Public Auction Sales: Supreme Court Says Deals Can Be Recalled Before the Conveyance Deed

On October 20, 2022, a bidder won a nursing home site in Chandigarh's Sector 33C at a public e-auction for Rs 12.58 crore. It paid 25 percent the next day, signed an agreement to sell a week later, and paid the remaining 75 percent in November. Then the authority cancelled the deal. The reason: an identical adjacent site had fetched Rs 18.25 crore the same day, and a Rs 6 crore gap did not reflect the market. On October 16, 2026, the Supreme Court held that the authority was entitled to do so.

The Supreme Court's judgment in Satinder Pal Singh v. Bedi Hospital, reported as 2026 INSC 1142, concerns Chandigarh's estate rules. But its reasoning matters to any Bengaluru buyer who bids for a site or flat sold by a public authority: winning an auction, paying in full and signing an agreement to sell may still not lock in the deal until the final conveyance.

The short answer. The Supreme Court held that under Chandigarh's rules and auction terms, an agreement to sell after an auction was not itself an enforceable contract; the contract would be concluded only on execution of the conveyance deed. Until then, a public authority may revisit an auction to maximise the price for public property, provided it acts fairly and not arbitrarily. Here the authority refunded the full amount and invited the bidder to rebid. The trade-off: price maximisation protects public money, but a winning bidder can be left without the site even after paying the full price.

What happened with the Sector 33C nursing home site?

According to the judgment, the Chandigarh Administration issued an e-auction notice on August 31, 2022 for residential, commercial and nursing home sites on a freehold basis. Two nursing home sites, Site No. 3 and Site No. 4 in Sector 33C, measured 744.44 square yards each, with a reserve price of Rs 6.91 crore. At the auction concluded on October 20, 2022, one bidder won Site No. 3 for Rs 18.25 crore and Bedi Hospital won Site No. 4 for Rs 12.58 crore.

Bedi Hospital deposited 25 percent on October 21, 2022, the Estate Officer issued an agreement to sell on October 28, 2022, and the hospital deposited the balance 75 percent on November 16, 2022. With no allotment letter issued, it wrote on January 12, 2023 asking the authority to expedite. On January 27, 2023, the authority cancelled the bid contract, citing the Rs 6 crore gap with the adjacent site, refunded the full amount and invited the hospital to take part in a re-auction. It cancelled the agreement to sell on February 9, 2023.

What did the courts decide along the way?

The High Court first allowed a fresh auction but barred its finalisation. After two attempts failed to produce eligible bids, the authority held a third e-auction on September 6, 2023 with a reserve price of Rs 18.25 crore, and the appellant won Site No. 4 for Rs 18.30 crore. Bedi Hospital did not participate. The High Court later quashed the cancellation letters, and the appellant and the authority appealed. On August 18, 2026, the Supreme Court ordered status quo.

Why was the agreement to sell not binding on the authority?

Because, under these rules, the contract is concluded only by the conveyance deed. The Court set out Rule 5 of the Chandigarh Estate Rules, 2007 and the auction terms: 25 percent at the fall of the hammer, an agreement to sell, the balance 75 percent within 90 days, then an allotment letter and a conveyance deed within 30 days. An explanation to the rule and the auction terms let the Estate Officer withdraw any site, and accept or reject the highest bid without giving reasons. Clause 4 of the agreement to sell said that if the seller failed to transfer for reasons other than public order, security of the State or change in public policy, it would return the 25 percent and the bidder would have no claim to damages.

Reading these together, the Court said an agreement to sell under Rule 5(iv) is not, in itself, an enforceable contract under Section 2(h) of the Indian Contract Act, and that the enforceable contract would come into existence only on execution of the conveyance deed. As no allotment letter or conveyance deed had been issued, the authority was entitled to exercise its power to cancel.

What does each side risk under these auction rules?

The rules quoted in the judgment cut both ways. If the bidder fails to pay the remaining 75 percent within 90 days, the offer is deemed cancelled and the 25 percent paid at the fall of the hammer is forfeited; the auction terms add that the forfeiture shall in no case exceed 10 percent of the consideration money and dues. If the authority fails to allot, the auction terms say it shall return the 25 percent and the bidder shall have no claim to damages, as does Clause 4 of the agreement to sell.

