The Supreme Court ruled that an auction cannot be cancelled just because authorities expected a higher bid. If the highest bid is above the reserve price and the process is lawful, it must be accepted.
New Delhi: In an important ruling on transparency and fairness in government auctions, the Supreme Court of India on Tuesday made it clear that an auction cannot be cancelled simply because the authority conducting it felt that a higher price could have been obtained.
A Bench of Justices B.V. Nagarathna and R. Mahadevan set aside the orders passed by the Allahabad High Court which had earlier upheld the cancellation of a bid submitted by Golden Food Products India for an industrial plot in Ghaziabad.
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The plot, measuring 3,150 square metres, was offered under the Madhuban Bapudham Yojana and was auctioned by the Ghaziabad Development Authority (GDA) in 2023.
Golden Food Products India had approached the court after its bid was cancelled despite it being the highest bidder in the auction. The company argued that it had fulfilled all requirements and had quoted a price above the reserve price fixed by the authority.
However, the GDA cancelled the bid on the ground that similar plots in the same scheme had fetched higher prices, and the auction committee therefore decided to conduct a fresh auction in the hope of getting better returns.
Rejecting this reasoning, the Supreme Court observed that an auction process carries its own sanctity and cannot be interfered with lightly. The Bench set aside the High Court’s orders dated May 24, 2024 and July 15, 2024, and directed the company to re-deposit the earnest money, preferably within four weeks.
The court further ordered that within two weeks from the date of such re-deposit, the GDA must issue an allotment order in favour of the company and complete all consequential formalities to conclude the auction process.
Emphasising the legal principles governing auctions, the top court said,
“An 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,”.
The Bench added that the decision to reject the highest bid must be supported by a clear and reasonable justification and must have a direct connection with the reasons cited.
The court categorically held,
“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,”.
It noted that in the present case, no other bidder had offered a higher price than Golden Food Products India and there was no flaw or irregularity in the auction process itself.
Referring to the facts of the case, the Bench observed,
“No other party had complained about the process of auction conducted by the GDA – respondent No.2. The bid offered by the appellant herein was the highest and above the reserve price. In the circumstances, the said bid ought to have been accepted by GDA – respondent No.2 rather than cancelling the same without notice to the appellant herein. Hence, the cancellation of the bid submitted by the appellant herein is quashed,”.
Justice Nagarathna further made strong observations against arbitrary action by state authorities, stating that there can be no approval by courts for such conduct in the absence of serious allegations.
The court said that there cannot be any justification for cancelling an auction by a government agency unless there is fraud, collusion, suppression of material facts or similar serious issues.
The Bench also dealt with the argument raised by the GDA that smaller plots in the same scheme had fetched a higher price per square metre. Rejecting this comparison, the court observed,
“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 the auction insofar as the subject plot is concerned,”.
It explained that smaller plots generally attract higher demand and therefore command a higher price per square metre, whereas the larger plot in question had fewer bidders. In fact, only two bidders had participated in the auction for the large plot, which clearly showed limited demand.
Reiterating that the bid was above the reserve price and that there was no legal reason to cancel the sale, the court held,
“The bid of the appellant was above the reserve price. There was no other reason to cancel the auction sale of the subject plot. Therefore, GDA – respondent No.2 was under an obligation in law having accepted the bid offered by the appellant to issue the allotment letter instead of cancelling the auction on the basis of irrelevant considerations that took place behind the back of the appellant,”.
The apex court further clarified that the mere expectation of earning more money in a future auction cannot justify cancelling a legally conducted auction. It noted that bidders invest time and resources and make financial arrangements before participating in such processes.
Highlighting this aspect, the Bench said,
“The technical bid of the appellant herein was accepted. There was no reason to decline the financial bid made by the appellant which was the highest bid. The financial bid was also over and above the reserve price.
“There was no reason attributed to the appellant for cancellation of the auction sale. In the circumstances, the appellant had a legitimate expectation to receive an allotment letter vis-à-vis the subject plot as it was the highest bidder,”.
The court also took note of the fact that the auction was cancelled without giving any prior notice to the company, forcing it to approach the High Court for relief.
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It observed that the High Court failed to properly appreciate these crucial facts and wrongly dismissed the writ petitions filed by the company.
With these observations, the Supreme Court allowed the appeal, restored the auction in favour of Golden Food Products India, and reaffirmed that government authorities must act fairly, transparently, and in accordance with law while dealing with public auctions.
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