Legal Review and Analysis of Golden Food Products India vs State of Uttar Pradesh & Ors 2026 INSC 22
Case Synopsis
Case: Golden Food Products India vs State of Uttar Pradesh & Ors., (2026) INSC 22.
Synopsis: The Supreme Court ruled that a state development authority acts arbitrarily and violates Article 14 by cancelling the highest bid in a public auction solely because it subjectively expected a higher price, especially when based on an irrational comparison with prices of dissimilar assets. Upholding the sanctity of auctions, the Court held that absent fraud or illegality, a valid highest bid above the reserve price creates a legitimate expectation for acceptance.
1. Heading of the Judgment
Supreme Court Upholds Sanctity of Auction Process, Quashes Arbitrary Cancellation of Highest Bid by State Authority.
GOLDEN FOOD PRODUCTS INDIA VS STATE OF UTTAR PRADESH & OTHERS
CIVIL APPEAL NOS. OF 2026 (Arising out of SLP (C) Nos.18095-18096 of 2024), DECIDED ON 06 JANUARY 2026
(B.V. NAGARATHNA & R. MAHADEVAN, JJ.)
Citation: 2026 INSC 22
2. Related Laws and Sections
This judgment primarily interprets and applies constitutional and contractual principles governing state tenders and auctions, particularly:
Article 14 of the Constitution of India: Guarantees equality before the law and prohibits arbitrary state action. The judgment centers on testing the state authority's decision against the touchstone of non-arbitrariness.
Principles of Contract Law: Pertaining to offer (bid), acceptance, and the rights of the highest bidder in a public auction.
Judicial Precedents on Tender Jurisprudence: The Court relies on established case law defining the limits of state discretion in cancelling auctions and the requirement for rational decision-making.
3. Judgment Details
3.1. Facts of the Case
The Ghaziabad Development Authority (GDA) auctioned an industrial plot (Plot No.26, area 3150 sq. m.) with a reserve price of Rs. 25,600 per sq. m. The appellant, Golden Food Products India, participated. Its technical bid was approved. In the open financial bid on 15.03.2024, the appellant's bid of Rs. 29,500 per sq. m. (15.23% above reserve price) was the highest, and it was declared the highest bidder. Subsequently, the GDA cancelled the bid without prior notice, refunded the earnest money, and decided to re-auction the plot. The sole reason given was that the bid was "low" compared to the significantly higher prices fetched for much smaller plots (120-130 sq. m.) auctioned under the same scheme on the same day. The Allahabad High Court dismissed the appellant's writ petitions, accepting the GDA's reasoning and noting that no allotment letter was issued.
3.2. Issues Before the Supreme Court
Whether the High Court was correct in dismissing the writ petitions filed by the appellant?
Whether the cancellation of the appellant's highest bid by the GDA was arbitrary, irrational, and violative of Article 14 of the Constitution?
3.3. Ratio Decidendi (Court's Reasoning)
The Supreme Court allowed the appeal, setting aside the High Court's orders and quashing the GDA's cancellation. The core reasoning is structured as follows:
A. Sanctity of the Auction Process and Rejection of Arbitrary Cancellation
The Court reaffirmed the fundamental principle that a public auction, once held validly, possesses a sanctity that cannot be undermined on whimsical grounds. Relying on its earlier judgment in Eva Agro Feeds (P) Ltd. v. Punjab National Bank (2023) 10 SCC 189, the Court held that "the mere expectation... that a still higher price may be obtained can be no good ground to cancel an otherwise valid auction." Such action erodes the credibility of the process. Since the appellant's bid was the highest, above the reserve price, and there was no allegation of fraud, collusion, or procedural infirmity, the GDA's cancellation was prima facie arbitrary.
B. Irrationality of Comparing Dissimilar Plots
The Court meticulously dismantled the GDA's sole justification. It held that comparing a large industrial plot (3150 sq. m.) with significantly smaller plots (120-130 sq. m.) is an irrational and irrelevant consideration. The Court provided a market-based rationale:
Demand Dynamics: Demand for smaller industrial plots is naturally higher, leading to competitive bidding and higher per-square-metre prices. Large plots have a narrower buyer pool, reflected by only two bidders in this case.
Uniform Reserve Price: The GDA itself had fixed a uniform reserve price per sq. m. for both small and large plots, acknowledging this market reality. Therefore, it could not later expect the final bid for the large plot to mirror the high prices of small plots.
