- per square metre which was bid by the appellant herein was above Rs.25,600/- per square metre being the reserve price. Naturally, the appellant was declared to be the highest bidder. This is in fact a crystallization of the future rights and obligation of the parties. The appellant had a right to receive the allotment letter and GDA - respondent No.2 had a duty to issue the same, particularly in the absence of fraud, collusion or any other reason which could have led to the cancellation of the auction.
Thereafter, GDA- respondent No.2 could not have compared the selling price of the smaller plots with the financial bid made by the appellant herein so as to cancel the auction itself. The same was done on an irrelevant consideration. Therefore, it was arbitrary, whimsical and irrational."
The Court held that once the appellant was declared the highest bidder, he had a legitimate expectation to receive the allotment letter. It said that the auction process has a sanctity attached to it, and only by a valid reason that can it be discarded.
"In auction process has a sanctity attached to it and only for valid reasons that the highest bid can be discarded in an auction which is otherwise held in accordance with law. If a valid bid has been made which is above the reserve price, there should be a rationale or reason for not accepting it. Therefore, the decision to discard the highest bid must have a nexus to the rationale or the reason. Merely because the authority conducting the auction expected a higher bid than what the highest bidder had bid cannot be a reason to discard the highest bid."
Consequently, the Court quashed the cancellation of the appellant's bid and set aside both orders of the High Court. It has been directed that within 2 weeks from the re-deposit of the earnest money, the GDA shall make an order of allotment.
Case Title: GOLDEN FOOD PRODUCTS INDIA v. STATE OF UTTAR PRADESH & OTHERS|Special Leave Petition (Civil) Nos.18095-18096 of 2024
Citation : 2026 LiveLaw (SC) 22
Appearances: Petitioner Mr. Aditya Bhati, Adv. Mr. Lakshay Sharma, Adv. Mr. Bhuvnesh Vyas, Adv.
For Respondent(s) :Mr. Malak Manish Bhatt, AOR Ms. Neeha Nagpal, Adv. Ms. Sukanya Joshi, Adv.