Supreme Court Rules Property Auctions Can Be Cancelled For Better Prices Before Final Allotment

The Supreme Court has ruled that public authorities can cancel or reconsider property auctions to secure a better price for public land, provided a legally binding contract has not been finalised. The court said such decisions are justified when they aim to protect public revenue and ensure that government property is not sold below its potential market value.

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A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe made the observation while setting aside a Punjab and Haryana High Court judgment that had quashed the Chandigarh Administration’s decision to cancel Bedi Hospital’s ₹12.58 crore bid for a nursing home site. The court held that the administration had the authority to reconsider the auction before issuing the allotment letter and executing the conveyance deed, Live Law reports.

Why Chandigarh Administration Cancelled The Bid

The dispute began in August 2022, when the Chandigarh Administration issued an e-auction notice for residential, commercial and nursing home sites. Among the properties offered were two nursing home sites in Sector 33C, Chandigarh, each measuring 744.44 square yards and carrying a reserve price of ₹6.91 crore.

During the auction held on October 20, 2022, Site No. 3 attracted a highest bid of ₹18.25 crore, while Bedi Hospital emerged as the highest bidder for Site No. 4 with an offer of ₹12.58 crore. The nearly ₹6 crore difference between the bids for two adjoining plots of identical size raised concerns within the administration about whether the second site had fetched an appropriate market price.

Hospital Paid Full Amount Before Cancellation

Following the auction, Bedi Hospital deposited 25% of its bid amount on October 21, 2022. An Agreement to Sell was executed on October 28, and the hospital paid the remaining 75% on November 16, 2022.

Despite receiving the full payment, the Chandigarh Administration had not issued the allotment letter or executed the conveyance deed. It subsequently reviewed the transaction after finding that the neighbouring plot had attracted a substantially higher bid.

On January 27, 2023, the administration cancelled Bedi Hospital’s bid, stating that the price did not reflect prevailing market trends. It also decided to conduct another auction for Site No. 4, fixing its reserve price at the highest bid received for Site No. 3.

The administration refunded the entire amount deposited by Bedi Hospital and subsequently cancelled the Agreement to Sell.

Supreme Court Explains When Auction Can Be Revisited

The Supreme Court examined the Chandigarh Estate Rules, 2007, along with the terms and conditions of the e-auction notice. It noted that the applicable rules permitted the authority to withdraw from an auction before issuing the allotment letter if the decision was intended to maximise revenue.

The bench held that the absence of an allotment letter and conveyance deed was significant in determining whether the administration could cancel the transaction.

“As the Allotment Letter was not issued with no corresponding Conveyance Deed executed, the Chandigarh Administration is entitled to exercise its power to cancel,” the court observed.

The judges further clarified that securing the highest possible price for public property could be a valid reason to reconsider an auction, provided an enforceable contract had not been concluded.

“While dealing with matters relating to sale or lease of public property, the action of a public authority to recall or revisit the auction process would be justified if the decision is intended to maximise the price for the sale/lease of public property,” the court said.

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It added that a substantially lower auction price could be a relevant consideration for refusing to finalise a transaction in favour of the highest bidder.

The ruling highlights an important distinction between emerging as the highest bidder and acquiring an enforceable right over public property. It also underlines the importance of protecting public revenue when authorities dispose of government-owned land.

Fresh Auction Ordered Within Three Months

The Supreme Court also considered developments following the cancellation of Bedi Hospital’s bid. A subsequent auction had fetched ₹18.30 crore for the property, approximately ₹6 crore more than the hospital’s original offer.

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During the proceedings, Bedi Hospital expressed its willingness to match the higher bid. However, the court decided against granting the property to either party and instead directed the Chandigarh Administration to conduct a fresh auction.

The bench said a fresh bidding process would better serve public interest and ensure that the property was allotted through the procedure prescribed under the Chandigarh Estate Rules, 2007.

“The Chandigarh Administration is directed to hold a fresh e-auction for Site No. 4 in Sector 33C, Chandigarh, by following the procedure prescribed under the Chandigarh Estate Rules, 2007,” the court said.

It directed the administration to begin and complete the entire process within three months.

The judgment reinforces the principle that public authorities must consider the financial interests of the public while disposing of government property. At the same time, it makes clear that the power to revisit an auction depends on whether a legally enforceable contract has already come into existence.

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