Supreme Court Upholds Auction Cancellation in Property Sale Case: Sankalp Recreation vs. Union of India (2019)

Date of the Judgment: 19 September 2019

Citation: [2019] INSC 917

Judges: R. F. Nariman, J. and Surya Kant, J.

Can a government authority cancel an auction after receiving a bid above the reserve price? The Supreme Court of India recently addressed this question in a case involving the sale of a property acquired by the Union of India. The core issue was whether the cancellation of an auction, despite a bid exceeding the reserve price, was valid and justifiable. The two-judge bench, consisting of Justice R. F. Nariman and Justice Surya Kant, delivered the judgment.

Case Background

The case revolves around a property in Mumbai, acquired by the Union of India in 1994 under Section 269UD(1) of the Income Tax Act, 1961. Despite multiple attempts to sell the property through auctions since 1994, all efforts failed. Even an auction on 27 March 2017, with a reserve price of Rs. 32.11 crores, did not receive any bids. Subsequently, the appellant, Sankalp Recreation Private Limited, offered to purchase the property for Rs. 32.11 crores, which was not accepted by the Central Board of Direct Taxes (CBDT) due to jurisdictional constraints. A fresh valuation report on 4 September 2017, valued the property at Rs. 29,91,35,000. Following this, a brochure was circulated in September 2017, with a reserve price of Rs. 30 crores. The appellant was the sole bidder, offering Rs. 30.21 crores. However, the auction was later cancelled by the CBDT, leading to the present dispute.

Timeline:

Course of Proceedings

The appellant, aggrieved by the cancellation of the auction, filed a writ petition in the High Court of Judicature at Bombay on 21 May 2018. The High Court permitted the authorities to conduct a fresh auction but restrained them from confirming the sale. The fresh auction was conducted on 30 May 2018, where respondent No. 4 was the sole bidder, matching the reserve price of Rs. 31.10 crores. The High Court dismissed the writ petition on 27 July 2018, finding no infirmity in the auction process and stating that the cancellation, though without reason, was not arbitrary. The appellant then appealed to the Supreme Court.

Legal Framework

The property was acquired under Section 269UD(1) of the Income Tax Act, 1961, which pertains to the purchase of immovable property by the Central Government in certain cases of transfer. The auction process was governed by the terms and conditions outlined in the brochure/catalogue, particularly clauses 2, 12, and 16. Clause 16 stated, “The Chief Commissioner of Income Tax 2 Mumbai reserves the right to reject any tender form any bid including the highest bid, without assigning any reason.” These clauses provided the legal framework for the auction and the subsequent cancellation.

Arguments

Appellant’s Arguments:

• The appellant argued that the cancellation of the auction, without providing any reason, was invalid and arbitrary.
• They contended that since they were the highest bidder at Rs. 30.21 crores, which was above the reserve price, the auction sale should have been confirmed in their favor.
• The appellant also argued that conducting another auction after so many failed attempts was arbitrary.
• The appellant made a with prejudice offer to abide by their earlier offer of Rs. 32.11 crores.

Respondent’s Arguments:

• The respondents argued that clause 16 of the brochure/catalogue allowed the Chief Commissioner to reject any bid without assigning a reason.
• They highlighted the report dated 26 September 2017, which pointed out that the appellant’s bid of Rs. 30.21 crores was lower than their earlier offer of Rs. 32.11 crores.
• The respondents stated that the decision to conduct a fresh auction was not arbitrary, as it was in the public interest to secure the highest possible price for the property.
• They also mentioned that valuation reports were taken at every stage to determine the reserve price.
• The respondents pointed out that the appellant had the opportunity to bid in the fresh auction but chose not to participate.
• Respondent No. 4 made a with prejudice offer to pay Rs. 35 crores, adjusting for the earnest money, if the appeal was dismissed.

[TABLE] of Submissions:

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the cancellation of the auction process, despite the appellant being the highest bidder above the reserve price, was valid in law.
2. Whether the decision to conduct a fresh auction was arbitrary.

Treatment of the Issue by the Court:

Authorities

Cases Relied Upon:

• Michigan Rubber (India) Ltd. v. State of Karnataka & Ors. [2012 (8) SCC 216] – The Supreme Court of India cited this case to emphasize that judicial intervention in auction processes should be limited as long as the process is conducted bona fide and in public interest.
• Mohinder Singh Gill v. Chief Election Commissioner 1978 (1) SCC 405 – This case was cited regarding the necessity of reasons for governmental decisions.
• 63 Moons Technologies Ltd. (Formerly known as Financial Technologies India Ltd.) & Ors. v. Union of India & Ors. 2019 (7) SCALE 50 – This case was cited to clarify that subsequent materials could be considered in the larger public interest to support an administrative order, and to interpret the application of the Mohinder Singh Gill case.
• PRP Exports and Ors. v. Chief Secretary, Government of Tamil Nadu and Ors.’ (2014) 13 SCC 692 – This case was cited to support the view that subsequent materials could be considered in the larger public interest to support an administrative order.

