Highest bid can’t be discarded on mere expectation of even more higher bid

Merely because the authority conducting auction expects higher bid than the highest bidder is no reason to discard the highest bid.

In a recent judgment, Hon’ble Supreme Court has held that 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.

ABCAUS Case Law Citation:
4975 (2026) (01) abcaus.in SC

The respondent Development Authority had advertised the allotment of various plots through an auction. The auction was conducted through a two-bid system – a ‘technical bid’ and a ‘financial bid’.

The appellant company submitted bids. The respondent notified the appellant that their technical bid had been approved. Subsequently, an open auction was conducted in which a reserve price of the plot was fixed. There were only two bidders in the auction, including the appellant. The appellant submitted a bid of more than reserved price which was the highest, and was thus declared the highest bidder.

However, when the appellant asked the respondent authority for issuance of an allotment letter but no reply was made. On not receiving any reply, the appellant filed an RTI Application and found that the respondent authority had cancelled the allotment which was later officially notified to the appellant that they had cancelled their financial bid and announced that a fresh auction would take place for the plot.

The reason assigned to the cancellation of the auction was that upon comparing the price received for the plot in question with the prices received for “similar properties” under the Yojana were much higher than the price offered by the appellant in its bid. Therefore, the auction committee recommended cancelling the appellant’s bid in order to conduct a fresh auction. Following this, the appellant was notified of the decision and its earnest money deposit was refunded.

The appellant approached the Allahabad High Court dismissed the Writ Petition on the plea that the appellant’s financial bid was lower than the bids for other plots in the same scheme and holding that the appellant cannot claim an “indefeasible right” to insist upon the execution of a sale deed in its favour.

The appellant again approached the High Court in a Civil Writ. However, High Court held that in the absence of a challenge to its order in writ of mandamus, the same had attained finality as the appellant had not preferred any modification or review of the same.

The Hon’ble Supreme Court observed that it had held that unless and until it was found that there was any material irregularity and/or illegality in holding the public auction and/or the auction was vitiated by any fraud or collusion, it is not open to set aside the auction or sale in favour of the highest bidder on the basis of some representation made by a third party who did not even participate even in the auction proceedings and did not make any offer. If there is repeated interference in the auction process, the object and purpose of holding public auction and its sanctity would be frustrated. That unless there are allegations of fraud, collusion, etc., the highest offer received in the public offer should be accepted as a fair value. Otherwise, there shall not be any sanctity of any public auction.

The Hon’ble Supreme Court also observed that it was held by it that the mere expectation of the liquidator (in the said case) which could also mean the auction seller that, a still higher price may be obtained can be no good ground to cancel an otherwise valid auction and go in for another round of auction. Such a course of action would not only lead to incurring of avoidable expenses but also erode credibility of the auction process itself. Thus, the auctioning authority must adhere to the rule of law and an auction cannot be cancelled arbitrarily.

The appellant contended that the decision to subsequently cancel the financial bid of the appellant owing to “a low rate” quoted by the appellant as compared to the “other smaller plots” was an arbitrary and extraneous reason. Once the auction has been held in accordance with law and there had been no fraud, collusion or any other infirmity in the holding of the auction and the earnest money has been validly deposited, there could not have been any subsequent cancellation of the bid.

It was argued that merely because a higher rate could have been achieved then what was accepted and declared by the auctioning authority could not be the reason for setting aside the auction itself.

The Hon’ble Supreme Court observed that merely because the selling price or the financial bids made by the parties vis-à-vis the smaller plots were concerned was higher per square metre cannot be a reason to also expect a very high price or a similar price insofar as the subject plot was concerned.

The Hon’ble Supreme Court further noted that there were only two parties who made their bids in respect of the subject plot and the appellant herein was the highest bidder. This fact also demonstrated that there were no bidders for the said extent of plot as there was no demand for the same unlike a demand for smaller plots.

The Hon’ble Supreme Court observed that an auction process has a sanctity attached to it and only for valid reasons that the highest bid can 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.

The Hon’ble Supreme Court held that 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.

Accordingly, the appeal was allowed and appellant was directed to re-deposit the earnest money and the respondent authority was directed to make an order of allotment.

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