2019 (11) TMI 1081 - SC - Income Tax

Failed auctions - Property acquired by the Union of India in 1994 under Section 269UD(1) of the Income Tax Act, could only be sold in 2018 - appellant made an offer to the Central Board of Direct Taxes (hereinafter referred to as CBDT ) to purchase the aforesaid property for a sum of ₹ 32.11 crores - HELD THAT - As has been pointed out, several auctions were conducted from the year 1994, including an auction as recent as 27.03.2017 which failed to elicit a response from any buyer. Ultimately, the auction with the reserve price of ₹ 30 crores, on which the appellant bid was ₹ 30.21 crores, was kept in abeyance. The reason that is available from the record is in a Report dated 26.09.2017 in which it was pointed out that this figure was considerably lower than the figure offered by the appellant itself at ₹ 32.11 crores and that, therefore, a fresh auction be held. We cannot say that the aforesaid reason can be said to be, in any manner, arbitrary. After all, it was in public interest to see that the highest possible price be fetched for such properties. Further, we have also seen how at every stage valuation reports were submitted by reputed Valuers, first from Mumbai, and then from Chennai, and have no reason to doubt what has been stated to be the Fair Market Value in any of these reports. It may also be pointed out that though the appellant was given several opportunities to bid in the fresh auction conducted, ultimately, for reasons best known to him, he chose to refrain from participating in the fresh auction that was conducted. Reasons disclosed both in the Report dated 26.09.2017 and the letter dated 06.04.2018 from the Government of India, Ministry of Finance, to the Chief Commissioner of Income Tax, make it clear that there is no arbitrariness that is discernible in the entire auction process. This being the case, we dismiss this appeal and hold Shri Kavin Gulati, learned senior counsel, to the offer very fairly made to us. We may indicate that from the figure of ₹ 35 crores, which will be paid within a period of 12 weeks from today directly to the Union treasury, a sum equivalent to interest of 9 per cent on the amount of ₹ 7.78 crores, that is lying with the Union, calculated from the date on which it was deposited with the Union till today be substracted, and the net figure be handed over as aforesaid.

Summary

Issues:
1. Delay in sale of property acquired by the Union of India.
2. Repeated failed auctions for the property.
3. Validity of cancellation of auction process.
4. Highest bidder's challenge to auction cancellation.
5. Judicial review of auction process and reasons for cancellation.

Analysis:

1. The property in question, acquired by the Union of India in 1994, faced a significant delay in being sold, with the sale only materializing in 2018. Despite multiple attempts to sell the property through auctions, no successful bids were received until the appellant offered to purchase it for a sum of ?32.11 crores.

2. Various auctions conducted for the property failed to attract buyers, including one with a reserve price of ?30 crores where the appellant bid ?30.21 crores. Subsequent valuation reports and auction attempts led to the appellant's bid being canceled, and a fresh auction was conducted where another bidder matched the reserve price of ?31.10 crores.

3. The appellant challenged the cancellation of the auction process, arguing that it was arbitrary and without reason. The High Court permitted a fresh auction to proceed but refrained from confirming the sale. Ultimately, the High Court dismissed the appellant's writ petition challenging the auction cancellation.

4. The appellant contended that the cancellation without reason was invalid and that as the highest bidder above the reserve price, the auction sale should have been confirmed in their favor. The respondent, however, argued that the auction process was conducted properly, with valuation reports guiding the reserve prices and no arbitrariness in the decisions taken.

5. The Supreme Court, after considering the facts and legal precedents, found no arbitrariness in the auction process. Citing the importance of public interest and fair valuation, the Court upheld the auction results. The Court emphasized the need for reasons in governmental decisions but concluded that the reasons provided in this case did not indicate arbitrariness.

This detailed analysis of the Supreme Court judgment highlights the issues surrounding the delayed sale of the property, the failed auctions, the validity of the auction cancellation, the appellant's challenge, and the judicial review of the auction process. The Court's decision focused on the fairness of the auction process, the importance of public interest, and the lack of arbitrariness in the decisions made, ultimately dismissing the appeal and upholding the auction results.