An erroneous reservation permits cancellation and re-auction; the highest bidder acquires no vested right to allotment.

The Nagar Panchayat, Gurur issued an auction notice dated 16 February 2026 for allotment of shops, specifically reserving Shop No. 5 for the Scheduled Tribe category. The petitioner, a member of the Scheduled Tribe community, participated in the auction and emerged as the highest bidder. An offer of allotment was communicated to him, and he deposited the bid amount, but possession and formal allotment of the shop were not completed.

The petitioner submitted a representation dated 19 May 2026 seeking allotment of Shop No. 5. By communication dated 20 May 2026, the Nagar Panchayat informed him that, pursuant to its Resolution dated 20 March 2026, the auction had been cancelled because the reservation of Shop No. 5 for Scheduled Tribes was contrary to an earlier reservation for the Scheduled Caste category.

The respondents contended that the reservation in the auction notice was erroneous and inconsistent with the State Government’s sanction dated 25 January 2012, under which Shop No. 5 was reserved for the Scheduled Caste community. The Nagar Panchayat accordingly resolved to conduct a fresh auction, issued a fresh auction notice, and commenced the fresh auction process. The petitioner neither participated in the fresh auction nor challenged the fresh auction notice or the resolution dated 20 March 2026.

Whether the petitioner, merely by being the highest bidder and receiving an offer of allotment pursuant to an auction notice that incorrectly reserved Shop No. 5 for Scheduled Tribes, acquired an enforceable right to allotment, possession, and execution of a lease or allotment agreement?

Whether the Nagar Panchayat was legally entitled to cancel the erroneous auction process and conduct a fresh auction after discovering that Shop No. 5 ought to have been reserved for the Scheduled Caste category?

Whether the petitioner was entitled to restrain the respondents from conducting a fresh auction or creating third-party rights in respect of Shop No. 5?

The Court applied Rule 8 of the Chhattisgarh Nagar Palika (Transfer of Immovable Properties) Rules, 1996, particularly Rule 8(3), which provides that shops allotted under a reserved category cannot be transferred or let out contrary to the reservation requirement and that any such allotment is liable to cancellation.

The Court further applied the principle that an authority cannot proceed with an auction or allotment founded on an erroneous reservation once the error is discovered; an auction participant or highest bidder does not acquire an indefeasible right to allotment where the underlying process is contrary to the governing reservation scheme.

The Court also relied upon the State Government’s sanction dated 25 January 2012, which reserved Shop No. 5 for the Scheduled Caste community.

The Court found that the auction notice dated 16 February 2026 incorrectly described Shop No. 5 as reserved for Scheduled Tribes, whereas the applicable sanction required its reservation for the Scheduled Caste category.

Since the auction itself was conducted on the basis of this erroneous reservation, the petitioner’s status as the highest bidder could not create a right to allotment. Applying Rule 8(3), the Court held that the defect could justify cancellation even after allotment; consequently, the Nagar Panchayat was entitled to cancel the erroneous process and issue a fresh auction notice.

The petitioner’s reliance on the allotment of adjacent Shop No. 4 to his wife was held irrelevant, as it could not validate an otherwise defective reservation or auction.

The Court also noted that the petitioner had not challenged the resolution directing a fresh auction or the fresh auction notice itself.

The decision of the Nagar Panchayat to cancel the erroneous auction process and proceed with a fresh auction was upheld. The writ petition was dismissed for lack of merit.

The Court directed that the petitioner’s earnest money, if any, be returned in accordance with the applicable Rules, subject to his entitlement and proper acknowledgment.