The Supreme Court of India set aside a judgment of the Punjab and Haryana High Court and directed the Chandigarh Administration to conduct a fresh e-auction within three months for a commercial nursing home plot in Sector 33-C, Chandigarh. The Court ruled that an Agreement to Sell does not constitute a concluded contract under law until the execution of a formal conveyance deed, thereby permitting public authorities to cancel an auction in pursuit of bona fide price maximization for public assets.
Background of the Dispute
The dispute originated from an e-auction notice issued on August 31, 2022, by the Chandigarh Administration for two adjacent nursing home plots, Site No. 3 and Site No. 4, each admeasuring 744.44 square yards. During the bidding process, the appellant secured Site No. 3 with a bid of Rs 18.25 crore, whereas M/s Bedi Hospital emerged as the highest bidder for Site No. 4 at Rs 12.58 crore.
Following the bid, M/s Bedi Hospital deposited the mandatory 25 percent consideration, executed an Agreement to Sell, and deposited the remaining 75 percent balance. However, on January 27, 2023, the Chandigarh Administration cancelled the bid contract and subsequently revoked the Agreement to Sell on February 9, 2023. The administration cited that a price difference of nearly Rs 6 crore between identical adjoining sites showed the bid did not reflect prevailing market trends. The administration refunded the full deposit and invited the bidder to participate in a re-auction.
M/s Bedi Hospital challenged this cancellation before the High Court of Punjab and Haryana. During preliminary hearings, the High Court permitted a fresh auction while restraining finalization. In the re-auction, the appellant bid Rs 18.30 crore, while M/s Bedi Hospital abstained. Eventually, the High Court quashed the cancellation letters and ruled in favor of M/s Bedi Hospital, prompting appeals before the Supreme Court.
Legal Principles and Findings
The Court examined Rule 5 of the Chandigarh Estate Rules, 2007, alongside the general auction terms. It held that executing an Agreement to Sell under Rule 5(iv) does not bring into existence an enforceable contract under Section 2(h) of the Indian Contract Act, 1872. Contractual rights and liabilities crystallize only upon the issuance of an allotment letter and execution of a conveyance deed. Until that stage, the Estate Officer retains the statutory discretion to withdraw plots or cancel bids without assigning reasons.
The Court affirmed that state actions involving public property must adhere to fairness and avoid arbitrariness. However, revisiting an auction is entirely justified when undertaken to achieve price maximization and secure the best value for public revenue. Finding no breach of natural justice or transparency, the Court held that the administration acted within its legal bounds.
The Final Verdict
Rather than confirming the allotment to either bidder directly, the Court observed that inconclusive interim orders had created conflicting claims over a substantial revenue difference of Rs 6 crore. To uphold public interest and ensure fair competition, the Court allowed the appeals, set aside the High Court order, and directed the Chandigarh Administration to initiate and conclude a fresh e-auction for Site No. 4.
Read the Judgment here.