Otherwise Valid Auction Cannot Be Cancelled On Mere Expectation Of Fetching Higher Price: Allahabad High Court Reiterates

The Allahabad High Court relied upon the decision of the Supreme Court in Eva Agro Feeds Private Limited v. Punjab National Bank and Another to hold that a fresh auction cannot not be held merely on the possibility of receiving higher offers.

While setting aside order of the Company Judge calling for fresh auction at higher reserve price, the bench comprising Justice Ashwani Kumar Mishra and Justice Syed Qamar Hasan Rizvi held,

“In the present case, it is not in dispute that auction notice was widely published. None has otherwise come forward Company Judge raising a grievance that the auction was not widely circulated or anyone was prevented from submitting his bid. No higher bid was otherwise placed before the Company Judge. No infirmity is otherwise shown in the publication of auction notice or the conduct of auction. It is in this backdrop that we are not inclined to concur with the view taken by learned Company Judge in ignoring the highest bid submitted by the appellant and direct holding of a fresh bid in the matter.”

Factual Background

The reserve price for property to be auctioned was fixed by the Company Judge at Rs. 9,65,55,205/-. Three bidders submitted their bids before the Official Liquidator. Appellant bid the highest at Rs. 11,68,41,205/-. The official liquidator submitted proceedings along with application for acceptance of appellant's highest bid by the Company Judge.

Thereafter, the Company Judge called upon the three bidders for negotiations where each of them stuck to their bids. Subsequently, the Company Judge ordered for fresh auction proceedings by revising the reserve price to Rs. 11,68,41,205/-, which was the bid made by the appellant.

Placing reliance on the decision of Supreme Court in Eva Agro Feeds Private Limited v. Punjab National Bank and Another, counsel for appellant argued that the Company Judge had erred in ordering fresh auction when the bid of the appellant was much higher than the minimum amount fixed by him. It was argued that unless the auction was vitiated by fraud, fresh auction cannot be ordered without any justification.

Counsel for respondent submitted that merely because the appellant had the highest bid does not give him an indefeasible right over the auction property. It was further argued that the Company Judge was trying to secure higher revenue for secured creditors as the auction process had not concluded. In support of his arguments, counsel placed reliance on the decisions of Supreme Court in State of Punjab and others v. Mehar Din and Municipal Committee, Barwala, District Hisar, Haryana v. Jai Narayan & Company and another.

High Court Verdict

The Court observed that there was no error in calling upon the three bidders for negotiations for enhancing revenue for secured creditors. It was further observed that the bidders did not withdraw from the bid itself but the inter-se bidding at the time of negotiations and stuck to their original bids.

The Court observed that the no reason was provided by the Company Judge while raising the reserve price. The Court observed that there was no unusual time gap between the declaration of initial reserve price and holding of auction and no grievance regarding lack of information about the auction had been raised by any third party.

“No offence could otherwise have been taken if the bidders refused to offer higher price at the stage of negotiation or withdrew their right of inter-se bidding,” held the Court.

“The purpose and the object of inviting bids at the auction is to secure the best price for the property. For such purposes auction notices are to be widely circulated so that the best offers could be received for the property to be auctioned. Auction process has a sense of sanctity attached to it and it is only for valid reasons that the highest bids can be discarded in an auction otherwise held in accordance with law.”

Relying on the decision of Supreme Court in Eva Agro Feeds Private Limited v. Punjab National Bank and Another, the Court held that reason are the soul of any adjudication and must be present in a judicial order. The Supreme Court had held

“84. Thus, mere expectation of the Liquidator that a still higher price may be obtained can be no good ground to cancel an otherwise valid auction and go for another round of auction. Such a cause of action would not only lead to incurring of avoidable expenses but also erode credibility of the auction process itself.”

The Court observed that though the principle is settled that highest bidder does not have an indefeasible right, the reasons for not accepting the highest bid must be looked at. Accordingly, the decision of Supreme Court in State of Punjab and others v. Mehar Din was not applicable to the facts of the case.

The Court held that since no person had otherwise raised any grievance regarding publication of the auction advertisement and no higher bid than that of the appellant was placed before the Company Judge, the order directing fresh bid was not sustainable.

Allowing the appeal filed by the highest bidder, the Court remitted the matter back to the Company Judge to reconsider the case.

Case Title: M/S Flavuro Foods Pvt. Ltd. vs. Official Liquidator And Another [SPECIAL APPEAL No. - 790 of 2023]

Citation: 2024 LiveLaw (AB) 5

Counsel for Appellant: Amit Saxena Sr. Advocate assisted by Kunal Shah

Counsel for Respondent: Rajnath N. Shukla

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