Recently, the Supreme Court was hearing appeals arising from the dismissal of writ petitions challenging the cancellation of the appellant’s highest bid in an auction conducted by a development authority for allotment of an industrial plot. The Appellant questioned the legality of cancelling the auction despite being declared the highest bidder at a price above the reserve rate. The appeals raised issues relating to arbitrariness, procedural fairness, and the scope of judicial review in auction matters.
Brief Facts:
The case arose from an auction conducted by a development authority for allotment of an industrial plot measuring 3150 square metres under a two-bid system comprising technical and financial bids. The Appellant qualified the technical bid and quoted a price higher than the reserve price in the financial bid. The Appellant was declared the highest bidder; however, no allotment letter was issued to them. Subsequently, the authority cancelled the Appellant’s bid and proposed to conduct a fresh auction, while refunding the earnest money.
Contentions of the Appellant:
The counsel for the Appellant submitted that the cancellation of the bid was arbitrary and based on considerations not disclosed in the auction brochure, particularly by comparing the appellant’s bid with prices fetched by smaller plots. The counsel argued that once the highest bid above the reserve price was accepted, the authority could not cancel the auction merely in anticipation of a higher price. The cancellation was effected without issuing any notice or granting an opportunity of hearing, rendering the action violative of Article 14 of the Constitution and principles of natural justice.
Contentions of the Respondents:
The counsel for the Respondents argued that participation in an auction does not confer any vested or enforceable right until issuance of an allotment letter. The highest bid was only an offer, which could be rejected in the public interest to safeguard public revenue. The counsel further submitted that judicial review in tender and auction matters is limited and that the decision to cancel the bid was taken within the authority’s discretion under the tender conditions.
Observation of the Court:
The Court observed that “an auction process has a sanctity attached to it and only for valid reasons can the highest bid be discarded in an auction which is otherwise held in accordance with law.” It noted that where a bid is above the reserve price and there is no allegation of fraud or collusion, “there should be a rationale or reason for not accepting it.”
Rejecting the authority’s justification, the Court held that “merely because the selling price of smaller plots was higher per square metre cannot be a reason to cancel the auction of a large sized plot.” It emphasised that the subject plot could not be compared with smaller plots, observing that “the demand for smaller plots being higher would naturally result in higher bid amounts.”
The Court reiterated that “expectation of a higher bid in a subsequent auction cannot be a reason to cancel an auction held in accordance with law.” It cautioned that discarding a valid highest bid on such grounds would render the auction process arbitrary and undermine its credibility.
On procedural fairness, the Court noted that the cancellation was effected “without any prior notice to the appellant,” and clarified that “returning of the earnest money would not legitimize an arbitrary cancellation.” It stressed that actions of State instrumentalities in auction matters must satisfy the test of fairness and non-arbitrariness.
The decision of the Court:
The Court set aside the impugned High Court orders and quashed the cancellation of the auction. It held that the highest bid, being above the reserve price and free from any infirmity, could not have been rejected on irrelevant considerations. The authority was directed to proceed with allotment in favour of the appellant after re-deposit of the earnest money and to complete all consequential formalities in accordance with law.
Case Title: Golden Food Products India V. State Of Uttar Pradesh & Others
Case No.: Special Leave Petition (Civil) Nos.18095-18096 Of 2024
Coram: Hon’ble Mrs. Justice B.V. Nagarathna and Hon’ble Mr. Justice R. Mahadevan
Counsel for the Appellant: AOR Siddharth Praveen Acharya, Adv. Aditya Bhati, Adv. Lakshay Sharma, Adv. Bhuvnesh Vyas.
Counsel for the Respondent: AOR Malak Manish Bhatt, Adv. Neeha Nagpal, Adv. Sukanya Joshi.
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