The Calcutta High Court has directed a public auctioning authority to refund ₹70,92,500 with 5% annual interest after finding that it accepted payment for auctioned scrap materials without disclosing a fire at the warehouse where the goods were stored.

The bench of Justice Krishna Rao has observed that the authority’s failure to inform the successful bidder or the auction facilitator about the fire before accepting the tender amount amounted to suppression of facts. The Court also questioned the damage assessment process because the bidder had neither been invited to participate in the inspections nor supplied copies of the committee reports.

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The dispute arose from an electronic auction conducted through MSTC for the sale of scrap and e-waste materials belonging to Prasar Bharati and stored at its Cossipore godown.

According to the judgment, the auction notice was uploaded on October 5, 2023, and prospective bidders were permitted to inspect the materials between October 9 and October 31, 2023. Bhanu Metal Industries inspected the goods before participating and was satisfied with their condition.

The bidding took place on November 1, 2023. The firm emerged as the highest bidder and received a sale intimation requiring it to pay ₹67,55,000, excluding GST.

However, a fire broke out in godown No. 2 at Cossipore on November 10, 2023, after the bid had been accepted but before the successful bidder deposited the full purchase amount. Some of the auctioned materials were burnt or blackened by soot.

The bidder subsequently deposited the tender amount, including applicable tax, in December 2023. MSTC issued the delivery order on December 19, 2023, fixing January 17, 2024, as the final date for collecting the goods.

After submitting a delivery challan and making arrangements to lift the materials, the bidder visited the warehouse and alleged that most of the goods had been damaged by fire and that some materials were missing from the collection site.

On December 28, 2023, the bidder informed the respondents that it could not collect the materials because of the alleged damage and shortage.

Following the bidder’s complaint, MSTC advised the owning authority to cancel the auction and conduct a fresh auction of the available materials to avoid complications.

The Court recorded that the authority did not act on this advice.

The bidder then sent an email dated January 8, 2024, requesting a refund of the entire amount deposited towards the purchase. As the refund request remained unresolved, it approached the High Court seeking a declaration that the auction was illegal and void, along with repayment and interest.

The respondents maintained that the damage was limited and that the bidder had avoided collecting the materials despite repeated communications.

Following the fire, the owning authority constituted a committee of four officers to assess the damaged goods. The committee assessed the value of the burnt materials at ₹19,450.

Subsequently, following the bidder’s complaint and instructions from the Vigilance Section of the Directorate of All India Radio, a higher-level committee comprising three senior officers examined the matter. Its report, submitted on August 9, 2024, stated that there was no shortage of auctioned materials in godown No. 2, apart from certain burnt or damaged goods.

The authority relied on the inspection reports dated January 16, 2024, and August 9, 2024, to resist the bidder’s claim for a full refund.

The bidder challenged those reports on the ground that it had not been informed about the constitution of the committees, had not participated in the inspections and had not received copies of their findings.

The Court found that the authority knew about the November 10, 2023, fire before accepting the auction payment.

Despite that knowledge, it failed to inform either the bidder or MSTC about the incident before receiving the money.

Justice Rao held that the authority ought to have disclosed the fire before accepting the tender amount. An inspection should also have been conducted in the bidder’s presence to establish the extent of damage to the auctioned goods.

The finding was particularly relevant because the bidder’s inspection had taken place before the fire. The goods had therefore suffered damage after the bidder assessed their condition and participated in the auction, but before the full payment was accepted.

The Court also found deficiencies in the procedure adopted to assess the damaged materials.

Neither committee inspected the warehouse after giving notice to the bidder or in its presence. The reports were also not served on the bidder, leaving it without an opportunity to examine the materials alongside the committees or respond to their findings.

The Court observed that the authority should have informed the bidder about the committees and that the committees should have issued inspection notices.

It further described the reports relied upon by the respondents as contradictory.

The authority’s reliance on its internal assessments therefore did not resolve the dispute over the condition and availability of the auctioned goods.

The Court considered whether a joint inspection could assist in resolving the dispute but concluded that such an exercise would serve no useful purpose at that stage.

It reasoned that considerable time had passed since the fire and that the remaining scrap materials might have deteriorated further.

The Court found it appropriate to order repayment with simple interest.

The High Court directed respondent No. 3 to refund ₹70,92,500 within two months, together with simple interest at 5% per annum from December 19, 2023.

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