Rule 5(iv) of the 2007 rules, as quoted, is worded differently: where the administration fails to transfer for reasons other than public order, security of the State or change in public policy, it shall return the 25 percent along with an equivalent amount as damages for non performance. The judgment did not need to resolve that difference, because the authority refunded the entire consideration. For bidders anywhere, the lesson is to read the rules and the auction terms side by side, since they may not say exactly the same thing.

Is a public authority free to cancel for any reason?

No. The Court said the only restriction is a public law one: the authority must not act arbitrarily or unreasonably, and must act fairly and for a public purpose. But in selling or leasing public property, recalling or revisiting an auction is justified if the decision is meant to maximise the price, as long as an enforceable contract has not been entered into. A substantially lower price can be a relevant reason not to finalise the deal with the so called highest bidder.

It distinguished earlier rulings relied on by the hospital. In those, the Court noted, cancellation was arbitrary or breached natural justice and transparency. Here, the cancellation letter gave the exact reason, the entire consideration was refunded the same day, and the hospital was invited to the fresh auction.

Why did the Court order yet another auction?

Because the interim arrangement had created a second dispute. The Court said the High Court should either have dismissed the petition at admission or stayed the cancellation, instead of allowing a fresh auction and then deciding the case without considering the rights it created. It held the 2023 re-auction legal and valid and noted it had fetched an additional Rs 6 crore. When asked, Bedi Hospital offered to match Rs 18.30 crore, while the re-auction winner objected. To serve justice and public purpose, the Court set aside the High Court's order and directed the Chandigarh Administration to hold a fresh e-auction for Site No. 4 under the 2007 rules, to commence and conclude within three months.

What should Bengaluru buyers at public authority auctions learn?

Read the auction terms as closely as the price. This ruling turned on Chandigarh's rules, and other authorities have their own. But the questions it raises apply to any site, flat or commercial unit sold at a public auction: when does the deal become binding, what can the authority still withdraw, and what do you get back if it does. Our guides on buying bank auction property and on BDA, BBMP and BMRDA plot approvals cover related checks.

1. Read the authority's rules and auction terms before bidding, not after winning.
2. Find the clause that lets the authority withdraw a site or reject the highest bid.
3. Check what document concludes the sale: allotment letter, agreement or conveyance deed.
4. Note the refund terms, and whether damages are payable if the authority cancels.
5. Compare your winning bid with nearby comparable sites sold in the same auction.
6. Do not borrow or sell other assets on the assumption the deal is final until conveyance.
7. If a sale is cancelled, take legal advice quickly on both the cancellation and any re-auction.

Frequently asked questions

Can a government authority cancel an auction after the bidder pays in full?

In Satinder Pal Singh v. Bedi Hospital, decided on October 16, 2026, the Supreme Court held that under Chandigarh's rules, the authority could cancel before the conveyance deed was executed, to maximise the price of public property, provided it acted fairly. It refunded the full amount and invited the bidder to rebid.

Is an agreement to sell after an auction a binding contract?

Not under the Chandigarh Estate Rules, 2007, according to this judgment. The Court held that an agreement to sell under Rule 5(iv) is not in itself an enforceable contract under Section 2(h) of the Indian Contract Act, and that the contract is concluded only on execution of the conveyance deed.

What limits does a public authority face when cancelling?

The Court said a public law restriction applies: the authority must not act arbitrarily or unreasonably and must act fairly for a public purpose. It distinguished earlier cases where cancellation was arbitrary or breached natural justice, noting that here reasons were given and the full amount refunded.

What happens next to the Sector 33C site?

The Supreme Court directed the Chandigarh Administration to hold a fresh e-auction for Site No. 4 in Sector 33C under the Chandigarh Estate Rules, 2007, with the entire process to commence and conclude within three months of October 16, 2026, setting aside the High Court's order of April 1, 2025.

Last updated 2026-10-29. PropNewz Team.