Supreme Court Upholds Municipal Authority’s Right to Reject Auction Sale: Municipal Committee, Barwala vs. Jai Narayan and Company (2022)

Introduction

Date of the Judgment: 29 March 2022

Citation: (2022) INSC 290

Judges: Hemant Gupta, J., V. Ramasubramanian, J.

Can a municipal body be compelled to execute a sale deed for land auctioned if the sale has not been formally confirmed by the designated authority? The Supreme Court of India addressed this critical question in a recent case involving the Municipal Committee, Barwala, and a private company, Jai Narayan and Company. This judgment clarifies the legal position regarding the rights of successful bidders in public auctions and the necessity of formal approvals for property transfers. The bench comprised Justices Hemant Gupta and V. Ramasubramanian, with Justice Hemant Gupta authoring the judgment.

Case Background

The case revolves around a piece of land measuring 55 kanals and 5 marlas in Barwala, Haryana. The Municipal Committee, Barwala, decided to auction this land, and on 23 March 1999, an open auction was conducted by the Sub-Divisional Officer, Hisar. Jai Narayan and Company emerged as the highest bidder at a rate of Rs. 2,32,000 per acre, totaling Rs. 15,76,150. The company deposited the full amount with the Municipal Committee, adjusting a previous deposit of Rs. 4,10,000.

Jai Narayan and Company claimed to be in possession of the land as its rightful owner. They asserted that the Municipal Committee had even passed a resolution on 1 May 2002, to execute the sale deed. However, when the sale deed was not executed, the company sent a legal notice on 14 August 2006, and subsequently filed a civil suit on 13 June 2011, seeking a mandatory injunction to compel the Municipal Committee to execute the sale deed.

The Municipal Committee, in its defense, admitted to conducting the auction with the Deputy Commissioner’s permission. However, they argued that the company’s possession was illegal and that they could not execute the sale deed without the Haryana Government’s proper sanction.

Timeline

Course of Proceedings

The trial court initially decreed the suit in favor of Jai Narayan and Company on 9 March 2016, directing the Municipal Committee to execute the sale deed. The Municipal Committee appealed this decision, but the first appellate court dismissed the appeal on 5 September 2016. A second appeal was also dismissed by the High Court on 1 May 2018, leading the Municipal Committee to approach the Supreme Court.

Legal Framework

The Supreme Court examined the case in light of the Haryana Municipalities Management of Municipal Properties and State Properties Rules, 1976 (referred to as “1976 Rules”). Specifically, Rule 2 of the 1976 Rules outlines the procedure for alienating municipal property.

Rule 2 of the 1976 Rules states:

“2. Procedure for alienation. – (1) A municipal committee proposing to alienate permanently or for a term exceeding ten years any land or other immovable property of which it is the owner shall apply to the Deputy Commissioner for sanction.
(2) An application under sub-rule (1) shall be accompanied by a plan of the proposed property to be alienated together with a statement in Form A appended to these rules.
(3) The Deputy Commissioner shall record an order on the application, –
(i) sanctioning it (subject to such conditions, if any, as he thinks fit); or
(ii) refusing to sanction it; provided that no sale by auction shall be valid, until it has been confirmed by the Deputy Commissioner.
(4) When the Deputy Commissioner has accorded sanction to a sale by auction, the Form A aforesaid shall in due course be re-submitted to him with the details regarding the auction shown in Form B. The Deputy Commissioner shall thereon either confirm the sale or refuse to confirm it. If the Deputy Commissioner refuses to confirm the sale, the same shall be void.”

The Court also considered Section 61 of the Haryana Municipal Act, 1973 which deals with the vesting of property in the Municipal Committee.

