Mere Expectation of Higher Bids Can't Justify Cancelling a Valid Auction: Supreme Court Quashes GDA’s Arbitrary Rejection of Highest Bidder

“Once the Highest Bid is Accepted Without Any Allegation of Fraud or Collusion, the State Is Bound to Act Fairly and Issue Allotment” –  In a significant ruling on the sanctity of public auctions and arbitrariness in state action, the Supreme Court set aside the cancellation of an industrial plot auction conducted by the Ghaziabad Development Authority (GDA), holding that the authority's decision to annul the auction—despite a valid, highest bid above reserve price—was arbitrary and violative of Article 14 of the Constitution.

The Court quashed the cancellation of the auction, directed the GDA to issue the allotment letter to the appellant upon re-deposit of earnest money, and held that the authority’s action was “arbitrary, whimsical, irrational,” and based on “irrelevant considerations.” The judgment establishes important limits on administrative discretion in auction and tender matters, especially concerning legitimate expectations and procedural fairness.

Cancellation of Financial Bid on Comparison with Dissimilar Smaller Plots Is Arbitrary and Irrational: SC

At the core of the dispute was an industrial plot measuring 3150 sq. mtrs in Ghaziabad’s Madhuban Bapudham Yojana. The GDA had auctioned the plot on 25.08.2023 through a two-bid system. The appellant, Golden Food Products India, was declared the highest bidder with a financial bid of ₹29,500 per square metre, 15.23% above the reserve price of ₹25,600 per square metre.

Despite the acceptance of both the technical and financial bids, and without any notice, the GDA cancelled the auction citing that “smaller plots” in the same scheme had fetched higher prices. The authority unilaterally refunded the earnest money and announced a fresh auction, which led the appellant to challenge the cancellation before the Allahabad High Court.

The High Court, however, dismissed the writ petitions, holding that no “indefeasible right” had accrued in the appellant’s favour in absence of an allotment letter, and that the GDA was within its discretion to cancel the auction.

Rejecting this reasoning, the Supreme Court held that while there may be no indefeasible right to allotment, “the appellant had a legitimate expectation to receive an allotment letter vis-à-vis the subject plot as it was the highest bidder.” It noted that “returning the earnest money deposited by the appellant would not legitimize an arbitrary cancellation.” [Para 27, 29]

“A Comparison of Bids for Smaller Plots to Justify Cancellation of a Larger Plot Auction Is Based on Irrelevant Considerations”

The Court observed that the GDA’s rationale was fundamentally flawed. It noted that the reserve price for both smaller plots (around 130 sq. mtrs) and the subject larger plot (3150 sq. mtrs) was uniformly fixed at ₹25,600 per square metre due to lower demand for larger plots. Hence, “merely because the financial bids for smaller plots were higher cannot justify the cancellation of an auction of a large plot which received limited bids.” [Para 26]

Importantly, the Court ruled that “the subject plot cannot be compared with the smaller plots auctioned on that very day… the demand for smaller plots being more as compared to larger plots, naturally the bid amounts were higher.” [Para 26]

The bench reiterated that once a bid higher than the reserve price is received, and the process is otherwise free of fraud or collusion, “the highest bid crystallizes the rights and obligations of the parties,” and the authority is under a legal obligation to proceed with allotment. [Para 27]

Legitimate Expectation and Natural Justice Violated: No Show-Cause or Hearing Given Before Cancelling Financial Bid

The cancellation was also found to be procedurally unfair. The Court highlighted that “the appellant had made all financial arrangements before making technical and financial bids,” and the cancellation was carried out “without any prior notice or show-cause,” thus breaching the principles of natural justice. [Para 29]

Citing Eva Agro Feeds (P) Ltd. v. Punjab National Bank, (2023) 10 SCC 189, the Court reaffirmed that “mere expectation of securing a higher price in a re-auction is no ground to cancel a valid auction,” especially when the auction process was otherwise lawful. [Para 22]

Scope of Judicial Review: Courts Will Intervene Where Auction Decisions Are Arbitrary or Irrational

While acknowledging that judicial review in contractual or auction matters is limited, the Court clarified that “where the decision is arbitrary, irrational or based on irrelevant considerations, judicial interference is warranted.” [Para 16–18, 28]

Rejecting the High Court’s interpretation that the absence of an allotment letter precluded any enforceable right, the Supreme Court emphasized the distinction between an indefeasible right to allotment and the right to fair, reasonable and non-arbitrary treatment. [Para 27, 29]

The Court further stated: “There cannot be any imprimatur of the Court to such arbitrary cancellation of auction by an instrumentality or agency of the State… Expectation of a higher bid in a subsequent auction cannot be a reason to cancel an auction held in accordance with law.” [Para 28]

SC Distinguishes Prior Cases on Cancellation of Auction or Low Bids

The Court meticulously distinguished earlier judgments, including Haryana Urban Development Authority v. Orchid Infrastructure Developers (P) Ltd. and State of Orissa v. Harinarayan Jaiswal, noting that in those cases, either the bid was below the reserve price or specific contractual clauses permitted rejection.

Here, the bid was above the reserve price, no irregularities were found, and the auction process had no challenge from any other bidder. [Para 30]

The Court also emphasized that “public interest cannot always be conflated with an evaluation of the monetary gain or loss alone.” [Para 31, citing M.P. Power Management Co. Ltd. v. Sky Power Southeast Solar India (P) Ltd.]

Sanctity of Auction Must Be Preserved: Arbitrary Cancellation Undermines Credibility

In scathing remarks, the Court warned that arbitrary cancellations could “erode the credibility of the auction process itself,” and insisted that “an auction process has a sanctity attached to it and only for valid reasons can the highest bid be discarded.” [Para 32]

It categorically rejected the GDA’s attempt to “rewrite the auction terms post facto” and held that “introducing new criteria after opening of bids amounts to rewriting tender conditions,” which is impermissible. [Para 23]

Allotment Directed, Cancellation Set Aside

Accordingly, the Supreme Court allowed the appeals, quashed the impugned orders of the Allahabad High Court dated 24.05.2024 and 15.07.2024, and set aside the GDA’s cancellation of the appellant’s financial bid.

The appellant was directed to re-deposit the earnest money within four weeks, and the GDA was directed to issue the allotment letter and conclude the auction process within two weeks of such re-deposit. [Para 33]

The Court's decision strengthens the rule of law in public procurement, upholds the doctrine of legitimate expectation, and sends a clear message that administrative discretion must be exercised within constitutional bounds.

Date of Decision: January 6, 2026