Commercial Auction | Buyer Must Inspect Site Before Bidding; Can't Later Object Over Location Or Construction Impediments: Allahabad High Court

The Allahabad High Court has held that an investor must be conscious of entire transaction when a commercial plot is bought on “as is where is” basis. It held that physical verification of the site is reasonably expected of a prudent person when plot is being bought through auction.The bench of Justice Mahesh Chandra Tripathi and Justice Kunal Ravi Singh held,“When the commercial plots are sold on “as is where is” basis, the investor i.e. the petitioner must be more conscious of the entire transaction. Any reasonable and prudent person would ensure that before entering the commercial transaction of auction, the site would be inspected. It is only after satisfaction regarding the site has been done that any person would dare venture into the auction process. It is difficult to reconcile the fact that the geographical matrix of the plot changed after auction when the matrix could be readily seen by a simple inspection of the site.”Gorakhpur Development Authority put two commercial plots in its Budh Vihar Part-A project to e-auction on an “as is where is” basis. The petitioner company, which wished to build a hotel at Gorakhpur, deposited registration money of Rs. 88,98,350/- and Rs. 13,74,764/- and bid Rs. 34,45,41,498/- and Rs. 3,85,18,645/- at the auction. It was declared the highest bidder, and allotment letters issued required 40% of the bid amount within one month.That amount was never deposited. After three reminders, the petitioner replied that a flyover raised over the Deoria bypass road had blocked the frontage of the plots, permanently obstructing entry and exit and destroying their commercial worth, and asked for its money back. By orders dated 2nd April 2026 the authority cancelled both allotments and forfeited Rs. 1,02,73,114/-.Before the High Court, the petitioner pleaded that it had bid nearly double the reserve price on the strength of the advertisement. It was submitted that petitioner had no knowledge of the flyover, and forfeiture in the absence of any loss to the authority was a penalty hit by Section 74.The authority pleaded that the arbitration clause at condition 7.5 barred the petition. It was further argued that condition 4.2 allowed forfeiture where the highest bidder did not deposit the bid amount. It was argued that the flyover stood built when the auction was held and the “as is where is” clause attracted the principle of caveat emptor, so it was for the petitioner to inspect the site. The forfeiture condition, it added, had never been challenged as arbitrary or unconscionable.The Court held the petition maintainable as the arbitration objection having been taken in the counter affidavit was not pressed in argument. It held that a writ petition not being liable to dismissal for availability of an alternate remedy once pleadings have been exchanged.The Court found nothing on record to show that the petitioner had inspected the plots, and noted that financial sanction for the flyover had been granted by a notification dated 18th November 2022. The “as is where is” condition, it held, rendered any objection about a decline in commercial viability and value superfluous.The Court held that the breach was the petitioner's own as the instalment fell due and went unpaid, no extension was sought, and the first two reminders drew no reply. Reading the auction conditions and the allotment letter as a whole, it found that what both made the trigger for forfeiture was non-deposit of the bid amount, not of the 40% instalment.“it is apparent that the non-deposit of 40% of the bid amount is not a condition to forfeit the registration amount but rather the non-deposit of the entire bid amount within the time period specified in the E-auction condition would lead to forfeiture of the registration amount.”Forfeiture ordered on the ground of non-deposit of 40% was therefore held illegal and against the terms of the auction and the allotment letter. The Court nonetheless declined to interfere: the petitioner had not challenged condition 4.2, had not sought an extension or restoration of its allotment, and had prayed only for refund.“Thus, even if a writ of certiorari is issued for reconsideration, the only conclusion that the Authority will again reach is forfeiture of the registration amount due to withdrawal from the allotment and subsequent prayer for refund of registration money. The exercise of issuance of the writ would be futile.”Section 74 provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled to receive from the party who has broken the contract reasonable compensation whether or not actual damage or loss is proved to have been caused thereby. The compensation should not exceed the amount so named or, as the case may be, the penalty stipulated for.The Court held that the pre-estimate of loss test under...

Commercial Auction | Buyer Must Inspect Site Before Bidding; Can't Later Object Over Location Or Construction Impediments: Allahabad High Court

Upasna Agrawal

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Commercial Auction | Buyer Must Inspect Site Before Bidding; Can't Later Object Over Location Or Construction Impediments: Allahabad High Court

Upasna Agrawal

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