Section 61 of the Haryana Municipal Act, 1973 states:

“61. Property vested in committee .—(1) Subject to any special reservation made or to any special conditions imposed by the State Government, all property of the nature hereinafter in this section specified and situated within the municipality, shall vest in and be under the control of the committee, and with all other property which has already vested or may here after vest in the committee, shall be held and applied by it for the purposes of this Act, that is to say,—
(a) all public town-walls, gates, markets, stalls, slaughter houses, manure and night-soil depots and public buildings of every description which have been constructed or are maintained out of the municipal fund;
(b) all public streams, springs and works for the supply, storage and distribution of water for public purposes, and all bridges, buildings, engines, materials and things connected therewith or appertaining thereto, and also any adjacent land, not being private property appertaining, to any public tank or well;
(c) all public sewers and drains, and all sewers, drains, culverts and water-courses in or under any public street or constructed by or for the committee alongside any public Street, and all works, materials and things appertaining thereto;
(d) all dust, dirt, dung, ashes, refuse, animal matter or filth or rubbish of any kind or dead bodies of animals collected by the committee from the streets, houses, privies, sewers, cesspools or elsewhere or deposited in places fixed by the committee under section 152;
(e) all public lamps, lamp-posts, and apparatus connected therewith or appertaining thereto;
(f) all land or other property transferred to the committee by the State Government or acquired by gift, purchase or otherwise for local public purposes;
(g) all public streets, not being land owned by the State Government, and the payments, stones and other materials thereof, and also trees growing on, and erections, materials, implements, and things provided for, such streets;
(h) Shamlat Deh.”

The Court also referred to Section 250 of the Haryana Municipal Act, 1973, which empowers the State Government to issue directions to the Municipal Committee for carrying out the purposes of the Act.

Section 250 of the Haryana Municipal Act, 1973 states:

“250. Power of State Government to give directions .—The State Government may issue directions to any committee for carrying out the purposes of this Act and in particular with regard to—
(a) various uses to which any land within a municipal are may be put;
(b) repayment of debts and discharging of obligations;
(c) collection of taxes;
(d) observance of rules and bye-laws;
(e) adoption of development measures and measures for promotion of public safety, health, convenience and welfare;
(f) sanitation and cleanliness;
(g) establishment and maintenance of fire-brigade.”

Arguments

The Municipal Committee argued that the auction was not approved by the State Government, and therefore, the highest bid did not confer any legal right to Jai Narayan and Company. They emphasized that the communication from the Deputy Commissioner (Ex.P/34) was merely a request for approval and not a confirmation of the sale. The Municipal Committee contended that the company was in unauthorized possession of the property. They also pointed out that the company had incorrectly relied on the Haryana Municipal Common Lands (Regulation) Act, 1974, which had been declared unconstitutional.

Jai Narayan and Company argued that the auction was conducted after obtaining the Deputy Commissioner’s approval and that the sale stood confirmed by the communication from the Deputy Commissioner (Ex.P/34). They claimed that as the highest bidder, they had a right to the execution of the sale deed.

Issues Framed by the Supreme Court

The Supreme Court did not frame specific issues, but the core issue was whether the plaintiff was entitled to a decree for mandatory injunction to execute the sale deed in the absence of a formal confirmation of sale by the competent authority.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

Judgment

How each authority was viewed by the Court?

• The Supreme Court relied on Haryana Urban Development Authority & Ors. v. Orchid Infrastructure Developers Private Limited [CITATION] to emphasize that a concluded contract requires acceptance of the bid and issuance of an allotment letter.
• The Supreme Court cited State of Punjab & Ors. v. Mehar Din [CITATION] to reiterate that the State is not bound to accept the highest bid.
• The Supreme Court referred to Bachhittar Singh v. State of Punjab [CITATION] to clarify that inter-departmental communications are not decisions of the State.
• The Supreme Court used Union of India v. Avtar Singh [CITATION] to emphasize that a letter does not record a decision of the Central Government.
• The Supreme Court cited State of Orissa and Others v. Mesco Steels Limited and Another [CITATION] to highlight that inter-departmental communications are merely steps in the decision-making process.
• The Supreme Court referred to State of Uttaranchal v. Sunil Kumar Vaish [CITATION] to reiterate that a file noting is not a decision of the Government.
• The Court relied on Rule 2 of the Haryana Municipalities Management of Municipal Properties and State Properties Rules, 1976 to emphasize the requirement of confirmation of sale by the Deputy Commissioner.
• The Court analyzed Section 61 of the Haryana Municipal Act, 1973 to understand the vesting of property in the Municipal Committee.
• The Court referred to Section 250 of the Haryana Municipal Act, 1973 to highlight the power of the State Government to issue directions to the Municipal Committee.
• The Court applied Section 114 of the Indian Evidence Act, 1872 to presume the correctness of official acts.
• The Court considered Article 54 of the Schedule to the Limitation Act, 1963 to determine the limitation period for filing a suit for specific performance.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Lack of Formal Confirmation: The most critical factor was the absence of formal confirmation of the auction sale by the Deputy Commissioner, as mandated by Rule 2(3)(ii) of the 1976 Rules. The Court emphasized that the communication (Ex.P/34) relied upon by the plaintiff was merely an inter-departmental communication seeking approval, not an actual confirmation.

