Failure to Disclose All Known Encumbrances in Public Auction Vitiates Sale and Entitles Purchaser to Refund with Interest
- REEDLAW
- 10m
- 4 min read
The REEDLAW Legal News Network reports: In a significant ruling on transparency in public auctions, the Supreme Court held that non-disclosure of all known encumbrances, including pending litigation, fundamentally vitiated the auction process and invalidated the sale. The Court ruled that where an auctioning authority failed in its duty to make full and fair disclosure, the bona fide purchaser was entitled to a refund of the amount deposited, along with interest. The judgment reaffirmed that principles of restitution and unjust enrichment applied squarely to protect purchasers who were misled by material non-disclosure.
Justice J.B. Pardiwala and Justice K.V. Viswanathan observed that the appellant had acted bona fide, participating under the legitimate assumption of lawful and transparent procedures. The High Court’s dismissal of the writ petition was set aside. Applying principles of restitution and unjust enrichment, the Supreme Court directed the authority to refund the deposited amount along with interest at 9% per annum from the date of deposit. The judgment emphasised that public authorities must act objectively, disclose all encumbrances, and avoid conduct that prejudices innocent auction purchasers.
The Supreme Court had examined a case where the Appellant had participated in a public auction conducted by the Respondent authority and was declared the highest bidder for the subject property. The Appellant had bona fide deposited the entire sale consideration, which was not disputed. However, before the sale could be finalised and the sale certificate issued, it had come to light that the subject property was already embroiled in pending litigation with a third party, a fact that had not been disclosed at the time of the auction. The Respondent authority had, on account of such litigation, declined to execute the conveyance in favour of the Appellant, compelling the Appellant to seek judicial intervention. The High Court had declined to entertain the writ petition and directed that the pending civil suit be decided first, which led to the present appeal.
The Supreme Court had expressed serious disapproval of the conduct of the Respondent authority in proceeding with the public auction without disclosing the pendency of litigation. It was observed that authorities conducting public auctions were under a legal obligation to disclose all material facts, including encumbrances and pending disputes relating to the property. Suppression of such vital information was held to vitiate the auction process and could render the sale fraudulent or affected by material irregularity. The Court had held that the Appellant had acted in good faith, having participated in the auction on the legitimate assumption that the process was lawful, transparent, and free from legal infirmities. The non-disclosure of litigation had placed the Appellant in a precarious position for no fault of his own.
The Court had emphasised that a public auction was intended not merely to secure the best price but also to ensure fairness, transparency, and legitimacy in the actions of public authorities. Such authorities were expected to act objectively and without any element of arbitrariness, bias, or concealment. The auction process was required to inspire confidence and remain free from suspicious features that could undermine public trust. The Court had categorically disapproved the manner in which the Respondent authority had proceeded with the auction despite being aware of the subsisting dispute over the property.
While granting relief, the Supreme Court had relied upon the principle of restitution and unjust enrichment as expounded in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd., which had been approved in Nagpur Golden Transport Company v. Nath Traders & Ors., and recently reaffirmed in Delhi Development Authority v. Corporation Bank and Others, REEDLAW 2025 SC 09220. It had reiterated that restitution was not merely a legal remedy but a moral imperative flowing from the foundational principle of justice that no person should unjustly enrich himself at the expense of another. It was held that courts possessed inherent jurisdiction to grant restitution wherever justice so demanded, particularly where an innocent auction purchaser was made to suffer due to illegality or misconduct of the auctioning authority.
Applying these settled principles, the Supreme Court held that the Appellant stood entirely innocent and had been caught in circumstances not of his making. The Appellant had neither breached any condition nor acted negligently and had deposited the amount in the legitimate belief that the auction was valid in law. Consequently, the Court had set aside the judgment of the High Court and directed the Respondent authority to refund the entire deposited amount along with interest at the rate of 9% per annum from the date of deposit till realisation. The refund was directed to be made within six weeks, and the appeal was accordingly allowed, thereby reaffirming the supremacy of transparency in public auctions and the binding nature of restitution as a core principle of equitable justice.
Mr. Aabhas Kshetarpal, AOR, Mr. Dhiliban Varadarajan, and Mr. Harsh N Dudhe, Advocates, represented the Appellant.
Mr. Apoorva Singhal, AOR, Ms. Nupur Kumar, AOR, Mr. Sanchar Anand, Mr. Rajat Rathee, Mr. Aman Kumar Thakur, Mr. Pratimesh, Mr. Aman Bhardwaj and Ms. Muskan Surana, Advocates, represented the Respondents.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
REEDLAW Legal Intelligence & Research is India’s most trusted legal publishing and research platform, empowering professionals with structured judicial insights and authoritative legal intelligence since 1985.
The platform offers comprehensive resources spanning Corporate Insolvency, Bankruptcy, Company Law, SARFAESI, Debt Recovery, Contract, MSMEs, Arbitration, Banking, and Commercial Laws. Through curated journals like IBC Reporter and Bank CLR, and an advanced Online Legal Research Database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments