Supreme Court Upholds State’s Right to Reject Highest Bid in Public Auction: State of Punjab vs. Mehar Din (2022)

Introduction

Date of the Judgment: March 2, 2022

Citation: 2022 INSC 165

Judges: Hon’ble Justices Ajay Rastogi and Abhay S. Oka.

Is the highest bidder in a public auction automatically entitled to the property? The Supreme Court of India recently addressed this critical question in a case concerning the auction of suburban land in Punjab. This judgment clarifies that the State is not always obligated to accept the highest bid, especially when the auction process is deemed inadequate or not in the public interest.

Case Background

The case revolves around the auction of suburban land in Malerkotla, Punjab, initiated by the State government. The auction was conducted under the Punjab Package Deal Properties (Disposal) Rules, 1976. The auction notice was published on May 17, 1993, in the Punjabi Tribune, setting the auction date for June 4, 1993.

Mehar Din, the respondent, emerged as the highest bidder with a bid of Rs. 3,90,000. He deposited 1/5th of the bid amount (Rs. 78,000) as earnest money. However, the Sales Commissioner, the competent authority, cancelled the bid, citing inadequate publicity and an inadequate bid price.

This cancellation led to a series of appeals and challenges, with the respondent arguing that his bid should have been accepted since he was the highest bidder. The Financial Commissioner, Revenue, Punjab, eventually upheld the cancellation, leading to the respondent filing a writ petition before the High Court.

Timeline

Course of Proceedings

The Sales Commissioner’s decision to cancel the auction was challenged by the respondent before the Chief Sales Commissioner, Sangrur, who upheld the cancellation, noting that only three bidders participated and adequate publicity was not given. The Divisional Commissioner, however, set aside the cancellation, stating that no opportunity was given to the bidder before cancellation.

The Financial Commissioner, Revenue, Punjab, reversed the Divisional Commissioner’s order, observing that the land could have fetched a better price and that there was a possibility of collusion. The High Court then set aside the Financial Commissioner’s order, directing the competent authority to confirm the sale, leading to the State’s appeal to the Supreme Court.

Legal Framework

The case is governed by the Punjab Package Deal Properties (Disposal) Rules, 1976, framed under Section 18 of the Punjab Package Deal Properties (Disposal) Act, 1976. Rule 8 of Chapter III of the Rules 1976 outlines the procedure for public auction of urban properties. Key provisions include:

• Rule 8(1)(b): Requires a proclamation of the intended sale in the language of the principal civil court.
• Rule 8(1)(c): Mandates a notice of at least fifteen days before the sale, including details of the property, location, and terms. It also requires affixing a copy of the notice at a conspicuous place in the locality and giving notice by beat of drum.
• Rule 8(1)(d): Allows for publication of the notice in daily newspapers.
• Rule 8(1)(h): Specifies that the highest bidder must pay 20% of the bid as earnest money if the bid exceeds Rs. 500 and that the acceptance of the highest bid is provisional, subject to confirmation by the Sales Commissioner.

The Supreme Court emphasized that under Rule 8(1)(h), the acceptance of the highest bid is provisional and subject to confirmation by the Sales Commissioner. This means that the highest bidder does not automatically have a right to the property.

Arguments

The State of Punjab argued that the auction was not conducted with adequate publicity and that the bid price was inadequate, considering the potential value of the land. They contended that the Sales Commissioner was justified in canceling the auction to ensure a better price for the public property. The State also argued that the highest bidder has no vested right to have the auction concluded in his favor.

The respondent, Mehar Din, argued that he was the highest bidder and had complied with all the requirements of the auction. He contended that the cancellation was arbitrary and without sufficient reason, especially since his bid was higher than the previous auction. He argued that the High Court was correct in setting aside the Financial Commissioner’s order and directing the confirmation of the sale.

The core arguments of both sides are broken down as follows:

Issues Framed by the Supreme Court

The Supreme Court addressed the following key issues:

1. Whether the State is bound to accept the highest bid in a public auction.
2. Whether the High Court was justified in interfering with the decision of the Financial Commissioner who had upheld the cancellation of the auction.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on several key precedents and legal principles:

Judgment

The Supreme Court allowed the appeal, setting aside the judgment of the High Court. The Court held that the High Court had exceeded its jurisdiction by acting as a court of appeal and interfering with the decision of the competent authority. The Supreme Court emphasized that the State is not bound to accept the highest bid in a public auction, especially when the auction process is deemed inadequate or not in the public interest. The Court also noted that the highest bidder has no vested right to have the auction concluded in his favor.

