Mere expectation of higher price can’t be reason to rescind auction, says apex court

New Delhi: A 3,150-sq-metre industrial plot in Madhuban Bapudham Yojna was expected to fetch Ghaziabad Development Authority (GDA) over Rs 30 cr, but Supreme Court has asked GDA to sell it for Rs 9.3 cr to a firm which was the highest bidder in the auction for the same, saying the auction cannot be scrapped without valid reasons.On May 22, 2024, GDA had cancelled the auction in which there were two bidders, with the highest bidder, Golden Food Products India, quoting a rate of Rs 29,500 per sq metre for the plot.
The authority scrapped the auction as a nearby 132-sq-metre plot was sold for Rs 1.6 cr at the rate of Rs 1.21 lakh per sq metre, which would value the 3,150-sq-metre plot at Rs 38 cr. The Allahabad High Court had upheld GDA's decision to scrap the auction.On the highest bidder's appeal, a bench of Justices B V Nagarathna and R Mahadevan ruled that the auction could not have been scrapped merely because GDA expected a higher price for the plot. It pointed out that as against a reserve price of Rs 26,500 per sq metre, the highest bidder had quoted Rs 29,500 and that there was no infirmity in the auction process.Writing the judgment, Justice Nagarathna said, "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.""If a valid bid has been made which is above the reserve price, there should be a rationale or reason for not accepting it. Therefore, the decision to discard the highest bid must have a nexus to the rationale or the reason," she said.The bench said an auction cannot be scrapped because the highest bid did not compare favourably with the expected price. "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 said.The SC said no one had complained about any irregularity in the auction process and since Golden Food Products India had quoted the highest price, "the said bid ought to have been accepted by GDA rather than cancelling the same without notice to the company. Hence, the cancellation of the bid submitted by the company is quashed." It asked the company to re-deposit the earnest money within four weeks and directed GDA to allot the plot to the company two weeks after deposition of the amount, marking the conclusion of the auction process.