In an appeal filed by Janatha Textiles, a partnership firm of Radhey Shyam Modi, Pawan Kumar Modi, Padmadevi Modi and Indira Chirmar, a firm that had been in tax arrears, the Supreme Court not only said that the IT department could attach the property of defaulters to recover the debt but also that if it sold the property, the sales were sacrosanct.

A Bench of the Supreme Court comprising Justices Ashok Bhan and Dalveer Bhandari held that auction sales by the Income Tax Department could not be interfered with unless there were grave irregularities in the process of sale. It said that it was necessary to extend such protection to such sales to ensure that auctioned property fetched the market value or fair price of the property.

Auctions are usually governed by Sections 64 and 20 of the Sales of Goods Act, and relevant case law. There are also provisions in the Port Trust Act and the Code of Civil Procedure which deal with certain kinds of auctions although the provisions in these two statues are not universally applicable.

In addition to statutory provisions, the terms of the auction concerned also play a role of vital importance. Auctions are merely a kind of sale, and the terms of the auction are a reflection of the intention or to parties. Although goods are usually sold by an auctioneer on behalf of the owner, there is nothing to stop a person from selling his own goods in an auction.

An auction is not in itself an offer, it is merely an invitation to treat. In other words, each bid made at an auction is an offer and it is open to the auctioneer to accept or reject that offer provided that he acts in accordance with the terms of the auction. The general principle of the auction is, however, that every higher bid supersedes the previous bid.

The concept of an auction Section 64 of the Sale of Goods Act is a guiding factor on the principles of an auction. It says:

In the case of sale by auction–

(1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale;

(2) the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; and, until such announcement is made, any bidder may retract his bid;

(3) a right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly so reserved, but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auction;

(4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyer;

(5) the sale may be notified to be subject to a reserved or upset price;

(6) if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.

The section similar to Section 58 of the English Act, and can therefore be construed in similar terms. It is however important to bear in mind that the statutory provisions contained in Section 64 may be subject to a contract to the contrary. This effectively means that it would be the terms of the auction concerned which would prevail.

Reference materials and relevant cases:

1. Pollock and Mulla, The Sale of Goods Act 
2. (1869) LR 9 Eq 60
3. [1895] All. E.R (Rep) 829
4. [1907] 2 K.B. 1
5. AIR 1961 Cal 54
6. AIR 1961 MP 274
7. [1963] Suppl. 2 S.C.R. 608
8. Ouchterloney Valley Estates Ltd. v. State of Kerala (23.10.1964 – SC)
9. AIR 1980 SC 1468
10. AIR 1989 All 64
11. AIR 1992 MP 250
12. 2005(190)ELT161(Cal)