The Supreme Court also directed the State to refund the earnest money of Rs. 78,000 deposited by the respondent with interest at the rate of 12% per annum from the date of deposit until actual payment.

The following table summarizes how the court treated the submissions made by the parties:

The following table summarizes how the court viewed the authorities:

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to uphold the integrity of the public auction process and ensure that public properties are sold at fair prices. The Court emphasized that the State has the right to reject the highest bid if the auction process is not conducted properly or if the bid price is inadequate. The Court also stressed that judicial review in such matters should be limited and that the High Court should not act as a court of appeal.

The sentiment analysis of the reasons given by the Supreme Court is as follows:

The ratio of fact to law that influenced the court to decide is as follows:

The Court’s logical reasoning is explained below:

The Court considered the argument that the respondent was the highest bidder and had complied with all requirements. However, it rejected this argument, emphasizing that the auction rules clearly state that the acceptance of the highest bid is provisional. The Court also considered the argument that the cancellation was arbitrary, but it found that the Sales Commissioner had sufficient reasons to cancel the auction, including inadequate publicity and an inadequate bid price.

The Court’s decision was based on the following reasons:

• The acceptance of the highest bid is provisional and subject to confirmation by the competent authority.
• The State is not bound to accept the highest bid if the auction process is inadequate or not in the public interest.
• The High Court should not act as a court of appeal in such matters and should only interfere if there is evidence of arbitrariness, irrationality, or mala fides.
• The Sales Commissioner had sufficient reasons to cancel the auction, including inadequate publicity and an inadequate bid price.

The Supreme Court quoted the following from the judgment:

“From the Scheme of Chapter III of Rules 1976, it is apparent and explicit that even if the public auction has been completed to the highest bidder, no right is accrued till the confirmation letter is issued to him as the acceptance of the highest bid is provisional, subject to its confirmation by the competent authority.”

“This being a settled law that the highest bidder has no vested right to have the auction concluded in his favour and in the given circumstances under the limited scope of judicial review under Article 226 of the Constitution, the High Court was not supposed to interfere in the opinion of the executive who were dealing on the subject, unless the decision is totally arbitrary or unreasonable.”

“The premise on which the High Court has proceeded in recording a finding, particularly, in the matters of auction of public properties is unsustainable in law and that apart, it is also not in conformity with the Scheme of auction of public properties as defined under Chapter III of Rules 1976.”

There were no dissenting opinions in this case.

Key Takeaways

• The State is not obligated to accept the highest bid in a public auction if the process is flawed or not in the public interest.
• The highest bidder has no vested right to the property until the sale is confirmed by the competent authority.
• Courts should exercise restraint in reviewing decisions related to public auctions and contracts.
• High Courts should not act as appellate courts in such matters and should only intervene in cases of arbitrariness, irrationality, or mala fides.

This judgment reinforces the State’s power to ensure fair and transparent public auctions, which may lead to more rigorous scrutiny of auction processes. It also limits the scope of judicial intervention in such matters, potentially reducing delays in public projects.

Directions

The Supreme Court directed the State to refund the earnest money of Rs. 78,000 deposited by the respondent with interest at the rate of 12% per annum from the date of deposit until actual payment. This order was to be complied with within two months from the date of the judgment.

Development of Law

The ratio decidendi of this case is that the State is not bound to accept the highest bid in a public auction if the auction process is deemed inadequate or not in the public interest. The acceptance of the highest bid is provisional and subject to confirmation by the competent authority. This judgment reinforces the existing legal position that the State has the right to reject the highest bid in public auctions under certain circumstances, and it emphasizes the limited scope of judicial review in such matters. This case reaffirms the principles laid down in previous judgments like Tata Cellular v. Union of India, Jagdish Mandal v. State of Orissa and Others, and Silppi Constructions Contractors v. Union of India and another.

Conclusion

In conclusion, the Supreme Court’s judgment in State of Punjab & Others vs. Mehar Din clarifies that the State is not obligated to accept the highest bid in a public auction if the process is flawed or not in the public interest. The judgment reinforces the State’s authority to ensure fair and transparent public auctions and emphasizes the limited scope of judicial review in such matters. The Court’s decision underscores the importance of maintaining the integrity of the auction process and protecting public interest.