The Supreme Court has ruled that an auction cannot be cancelled merely because the authority conducting it was dissatisfied with the price quoted by the highest bidder. Terming such cancellations “arbitrary”, the Court set aside an Allahabad High Court order that had upheld the cancellation of a successful bid by Golden Food Products India for an industrial plot in Ghaziabad.
A bench of Justices B.V. Nagarathna and R. Mahadevan held that the Ghaziabad Development Authority (GDA) acted unlawfully when it cancelled the company’s successful bid for a 3,150-square-metre industrial plot under the Madhuban Bapudham Yojana, despite the bid being above the reserve price and no complaints having been raised about the auction process.
“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,” the Court held.
Golden Food Products India had emerged as the highest bidder in an auction conducted by the GDA in 2023. However, the bid was later cancelled by the auction committee on the ground that smaller plots in the same scheme had fetched higher per square metre prices, and the authority hoped to secure better offers in a fresh auction.
The company challenged the cancellation before the Allahabad High Court, but its petition was dismissed. It then moved the Supreme Court.
The apex court was scathing in its criticism of the GDA’s decision to scrap the auction and the High Court’s endorsement of that move. It noted that:
- The plot in question was substantially larger than the smaller plots used for comparison, which had greater demand.
- Only two bidders had participated in the auction for the subject plot, indicating lower demand.
- The bid by the appellant was above the reserve price and no fraud, collusion, or procedural irregularity had been shown.
- No notice was issued to the bidder before cancellation.
“An auction process has a sanctity attached to it and only for valid reasons can the highest bid be discarded,” the Court said, adding that the cancellation lacked any valid nexus to a lawful reason.
Justice Nagarathna further remarked that the conduct of the GDA amounted to arbitrary action by a public body and deserved to be quashed.
The Court set aside the Allahabad High Court’s orders dated May 24 and July 15, 2024, and directed Golden Food Products India to re-deposit the earnest money within four weeks. Once that is done, the GDA has been ordered to allot the plot to the company within two weeks and complete all consequential steps for finalising the auction.
The bench emphasized that bidders make significant financial preparations and expect fairness in public auctions.
“The appellant had a legitimate expectation to receive an allotment letter… Instead, without any prior notice, the auction was cancelled, compelling the appellant to approach the High Court,” the judgment observed.
The decision reinforces judicial scrutiny over arbitrary actions by public authorities in contractual and commercial matters, particularly in the context of state-conducted auctions.