• No Concluded Contract: The Court reiterated that a mere highest bid in a public auction does not create a concluded contract. A formal acceptance of the bid and issuance of an allotment letter are necessary to establish a legally binding agreement, as held in Haryana Urban Development Authority & Ors. v. Orchid Infrastructure Developers Private Limited.

• Illegal Possession: The Court found that the plaintiff’s possession of the land was illegal and without any legal authority, as the sale was not confirmed.

• Limitation Period: The Court noted that the suit for mandatory injunction was filed beyond the limitation period for a suit of specific performance, which is three years from the date of the auction.

• Inter-Departmental Communication: The Court clarified that inter-departmental communications and file notings do not constitute a final decision of the government, citing Bachhittar Singh v. State of Punjab and other cases.

• Importance of Statutory Compliance: The Court underscored the importance of adhering to the statutory rules and regulations, particularly the 1976 Rules, which require the Deputy Commissioner’s confirmation for the validity of an auction sale.

Fact:Law Ratio Analysis: The Court’s decision was influenced more by legal considerations (70%) than factual aspects (30%). The primary emphasis was on the statutory requirement for confirmation of the sale and the legal principles governing contracts in public auctions.

Logical Reasoning

Key Takeaways

• Confirmation is Crucial: A successful bid in a public auction does not automatically guarantee the right to acquire the property. Formal confirmation by the competent authority is essential for a valid sale.
• No Vested Right: The highest bidder does not have a vested right to have the auction concluded in their favor. The State or its authority retains the power to accept or reject the highest bid.
• Inter-Departmental Communications: Inter-departmental communications or file notings are not considered final decisions of the government.
• Importance of Statutory Rules: Compliance with statutory rules and regulations is mandatory for the validity of any transaction involving government or municipal properties.
• Limitation Period: Suits for specific performance must be filed within the prescribed limitation period, which is three years from the date of the cause of action.
• Illegal Possession: Possession of property without a valid legal basis is considered illegal and can be challenged by the rightful owner.

Directions

The Supreme Court directed the following:

• The Municipal Committee shall take possession of the land forthwith.
• The Municipal Committee shall furnish a compliance report within three months.
• The amount of Rs. 15,76,150 deposited by Jai Narayan and Company shall stand forfeited towards damages for the illegal occupation of the land.

Development of Law

The ratio decidendi of this case is that a successful bidder in a public auction does not automatically acquire a right to the property. The sale must be formally confirmed by the competent authority as per the applicable rules and regulations. This judgment reinforces the principle that the State or its authorities are not bound to accept the highest bid and that inter-departmental communications do not constitute final decisions. There is no change in the previous position of law.

Conclusion

The Supreme Court’s decision in the case of The Municipal Committee, Barwala vs. Jai Narayan and Company clarifies that a successful bidder in a public auction does not automatically have a right to the property. The sale must be formally confirmed by the competent authority, and inter-departmental communications do not constitute final decisions. The Court set aside the judgments of the lower courts and upheld the Municipal Committee’s right to take possession of the land. This ruling emphasizes the importance of adhering to statutory rules and regulations and the need for formal approvals in property transfers involving public bodies.