Public Authorities Cannot Reject Highest Bid to Seek Better Price: Supreme Court Reiterates Sanctity of Auction Process

Introduction

The Supreme Court of India has delivered a significant ruling emphasizing that public authorities cannot arbitrarily cancel a validly concluded auction merely on the expectation of securing a better price in a subsequent auction. This decision reinforces the principle that State instrumentalities must honor the sanctity of the auction process and cannot discard the highest bid on extraneous grounds when the auction has been conducted in accordance with law, the highest bid exceeds the reserve price, and there exists no allegation of fraud, collusion, or procedural irregularity.

Case Background

Factual Matrix

In the matter of Golden Food Products India Vs State of Uttar Pradesh & Others, the Ghaziabad Development Authority (GDA) had issued an advertisement dated 25.08.2023 for allotment of various plots through an auction process. Among these was an industrial plot designated as Plot No.26, Madhuban Bapudham Yojana, Ghaziabad, spanning an area of 3150 square metres.

The auction process adopted was a two-bid mechanism comprising a technical bid and a financial bid. On 02.02.2024, the appellant submitted both bids, offering Rs.25,920/- per square metre in the financial bid and depositing a demand draft of Rs.80,64,000/- as earnest money.

Auction Proceedings

On 14.03.2024, the GDA notified the appellant about the acceptance of their technical bid. Subsequently, on 15.03.2024, an open auction was organized wherein the reserve price for the plot was determined at Rs.25,600/- per square metre. Only two bidders participated in the auction, with the appellant submitting a bid of Rs.29,500/- per square metre, which was the highest offer. Consequently, the appellant was declared the highest bidder.

Unexpected Cancellation

On 25.04.2024, the appellant submitted a representation to the Vice-Chairman of the GDA requesting issuance of the allotment letter. Upon receiving no response, the appellant filed an RTI Application bearing Diary No.33697/RTI/2024 to obtain internal note sheets and memos concerning their bid. During an office visit to inspect these documents, the appellant discovered that the GDA had cancelled the allotment.

On 22.05.2024, the GDA officially communicated to the appellant that their financial bid had been cancelled and announced that a fresh auction would be conducted for the plot.

Justification Offered by GDA

Comparative Analysis

The GDA's rationale for cancellation centered on a comparative analysis with prices realized for allegedly "similar properties" under the Madhuban Bapudham Yojana during the financial year 2023-24. According to the GDA, the following rates were achieved:

Based on this comparison, the auction committee concluded that since "similar properties" in the identical scheme had fetched substantially higher prices than the appellant's bid, the bid should be cancelled to conduct a fresh auction. This recommendation received approval from the Vice-Chairman of GDA, following which the appellant was notified and the earnest money deposit was refunded.

Proceedings Before the High Court

First Writ Petition

Aggrieved by the cancellation, the appellant approached the Allahabad High Court through Writ C No.17883/2024, seeking a writ of mandamus directing the GDA to issue an allotment letter and execute a sale deed concerning the plot.

By order dated 24.05.2024 (Impugned Order No.1), the High Court dismissed the writ petition. The High Court accepted the GDA's submission that the appellant's financial bid was inferior compared to bids for other plots in the same scheme and held that the appellant could not claim an "indefeasible right" to insist upon execution of a sale deed.

Second Writ Petition

The appellant again approached the High Court through Writ C No.20059/2024, seeking quashing of the letter dated 22.05.2024 by which the GDA informed them of non-acceptance of their financial bid, along with directions for issuance of allotment letter and execution of sale deed.

By order dated 15.07.2024 (Impugned Order No.2), the High Court held that absent any challenge to the earlier order dated 24.05.2024, the same had attained finality as the appellant had not preferred any modification or review. Additionally, since the letter dated 22.05.2024 was dispatched prior to the order dated 24.05.2024 and leave was granted to participate in a fresh auction, the writ petition was deemed misconceived and dismissed.

Arguments Before the Supreme Court

Appellant's Contentions

Senior counsel for the appellant submitted that the respondents arbitrarily cancelled the appellant's bid on grounds not mentioned in the auction brochure and disclosed only after multiple RTI applications. The RTI replies established that the appellant's technical bid was valid and the price bid was the highest.

It was argued that cancelling the bid due to "low rates compared to smaller plots" constituted an extraneous and arbitrary consideration. The appellant had complied with all tender conditions and validly deposited the requisite earnest money. Cancelling a valid bid amounts to rewriting tender terms after bids were opened, which is impermissible in law and contrary to Article 14 of the Constitution of India.

Reliance was placed on Eva Agro Feeds (P) Ltd. vs. Punjab National Bank, (2023) 10 SCC 189, wherein this Court held that "mere expectation of the Liquidator that a still higher price may be obtained can be no good ground to cancel an otherwise valid auction and go for another round of auction. Such a cause of action would not only lead to incurring of avoidable expenses but also erode the credibility of the auction process itself."

The appellant emphasized that RTI responses revealed that an adjacent plot of the same scheme was allotted without any benchmarking against smaller plots. The GDA had allotted several plots exceeding 2000 square metres at prices only marginally above the reserve price, while the appellant's bid was 15.23% above the reserve price (Rs.29,500/- versus Rs.25,600/-). This demonstrated inconsistent, selective and arbitrary treatment.

It was contended that the High Court failed to distinguish between an 'indefeasible right to allotment' and the 'right to fair and non-arbitrary treatment'. The respondents cancelled the allotment without a show-cause notice or hearing, violating principles of natural justice. Simply returning the earnest money could not legitimize an arbitrary cancellation.

Respondents' Contentions

Counsel for the respondents submitted that participation in a tender or auction does not confer any vested or enforceable right to obtain the bid. Unless the auctioning authority accepts the bid and communicates the same, the highest bid remains merely an offer revocable at the authority's discretion. In this case, no letter of acceptance or allotment was issued to the appellant. On the contrary, the earnest money was returned, thereby extinguishing any semblance of a contractual relationship.

Reliance was placed on Tata Motors Ltd. vs. Brihan Mumbai Electric Supply & Transport Undertaking, (2023) 19 SCC 1, wherein a three-Judge Bench observed that "courts should not use a magnifying glass while scanning the tenders and make every small mistake appear like a big blunder. In fact, the courts must give 'fair play in the joints' to the government and public sector undertakings in matters of contract."

Following this principle, it was submitted that the respondent's decision to cancel the auction was based on objective considerations including prevailing market rates and the need for safeguarding public revenue. Comparable plots in subsequent auctions had obtained significantly higher prices, and therefore the decision to re-auction was a measure intended to maximize public benefit.

It was further submitted that the tender document expressly stated that the decision of the Vice-Chairman/Authority in matters of allotment are final and binding. Therefore, the cancellation was within the scope of tender conditions made available to the appellant.

Supreme Court's Analysis

Undisputed Facts

The Supreme Court noted that certain facts remained undisputed:

• The GDA had advertised allotment of various plots through an auction dated 25.08.2023
• The appellant's technical bid and financial bid were accepted on 14.03.2024 and 15.03.2024 respectively
• The reserve price fixed for the subject plot measuring 3150 square metres was Rs.25,600/- per square metre
• The appellant bid Rs.29,500/- per square metre, which was the highest bid
• Only two bidders participated in the auction
• The GDA cancelled the allotment without prior intimation to the appellant
• The reason for cancellation was the allegedly low bid amount, despite being higher than the reserve price

Principle of Auction Sanctity