An manifest irregular auction has to be set aside at all costs and the courts won’t allow any argument to sustain such an auction.

Auction of properties is a delicate issue and has to be done in compliance with the due procedures. If in the conduct of an auction there are manifest irregularities to the detriment of the creditors as well as the debtors, then the only thing that should be done is to set the auction aside, irrespective of procedural shortcomings in challenging such an auction.

It is the duty of all parties, particularly the courts to see that auction has been conducted in a fair manner. Each and every bid has to be properly examined and considered for what ever it is worth. And if an property is being sold to an auction purchaser whose bid is lower than that of the other bidders in the fray, then a duty is cast on the Courts to properly scrutinize all such bids.

There are a number of instances where the auction purchaser, in collusion with auctioning officer commits acts so as to preclude other bidders from participating in the auction process. There are other instances where the auctioning officer consciously commits acts to favour one auction purchaser over the others. Some times the auctioning officer rejects other valid bids without assigning any reason and knocks the hammer down in favour of one particular bidder even though there are others whose quote is higher than the auction purchaser.

More often than not, by the time a property is brought to auction, the borrower/ property owner is so exhausted and tired that he may not be in any position to agitate any further. Some times the lenders would also care less as long as their dues are being recovered from the sale of the property. Once third party interests are created it becomes all the more difficult to unsettle an auction, no matter how blatantly irregular it may be.

However, the Supreme Court has held that where an auction is manifestly irregular it has to be set aside. Even if the suit challenging the auction is not maintainable for non compliance with the procedural requirements, the auction has to be set aside.

In once such case the company judge directed the Receiver to confirm sale in favour of an bidder even though his bid amount was lower than that of other bidders in the fray. No reason was adduced for such an order. The bids of other bidders had not been examined. An unsuccessful bidder filed a Writ Petition challenging the auction process. On considering the whole matter the High Court set aside the auction sale and directed re auction of the property. The auction purchaser then approached the Supreme Court challenging the order of the High Court.

Before the Supreme Court the auction purchaser contented that the High Court could not have entertained the Writ challenging the auction process. The correct procedure was to challenge the auction under Order 21 Rule 89, or 90 or under Section 48 Civil Procedure Code, and that too, within limitation . A Writ under Article 226 or 227 cannot be a medium to challenge an auction.

The Supreme Court agreed with the contention of the appellant, but held that where there is obvious and manifest irregularity the Courts cannot remain a mute and helpless spectator. Therefore, in such cases there is no need to insist upon compliance with the procedures. The only thing that should be done in such circumstances is to set aside the auction process and direct that the process of auction be done once again after due compliance with the requirements.

This judgement, and a number of other judgements on the subject clearly reveal the anguish of the superior courts to irregularities committed during court sales. Not only are the consequences onerous for the auction purchasers, but also to the lenders as well. And if any irregularity is committed by judicial officers then they would be subject to strictures of the superior courts.

It is therefore the duty of all the participants, including the judgement creditor to see to it that not only should the auction process be fair, free and in the best interests of the creditor institution, but should also be apparent too. Unless this bench mark is achieved, then the auction continues to be nebulous and is liable to be set aside irrespective of limitation.

[Read full text of the Supreme Court judgment :: Nani Gopal Paul v. T. Prasad Singh & Ors.]