Recently, the Karnataka High Court held that declaring a sole participant as the successful bidder in an auction defeats the very purpose of achieving competitive pricing. The court, while addressing a case involving Can Fin Homes Ltd., directed the refund of earnest money to a bidder who was the only participant but did not finalize the transaction. It observed that such practices are inherently unjustifiable and fail to align with the principles of public auctions.
The case arose from a public auction conducted by Can Fin Homes Ltd., where a man participated as the sole bidder for a property. Despite being declared the successful bidder, the individual chose not to complete the transaction, citing concerns over the lack of competitive bidding. Can Fin Homes Ltd. refused to refund the earnest money deposited by the bidder, leading to the dispute being brought before the Karnataka High Court.
The counsel for Can Fin Homes Ltd. argued that the bidder, having voluntarily participated in the auction and been declared successful, was contractually obligated to fulfil the terms of the agreement. They contended that the refund of earnest money was unwarranted as the auction process had been conducted transparently, and the bidder’s withdrawal was a breach of terms.
The division bench of the Karnataka High Court observed that the essence of a public auction is to foster competition to secure the best possible price for the asset in question. Quoting the Supreme Court’s established principles, the court noted, “The aim of a public auction is to make the sale more competitive to get the highest possible returns.” It further emphasised that “declaring the sole participant as the successful bidder is a completely unjustifiable position”.The court highlighted the logical and legal impossibility of an auction proceeding with a single participant, stating, “Bidding cannot take place with only one person participating; this needs no legal support as it is logically impossible.”
Concluding that the auction process had failed to meet the fundamental objectives of competitiveness, the High Court directed Can Fin Homes Ltd. to refund the earnest money to the sole bidder. The Court reinforced that public auctions must adhere to principles that ensure transparency, fairness, and competition, aligning with the purpose of securing maximum returns.
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