Can the Government Cancel an Auction After Taking Your Money? Supreme Court on Chandigarh Nursing Home Site

Case at a Glance

The Supreme Court has held that a public authority may recall or revisit an auction to secure a better price so long as no enforceable contract has come into being, and that an Agreement to Sell under the auction terms was not such a contract. It set aside a Punjab and Haryana High Court judgment that had restored Bedi Hospital's Rs. 12.58 crore winning bid for a Chandigarh nursing home site, and directed a fresh e-auction within three months.

On 31 August 2022 the Chandigarh Administration notified an e-auction including two nursing home sites in Sector 33C, each 744.44 sq. yards, at a reserve price of Rs. 6.91 crores. On 20 October 2022 the appellants' bid of Rs. 18.25 crores for Site 3 and Bedi Hospital's bid of Rs. 12.58 crores for Site 4 were accepted. Bedi Hospital paid the full price and an Agreement to Sell was issued on 28 October 2022.

The Administration then found the Site 4 price out of line with the adjacent site, cancelled the bid on 27 January 2023 with a refund, and cancelled the Agreement to Sell on 9 February 2023. In the re-auction held under the High Court's interim order, the appellants bid Rs. 18.30 crores; Bedi Hospital did not participate. The High Court, by judgment dated 1 April 2025 in CWP No. 2811 of 2023, quashed the cancellations.

The Key Question Before the Court

Can a public authority cancel an accepted auction bid, after receiving the full price, in order to obtain a better price?

No Concluded Contract, No Bar to Recall

Reading Rule 5 of the Chandigarh Estate Rules, 2007, the general terms of the auction and Clause 4 of the Agreement to Sell together, the Court held that the Agreement to Sell was not itself an enforceable contract under Section 2(h) of the Contract Act: “An agreement enforceable in law alone is a contract.” As no conveyance deed had been executed, the Administration could exercise its reserved power to withdraw.

Relying on SIPCOT v. Contromix, the Court said a public authority's action to recall or revisit the auction to maximise price would be justified before an enforceable contract arises, and found “no illegality or arbitrariness” here. It distinguished CIDCO v. Shishir Realty because Bedi Hospital received a full refund and could re-bid. It criticised the interim arrangement that led to a second round of litigation, recorded Bedi Hospital's offer to match Rs. 18.30 crores and the appellants' objection, and concluded that justice and public purpose would be served by a fresh e-auction.

What the Court Actually Held

• The High Court judgment dated 1 April 2025 was set aside and the appeals allowed.
• An Agreement to Sell under these auction terms was not an enforceable contract; the authority could withdraw.
• A public authority may revisit an auction for price maximisation before a concluded contract, if it acts fairly.
• The Chandigarh Administration must hold a fresh e-auction for Site No. 4 under the 2007 Rules within three months.

Why This Judgment Matters

• It clarifies when an auction purchaser acquires enforceable rights against the State.
• It upholds price maximisation as a legitimate public interest in auctions.
• It cautions against interim orders that spawn a second phase of litigation.

What Should Advocates Take Away From the Judgment?

For Bidders

• Read the reservation clauses in the auction terms and Agreement to Sell before paying.
• Participate in a re-auction under protest rather than staying away.

For Public Authorities

• Record reasons and refund fully when revisiting an auction.
• Act before a conveyance deed or concluded contract is executed.

Key Takeaways

Frequently Asked Questions

No. The High Court's order in its favour was set aside and a fresh e-auction was ordered.

The Court did not confirm the re-auction bid; it directed a fresh e-auction for Site 4.

The Court found no illegality or arbitrariness, since no enforceable contract existed and a full refund was made.

Conclusion