Non-Compliance with Auction Guidelines Renders Property Sale Invalid, Rules Supreme Court

On 27 April 2023, The Supreme Court of India, in a recent judgment, has held that the process of auctioning a property must be conducted in accordance with the law, failing which the sale may be deemed illegal. The judgment came in response to two appeals filed before the court, in which the sale of a property belonging to a sick industrial company was challenged on the grounds of non-compliance with legal procedures.

The case concerned M/s Bharat Commerce & Industries Limited (BCI), a sick industrial company whose assets were being sold by the Operating Agency (IDBI) in accordance with the order of the Board for Industrial and Financial Reconstruction (BIFR). The sale notice invited bids for a property in Rajpura, Punjab, which was ultimately sold to the appellant, Rajiv Kumar Jindal, for Rs. 2.84 crores.

The challenge to the sale was based on the fact that the auction process was defective at its very inception. The reserve price of the property was not disclosed, and no valuation report was obtained from an approved valuer. Moreover, the appellant failed to comply with the guidelines laid down by the Asset Sale Committee (ASC), which indicated that the successful purchaser had to furnish a bank guarantee and pay the balance of the purchase consideration in two instalments.

The Supreme Court held that the auction process must be conducted in accordance with the law and in a manner that maximizes the realizable value of the property. Competitive bidding is essential for achieving this objective, and the guidelines laid down by the ASC must be scrupulously adhered to. In the present case, since the auction process was defective and no competitive bidding took place, the sale was deemed illegal.

The court also held that the later offer made by the appellants was of no legal significance, as they had not participated in the bidding process. Therefore, the appeals were dismissed, and the money deposited by the appellants was ordered to be refunded. The official liquidator was directed to take all reasonable steps to fetch the optimum value of the property in order to achieve the objective of the public auction.

RAJIV KUMAR JINDAL AND OTHERS  VS  BCI STAFF COLONY RESIDENTIAL WELFARE ASSOCIATION AND OTHERS