Legal Provisions Considered:

• Section 269UD(1) of the Income Tax Act, 1961 – This provision was the basis for the acquisition of the property by the Union of India.

[TABLE] of Authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed Michigan Rubber (India) Ltd. v. State of Karnataka & Ors. [2012 (8) SCC 216]* to emphasize that judicial intervention in auction processes should be limited as long as the process is conducted bona fide and in public interest.
• The Supreme Court considered Mohinder Singh Gill v. Chief Election Commissioner 1978 (1) SCC 405* regarding the necessity of reasons for governmental decisions, but clarified its application based on subsequent judgments.
• The Supreme Court used 63 Moons Technologies Ltd. (Formerly known as Financial Technologies India Ltd.) & Ors. v. Union of India & Ors. 2019 (7) SCALE 50* to clarify that subsequent materials could be considered in the larger public interest to support an administrative order, and to interpret the application of the Mohinder Singh Gill case.
• The Supreme Court cited PRP Exports and Ors. v. Chief Secretary, Government of Tamil Nadu and Ors.’ (2014) 13 SCC 692* to support the view that subsequent materials could be considered in the larger public interest to support an administrative order.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure that public assets are sold at the best possible price. The Court emphasized that the auction process should be conducted bona fide and in the public interest. The fact that the appellant’s bid was lower than their earlier offer and the availability of fresh valuation reports were significant factors. The Court also considered that the appellant had the opportunity to participate in the fresh auction but chose not to. The Court noted that while reasons must inform governmental decisions, they need not be explicitly stated in every order, especially when they are discernible from the record.

Sentiment Analysis of Reasons:

Fact:Law Ratio:

Logical Reasoning:

The court considered the arguments of both parties, the circumstances of the case, and the need to maintain transparency and fairness in public auctions. The court noted that while the cancellation letter did not explicitly state the reasons, the reasons were available in the record. The court also emphasized that the auction process must be conducted in a bona fide manner and in the public interest. The court’s reasoning was primarily based on the need to secure the best possible price for the property, which was in the public interest. The court also noted that the appellant had the opportunity to participate in the fresh auction but chose not to.

The Supreme Court quoted from the judgment:

• “We cannot say that the aforesaid reason can be said to be, in any manner, arbitrary. After all, it was in public interest to see that the highest possible price be fetched for such properties.”
• “Broadly speaking, so long as the auction process is conducted bona fide and in public interest, a judicial hands off is mandated by the decisions that have been cited…”
• “Following these judgments, suffice is to state that the reasons disclosed both in the Report dated 26.09.2017 and the letter dated 06.04.2018 from the Government of India, Ministry of Finance, to the Chief Commissioner of Income Tax, make it clear that there is no arbitrariness that is discernible in the entire auction process.”

Key Takeaways

• Government authorities have the right to cancel an auction even if the highest bid is above the reserve price, provided the decision is not arbitrary and is in public interest.
• The need to secure the highest possible price for public assets is a valid reason for cancelling an auction.
• Valuation reports play a crucial role in determining the reserve price and justifying the cancellation of an auction.
• Bidders must participate in fresh auctions if they are aggrieved by the cancellation of an earlier auction.
• While reasons must inform governmental decisions, they need not be explicitly stated in every order, especially when they are discernible from the record.

Potential Future Impact: This judgment reinforces the principle that the government has a duty to secure the best possible price for public assets. It also highlights that the government’s decision to cancel an auction will be upheld if it is in the public interest and supported by valid reasons, even if those reasons are not explicitly stated in the cancellation order. This decision may influence future cases involving public auctions and the cancellation of bids.

Directions

The Supreme Court directed that from the figure of Rs. 35 crores, which will be paid within a period of 12 weeks from the date of the judgment directly to the Union treasury, a sum equivalent to interest of 9 per cent on the amount of Rs. 7.78 crores, that is lying with the Union, calculated from the date on which it was deposited with the Union till the date of the judgment, be subtracted, and the net figure be handed over as aforesaid.

Specific Amendments Analysis

There is no specific amendment discussed in the judgment.

Development of Law

The ratio decidendi of this case is that government authorities have the right to cancel an auction even if the highest bid is above the reserve price, provided the decision is not arbitrary and is in public interest. This case clarifies that the need to secure the highest possible price for public assets is a valid reason for cancelling an auction, and the reasons for cancellation need not be explicitly stated in every order if they are discernible from the record. This case does not change the previous position of the law, but reinforces the existing principles regarding public auctions and judicial review.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision. The Court found that the cancellation of the auction was not arbitrary, as the bid was lower than the appellant’s earlier offer and it was in the public interest to secure the highest possible price. The Court also noted that the appellant had the opportunity to participate in the fresh auction but chose not to. The judgment reinforces the principle that government authorities have the right to cancel an auction if it is in the public interest and supported by valid reasons.