Validly Concluded Auction Cannot Be Cancelled To Seek Higher Bids Later; Highest Bidder Declaration Crystallises Rights, Allotment Letter Must Follow: Supreme Court
Kiran Raj
The Supreme Court of India Division Bench of Justice B.V. Nagarathna and Justice R. Mahadevan set aside the cancellation of an industrial plot auction and directed the authority to issue the allotment letter to the highest bidder. After declaring the bidder highest for a 3150 sq m plot, the authority cancelled the result and ordered re-auction by benchmarking the bid against prices for smaller plots in the same scheme. The Court held that declaration as highest bidder crystallises the parties’ future rights and obligations, and an auction conducted in accordance with law cannot be cancelled only to seek a higher price later, since that rests on irrelevant considerations. The bidder must re-deposit the earnest money within four weeks; allotment must be made within two weeks thereafter, with consequential steps to conclude the auction.
The dispute arose from an auction conducted by a statutory development authority for allotment of an industrial plot measuring 3150 square metres under a notified development scheme. The auction followed a two-bid process comprising technical and financial bids. The appellant participated in the auction, submitted the requisite earnest money, and quoted a financial bid higher than the notified reserve price. The technical bid was approved, and the appellant was declared the highest bidder, with only one other participant in the auction.
Subsequently, despite the bid being above the reserve price, the authority cancelled the financial bid and refunded the earnest money. The stated reason for cancellation was that smaller plots in the same scheme had fetched higher per-square-metre prices in auctions conducted on the same date. The appellant challenged this cancellation before the High Court, seeking issuance of an allotment letter and execution of a sale deed. The High Court dismissed the writ petitions, holding that participation in an auction does not create an indefeasible right to allotment. Aggrieved, the appellant approached the Supreme Court, contending that the cancellation was arbitrary, lacked notice, and was based on considerations not disclosed in the auction terms.
The Court recorded the core facts leading to the dispute: “The undisputed facts of the case are that the GDA - respondent No.2 had advertised the allotment of various plots through an auction dated 25.08.2023. The reserve price fixed for the subject plot measuring 3150 square metres was Rs.25,600/- per square metre and the appellant had bid Rs.29,500/- per square metre which was the highest bid and therefore the appellant was declared the highest bidder. The appellant became aware that the GDA - respondent No.2 had cancelled the allotment and had notified the appellant about the cancellation only on 22.05.2024. This was done without any prior intimation to the appellant.”
On the governing approach to interference with public auctions, the Court stated: “unless and until it was found that there was any material irregularity and/or illegality in holding the public auction and/or the auction was vitiated by any fraud or collusion, it is not open to set aside the auction or sale in favour of the highest bidder” and “If there is repeated interference in the auction process, the object and purpose of holding public auction and its sanctity would be frustrated It also recorded: “unless there are allegations of fraud, collusion, etc., the highest offer received in the public offer should be accepted as a fair value. Otherwise, there shall not be any sanctity of any public auction.”
Relying on the same principle in the context of price expectations, the Court observed: “the mere expectation of the liquidator (in the said case) which could also mean the auction seller that, a still higher price may be obtained can be no good ground to cancel an otherwise valid auction and go in for another round of auction. Such a course of action would not only lead to incurring of avoidable expenses but also erode credibility of the auction process itself. Thus, the auctioning authority must adhere to the rule of law and an auction cannot be cancelled arbitrarily.”
On the rationale offered for cancellation by comparing bids for smaller plots, the Court recorded: “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. The subject plot cannot be compared with the smaller plots auctioned on that very day.” It further noted: “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 then stated the effect of declaring the highest bidder and the corresponding obligations: “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.” It recorded the basis for characterising the cancellation: “The same was done on an irrelevant consideration.” “Therefore, it was arbitrary, whimsical and irrational.”
On the permissibility of such cancellation by a State instrumentality, the Court stated: “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.” It recorded the duty flowing from acceptance of the bid: “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 too behind the back of the appellant.” The Court added: “Expectation of a higher bid in a subsequent auction cannot be a reason to cancel an auction held in accordance with law.”
On notice and expectation, the Court recorded: “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. Instead, without any prior notice to the appellant the auction itself was cancelled which constrained the appellant to approach the High Court.”
Finally, the Court stated the controlling standard and applied it to the case: “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. 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. 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.”
The Court directed that “the impugned orders of the High Court dated 24.05.2024 and 15.07.2024… are set-aside” and “the appellant is directed to re-deposit the earnest money preferably within four weeks from today. Within two weeks from the date of the re-deposit of the earnest money, the respondent authority shall make an order of allotment of the subject plot in favour of the appellant herein and take all consequential steps for concluding the auction process”. The appeals were allowed and the parties were directed to bear their own costs.
Advocates Representing the Parties
For the Appellant: Mr. Aditya Bhati, Adv. Mr. Lakshay Sharma, Adv. Mr. Bhuvnesh Vyas, Adv.
For the Respondents: Mr. Malak Manish Bhatt, AOR Ms. Neeha Nagpal, Adv. Ms. Sukanya Joshi, Adv.
Case Title: Golden Food Products India v. State of Uttar Pradesh & Others
Neutral Citation: 2026 INSC 22
Case Number: Civil Appeal arising out of SLP (Civil) Nos. 18095–18096 of 2024
Bench: Justice B.V. Nagarathna, Justice R. Mahadevan