Extraneous Consideration: Imposing an unstated condition after the auction—that the bid must match prices of dissimilar assets—amounts to rewriting tender terms retrospectively, which is impermissible.
C. Rights of the Highest Bidder and Legitimate Expectation
The Court rejected the GDA's and the High Court's view that the appellant had no "vested right" because no formal allotment letter was issued. It held that upon being validly declared the highest bidder in a transparent auction, a bidder acquires a crystallized "legitimate expectation" to have the bid processed fairly and, if found in order, accepted. The act of cancellation without notice, based on an irrelevant factor, violated this expectation and the principles of natural justice. The refund of earnest money does not cure an initially arbitrary decision.
D. Limits of State Discretion in Contractual Matters
While acknowledging the state's need for "fair play in the joints" in contractual matters, the Court clarified that this discretion is not unfettered and must be exercised rationally, without arbitrariness, and in public interest. The "public interest" in maximizing revenue cannot be pursued through means that undermine the rule of law and fairness in the auction process itself. The Court found no valid, rational, or legally tenable ground for the cancellation.
4. Core Principle of the Judgment
The Supreme Court addressed the core issue of the permissible grounds on which a state authority can cancel the highest bid in a public auction, and the constitutional limits of its discretion in contractual matters.
Main Issue & Analysis
The Impermissible Ground of "Irrrelevant Comparison"
The judgment delivers an in-depth analysis of what constitutes an arbitrary state action in the context of auction cancellations. The Court established a clear legal framework:
Sanctity Over Speculation: The primary goal of a public auction is to ensure transparency, fairness, and finality. The state cannot cancel a successful auction merely on speculative hopes of fetching a better price in a future sale. This protects the integrity of the process and the investments made by bidders.
Rational Nexus Requirement: Any decision to reject the highest bid must be based on a reason that has a rational nexus to the auction or the subject property. Comparing the bid price of a large plot with the sold prices of fundamentally dissimilar, small plots is illogical and violates this principle. It introduces an extraneous criterion not part of the original auction terms.
Legitimate Expectation as a Shield: The Court fortified the doctrine of legitimate expectation in the auction context. A bidder who complies with all terms and emerges as the highest bidder has a strong, legally protected expectation that the process will conclude in good faith. Arbitrary cancellation violates this substantive right under Article 14.
Duty to Act Fairly: Even in the absence of a formal contract, the state authority is under a duty to act fairly, reasonably, and in a non-arbitrary manner. Cancelling a bid without notice, based on an irrelevant post-hoc rationale, is a textbook example of a breach of this duty.
Supreme Court's Direction
The Court directed that where an auction is conducted transparently, the highest bid is above the reserve price, and there is no fraud or illegality, the state authority is obligated to accept the bid. It cannot nullify the process on the whimsical, irrelevant, and ex post facto ground that it subjectively expected a higher price, especially based on comparisons with dissimilar assets. Judicial review will firmly strike down such arbitrary exercises of power.
5. Final Outcome
The Supreme Court allowed the Civil Appeals. It:
Set aside the impugned orders of the Allahabad High Court dated 24.05.2024 and 15.07.2024.
Quashed the decision of the Ghaziabad Development Authority (GDA) cancelling the appellant's bid.
Directed the appellant to re-deposit the earnest money within four weeks.
Consequently, directed the GDA to issue the allotment letter for the plot in favour of the appellant within two weeks of the re-deposit and complete all formalities.
6. MCQs
MCQ 1:
In Golden Food Products India v. State of U.P., the Supreme Court held that the Ghaziabad Development Authority's cancellation of the highest bid was primarily arbitrary because:
(a) The bidder had not deposited the full earnest money on time.
(b) The authority had the absolute discretion as per the tender document to reject any bid.
(c) The reason for cancellation was based on an irrelevant comparison with prices of fundamentally dissimilar, smaller plots.
(d) The highest bid was marginally below the market value determined by a separate committee.
MCQ 2:
The Supreme Court, in the above judgment, reinforced the principle from Eva Agro Feeds that:
(a) A state authority must always cancel an auction if it believes the price is too low.
(b) The mere expectation of a higher price in a future auction is not a valid ground to cancel a concluded and valid auction.
(c) Judicial review is not available in matters of tenders and auctions.
(d) The highest bidder has an indefeasible right to allocation irrespective of procedural flaws.
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