Highest Bid Above Reserve Price Cannot Be Arbitrarily Cancelled Solely to Fetch Higher Future Offers

The Petitioner, a real estate company, participated in a 2007 auction conducted by the Lucknow Development Authority (LDA) for a hotel plot and emerged as the highest bidder at ₹12,050/sq.m against a reserve price of ₹8,800/sq.m.

The LDA unilaterally cancelled the auction on 18.10.2007, claiming the bid was too low compared to an adjacent commercial plot.

The Petitioner challenged this in 2007 (Writ Petition No. 8173 (MB) of 2007), obtaining a stay.

In 2015, the parties agreed to settle; the LDA revoked the cancellation but imposed interest from the 2007 auction date till the 2015 re-allotment.

Following a previous revisional order by the State Government on 26.04.2024, which remanded the matter to determine if such interest was permissible under auction terms, the LDA passed the impugned order dated 24.12.2024, re-imposing the interest.

1. Whether the LDA was legally permitted to levy interest on the bid amount for the period between the initial auction (2007) and the formal allotment (2015) in the absence of specific auction terms and conditions allowing the same.

2. Whether the initial cancellation of the highest bid by the LDA on the sole ground of expecting a higher price in a future auction was arbitrary and legal.

U.P. State Government Order dated 06.02.1997, which mandates that a highest bid exceeding the base price cannot be cancelled unless there is evidence of fraud or concealment.

Supreme Court precedent in Golden Food Products India v. State of Uttar Pradesh (2026 INSC 22) and Eva Agro Feeds (P) Ltd. v. Punjab National Bank (2023 10 SCC 189), establishing that the mere expectation of a higher price in a subsequent auction is not a valid ground to discard a highest bid that is above the reserve price.

Clause 10 of the Auction Terms, which stipulates that interest and installments are only triggerable after the issuance of an allotment letter.

The Court reasoned that the LDA’s 2007 cancellation was void ab initio as no fraud or collusion was alleged, and a hotel plot (industrial rate) cannot be compared to a commercial plot to justify "low" pricing.

The Court analyzed Clause 10 of the auction terms, finding that the schedule for payment and the liability for 15% interest or 18% penal interest only commences after an allotment letter is issued.

Since the LDA failed to issue an allotment letter due to its own illegal cancellation, it could not benefit from its wrong by charging interest for that dormant period.

The Court noted that the Vice-Chairman’s impugned order failed to provide a legal basis for the levy, relying instead on internal note-sheets and a "compromise" that contradicted the statutory revisional findings.

The Court allowed the writ petition and quashed the impugned orders dated 24.12.2024 and 11.04.2025.

The LDA was directed to: (i) pass a fresh order requiring the Petitioner to pay the bid amount strictly according to Clause 10 without interest for the 2007-2015 period; and (ii) handover peaceful possession upon compliance with payment terms.

Writ - C No. 13795 of 2020 was dismissed as infructuous.