Auction Dispute Resolved: Supreme Court Upholds Fresh Bidding for Government Property

The case of Sankalp Recreation Private Limited vs. Union of India & Ors. revolves around the cancellation of a government property auction and the subsequent challenge by the highest bidder. The Supreme Court, in its judgment on September 19, 2019, ruled that the cancellation was justified in public interest and upheld the fresh auction process.

Background of the Case

The dispute concerns a prime government property in Santacruz, Mumbai, measuring 1053.5 square meters, which was acquired by the Union of India in 1994 under Section 269UD(1) of the Income Tax Act. Several unsuccessful auction attempts were made between 1994 and 2017. In March 2017, an auction was conducted with a reserve price of Rs. 32.11 crores, but no buyers came forward.

The appellant, Sankalp Recreation Pvt. Ltd., subsequently offered to purchase the property for Rs. 32.11 crores, but the Central Board of Direct Taxes (CBDT) stated that accepting such an offer through a private treaty was beyond their jurisdiction.

Another valuation was conducted in September 2017, and a fresh auction was organized with a reduced reserve price of Rs. 30 crores. The appellant was the sole bidder, offering Rs. 30.21 crores, which was marginally above the reserve price. However, the CBDT, upon review, decided not to confirm the sale and ordered a new valuation.

Legal Issues and Arguments

Arguments by the Appellant (Sankalp Recreation Pvt. Ltd.):

• The cancellation of the earlier auction was arbitrary and violated the principle of fairness.
• The company was the sole bidder and had bid above the reserve price.
• The cancellation letter provided no justification for setting aside the auction.
• The property had been lying unsold for decades, and another auction would delay the process further.

Arguments by the Respondents (Union of India & CBDT):

• The decision to cancel the auction was made in public interest to secure a higher price.
• The fresh valuation in February 2018 estimated the property at Rs. 31.07 crores, warranting another auction.
• Several properties in the same area had been sold for significantly higher prices, indicating that the earlier bid was undervalued.
• Under Clause 16 of the Auction Terms, the Chief Commissioner of Income Tax had the right to reject any bid without assigning a reason.

Supreme Court’s Observations

The Supreme Court ruled that:

“The cancellation was in the interest of the public and cannot be considered arbitrary, as the objective was to secure the best possible price for government property.”

The Court emphasized that public interest should be prioritized in government auctions:

“It was in the best interest of the revenue to ensure that the highest possible price was fetched. The process of fresh valuation and auction was justified.”

Regarding the appellant’s claim that the cancellation was invalid due to lack of reasoning, the Court observed:

“Though the cancellation letter did not specify reasons, the subsequent communications between the authorities clearly indicated the rationale for cancellation. The presence of a higher valuation justified the fresh auction.”

Key Rulings and Conclusion

The Supreme Court dismissed the appeal and upheld the fresh auction process, ruling:

• The cancellation of the previous auction was valid and in public interest.
• The fresh valuation report was legitimate and justified a new auction.
• The appellant was given the opportunity to participate in the fresh auction but chose not to do so.
• The highest bid in the new auction was Rs. 31.10 crores, which was higher than the appellant’s previous bid of Rs. 30.21 crores.
• The successful bidder in the new auction must deposit Rs. 35 crores within 12 weeks.

This ruling reinforces the principle that government auctions must aim for the highest revenue generation and that procedural fairness must be upheld even if bidders face inconvenience.

Petitioner Name: Sankalp Recreation Private Limited.
Respondent Name: Union of India & Ors..
Judgment By: Justice R. F. Nariman, Justice Surya Kant.
Place Of Incident: Santacruz, Mumbai.
Judgment Date: 19-09-2019.

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