Highest Bidder Has No Vested Right To Have The Public Auction Concluded In His Favour: Supreme Court

The Supreme Court observed that the highest bidder has no vested right to have the auction concluded in his favour.

The acceptance of the highest bid or highest bidder is always subject to conditions of holding public auction and the right of the highest bidder is always provisional to be examined in the context in different conditions in which the auction has been held, the bench comprising Justices Ajay Rastogi and Abhay S. Oka observed.

The court also added that that the court should not interfere in the matters of tenders, unless substantial public interest was involved or the transaction was malafide. The power of judicial review in contractual and commercial matters should be exercised with a lot of restraint, the court added.

The Tehsildar Sales, Malerkotla conducted public auction of a property and only three bidders participated in the bidding process and bid of Mehar Din was the highest bid of Rs.3,90,000/-. The same was provisionally accepted by the Tehsildar. Later, the competent authority (Sales Commissioner) ordered re-auction on the ground that the public property has not been put to proper publicity and the present bid is inadequate. Ultimately, the Financial Commissioner Revenue, Punjab, upheld this order. Allowing the writ petition filed against these orders, the Punjab and Haryana High Court directed the authority to confirm the sale. 

In appeal, the Apex Court bench noted that the Scheme of Chapter III of the Punjab Package Deal Properties (Disposal) Rules, 1976 makes it clear 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. The court therefore said:

"This Court has examined right of the highest bidder at public auctions in umpteen number of cases and it was repeatedly pointed out that the State or authority which can be held to be State within the meaning of Article 12 of the Constitution, is not bound to accept the highest tender of bid. The acceptance of the highest bid or highest bidder is always subject to conditions of holding public auction and the right of the highest bidder is always provisional to be examined in the context in different conditions in which the auction has been held. In the present case, no right had accrued to the respondent even on the basis of statutory provisions as being contemplated under Rule 8(1)(h) of Chapter III of the Scheme of Rules, 1976 and in terms of the conditions of auction notice notified for public auction"

The court then made the following observations on the scope of judicial review in the matters of tenders/public auction

-Plausible decisions need not be overturned and, at the same time, latitude ought to be granted to the State in exercise of its executive power. However, allegations of illegality, irrationality and procedural impropriety would be enough grounds for Courts to assume jurisdiction and remedy such ills

-Superior Courts should not interfere in the matters of tenders, unless substantial public interest was involved or the transaction was malafide.

-The need for overwhelming public interest should always be kept in mind to justify judicial intervention in contracts involving the State and its instrumentalities and while exercising power of judicial review in relation to contracts, the Courts should consider primarily the question whether there has been any infirmity in the decision-making process.

-Courts being the custodian of fundamental rights are under an obligation to interfere where there is arbitrariness, irrationality, unreasonableness, malafides and bias, if any, but at the same time, the Courts should exercise the power of judicial review with a lot of restraint, particularly in contractual and commercial matters.

Allowing the appeal, the court observed:

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, and it was not open for the High Court to sit like a Court of Appeal over the decision of the competent authority and particularly in the matters where the authority competent of floating the tender is the best judge of its requirements, therefore, the interference otherwise has to be very minimal.

Case:  State of Punjab vs. Mehar Din | CA 5861 OF 2009 | 2 March 2022

Citation: 2022 LiveLaw (SC) 235

Coram: Justices Ajay Rastogi and Abhay S. Oka

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