"The Government Buildings That Sold for a Song: A Legal Battle Over a Controversial Auction"

 

This case revolves around a controversial auction sale of valuable government buildings that were sold at a fraction of their worth, leading to a legal battle that went all the way to the Patna High Court.

Background

Bhukhal Upadhyay was a contractor who had performed work for the Building Construction Department (BCD) of the Bihar government. He claimed Rs. 3,15,714 (approximately $4,200) was owed to him for work completed. Following the arbitration clause in his contract, the matter went to arbitration, and an award was granted in his favor.

The State of Bihar initially challenged this award, but after legal proceedings, the court ultimately made the arbitration award a rule of court, essentially granting Bhukhal Upadhyay a decree for the claimed amount.

The Controversial Auction

To satisfy this relatively modest decree of Rs. 3,15,714, an execution case (No. 2/2001) was filed. What happened next was extraordinary - all the buildings of the Department were put up for auction, including:

• The office of the Executive Engineer
• The residence of the Superintending Engineer
• Residences of the Technical Adviser, Executive Engineer, and Driver

These properties, located in the desirable Lansdowne area of Chapra, were auction sold for Rs. 17,04,161 (approximately $23,000) on December 17, 2002. The auction winner was given possession of these properties in May 2003, with the delivery of possession confirmed twice (on June 25, 2003, and July 16, 2004).

Legal Challenge

The State of Bihar filed a case (Misc. Case No. 4 of 2006) on March 1, 2006, challenging the auction sale. They argued that the auction process was riddled with irregularities and fraud, making it void under the law.

The Sub-Judge-VI at Chapra allowed this application and set aside the auction sale through an order dated January 14, 2016. Rajesh Upadhyay (son of the original contractor Bhukhal Upadhyay) then appealed this decision to the Patna High Court, which resulted in the judgment being analyzed here.

Key Issues Before the Court

The lower court had framed four key issues:

1. Whether the case challenging the auction was maintainable
2. Whether the petitioners had a valid cause of action
3. Whether the case was barred by limitation, estoppel, or res judicata
4. Whether the auction sale was fraudulent, irregular, arbitrary, void, and should be set aside

Major Irregularities Found in the Auction Process

The court identified numerous serious irregularities in how the auction was conducted:

1. Improper Attachment Procedure:

• No proper attachment was done at the property site
• No proclamation of sale was made at the spot
• No beating of drums (a customary way to publicly announce auctions) took place
• The mandatory procedures under Order 21 Rule 54 of the Civil Procedure Code (CPC) were not followed

2. Defective Sale Proclamation:

• The proclamation did not mention crucial details like the time and place of the auction
• The properties were not fully described - no plot numbers, circle numbers, ward numbers, or areas were mentioned
• As a result, potential bidders could not participate, and only the decree holder (the contractor) bid for the properties

3. Severely Undervalued Properties:

• The auction proclamation listed a value of just Rs. 8 lakhs (approximately $10,700) based solely on the decree holder's valuation
• An official valuation report showed the actual value was Rs. 2,40,67,540 (approximately $320,000) as per government circle rates
• The market value would likely have been even higher than this official rate
• The court noted that Rajesh Upadhyay (who had been in possession of the property for 12 years) claimed in court that he did not even know the area of the land he had purchased

4. Disregard for Legal Safeguards:

• The court failed to invite or properly consider objections from the judgment debtor about the property's valuation
• No notice for the auction was published in newspapers or the official gazette as required by Rule 67
• The court did not examine whether selling the entire property was necessary to satisfy the decree or if a portion would have been sufficient (violating Rule 64)

The Court's Findings

The Sub-Judge concluded that mandatory provisions regarding auction sales had not been followed, resulting in no bidders appearing except the decree holder, who purchased valuable government property at a throwaway price. The court characterized this as "committing fraud on the court and throwing dust into the eyes of the court."

The court also addressed the issue of limitation (whether the challenge was filed within the legally permitted timeframe). While there is typically a 60-day limitation period for challenging auction sales, the court cited Supreme Court precedent that when a sale is "void" (not merely voidable), the limitation period is three years from the date of dispossession. Since the State's application was filed within three years of the delivery of possession, it was deemed to be within the limitation period.

The High Court's Decision

Justice Rajeev Ranjan Prasad of the Patna High Court dismissed Rajesh Upadhyay's appeal, upholding the lower court's decision to set aside the auction. The High Court agreed that there were "overwhelming materials on the record to show that the auction sale held on 17.12.2002 was not in accordance with the established procedure of law."

The High Court specifically noted that approximately 1 bigha and 18 kathas of government land with buildings had been auction sold without any proper valuation. It also confirmed that the challenge to the auction was filed within the three-year limitation period from the date of delivery of possession.

Significance of the Judgment

This case highlights several important legal principles:

1. Protection of Public Property: The courts showed vigilance in protecting government property from being sold at grossly undervalued prices through procedural irregularities.

2. Void vs. Voidable Sales: The distinction between a "void" sale (which can be challenged within three years) and a merely "voidable" sale (which must be challenged within 60 days) was crucial to the outcome.

3. Mandatory Procedural Safeguards: The judgment emphasizes that auction sale procedures under the Civil Procedure Code are not mere formalities but essential safeguards to ensure fair value is realized.

4. Judicial Duty in Execution Sales: Courts have an obligation, not just discretion, to ensure that:

   • The property is properly valued
   • Only as much property as necessary is sold to satisfy the decree
   • Proper notice is given to potential bidders
   • All procedural safeguards are followed

Conclusion

This case represents a significant victory for public interest, highlighting how judicial vigilance can prevent the loss of valuable public assets through procedural irregularities. It serves as an important precedent emphasizing that courts must be particularly careful when government properties are being auction sold to satisfy private decrees.

The judgment underscores that auction sales conducted without adhering to mandatory legal provisions are void ab initio (invalid from the beginning), and can be challenged within an extended limitation period of three years rather than the standard 60 days.

The case also illustrates how a relatively small decree of approximately Rs. 3 lakhs almost resulted in the permanent transfer of government properties worth over Rs. 2.4 crores - a value 80 times higher than the original debt.

Read the full judgement Below;

https://patnahighcourt.gov.in/viewjudgment/MiMzNTQjMjAxNiMxI04=-8jntdgnaPwI=