NATIONAL LAW INSTITUTE UNIVERSITY

BHOPAL

Project On:

AUCTION SALE

Submitted to: Submitted By:

Asst. Prof. Anand Sharma

Gargi Aditya Rajvanshi 2013B.ALL.B57

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 ACKNOWLEDGEMENTS

With my sincere regards, I wish to acknowledge my indebtness and gratitude to the

contributions of people who helped me at every stage of the project. I very much
like to express my gratitude and profoundest thanks to my project guide Ms. Gargi
Aditya Raghuvanshi Mam and Ms. Shrutika Shrivastava Mam for their sustained
guidance, invaluable suggestions and constant encouragement without which it
would not have been possible for me to complete this project.

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 TABLE OF CONTENTS

Table of Contents

S.No. Topic

1. Introduction.

2. Definition and meaning

3. Separate contract

4. Completion of contract

5. Right to reserve a bid

6. Reserved or upset price

7. Effect of pretended bid.

8. Conditions of fraud

9. Referance cases

10. Bibliography.

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 INTRODUCTION

Section 64 of the sale of goods act,1930 deals with the topic of auction sale. For the sake of
convenience of study,it can be divided into following heads:

 Each lot is a separate contract thereby implying that each lot would be
subject of a separate contract of sale.
 Completion of contract in auction sale.
 Right to reserve a bid by or on the behalf of the seller.
 Auction sale subject to a reserved or upset price.
 Effect of pretended bid to raise the price.

Auction sale is a manner of sales, where property is auctioned usually to the

highest bidder by public competition. The auctioneer is an agent of the seller. The
auctioneers can auction his own property. In fact there is no need to express that
he is selling, so contract is formed between auctioneer and the buyer in case of sale
by auction. Some liabilities are incurred by this contract. Of course, all of these
liabilities are not for the seller. Under Section 64 certain rules are provided
regarding auction sale. These are mentioned below-

 It may be reserved as a right to bid expressly by or on behalf of the seller.

 The seller or other may bid at the auction on behalf of him if the right to bid
is so reserved.
 It will be not lawful, if sale is not notified to be subject to a right to bid on
behalf of the seller for two cases. Firstly, for the seller to bid himself or to
employ any person to bid at such sale or secondly, for the auctioneer
knowingly to take the bid from the seller or any other such person.
 It should be notified as a sale by auction subject to a reserved or upset price.
A reserved price can be fixed by the seller to protect him against “knockout’
agreement.

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  In case of making use of pretended bidding to raise the price by the seller,
the sale will be avoidable.

DEFINITION AND MEANING

A sale open to the general public and conducted by an auctioneer, a person

empowered to conduct such a sale, at which property is sold to the highest bidder.

A bid is an offer by a bidder, a prospective purchaser, to pay a designated amount

for the property on sale. As a legitimate business enterprise, auctions cannot be
proscribed. They are not above reasonable regulation by both state and local
authorities. Some states subject auction sales to taxation.

In the absence of statutes, any person can act as an auctioneer, but a license, which
usually restricts his or her authority to a certain region, is often required. Licensing
officers can refuse to issue a license, but only if done reasonably, impartially, and
to promote the interest of the community.

An auctioneer serves as the agent of the seller who employs him or her, and the
auctioneer must act in Good Faith, advance the interest of the seller, and conduct
the sale in accordance with the seller's instructions. Because of the trust and
confidence the seller reposes in an auctioneer, the individual cannot delegate the
power to sell without special authority from the seller. The delegation of
insignificant duties, such as the striking of the hammer and the announcement of
the sale, is allowable if conducted pursuant to the auctioneer's immediate
supervision and direction.

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 SEPARATE CONTRACT

According to section 64(1) in the case of sale of auction where goods are put for
sale in lots, each lot is prima facie deemed to be subject of a separate contract of
sale.thus,where goods are put for sale in lots in an auction, a presumption arises
that each lot is a subject of a separate contract.

But this presumption can be rebutted by showing the contrary intention of the
parties. But where a single purchaser purchases several lots it cannot be said that
the said presumption has been rebutted .Thus the presumption can be excluded
only by clear evidence of contrary intention.

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 COMPLETION OF CONTRACT

Section64(2) of the sale of goods act,1930 provides that in the case of sale by an
auction,the sale is complete when the auctioneer announces its completion by the
fall of the hammer(symbolic) or in any other customary manner,and until such
announcement is made,any bidder may retract his bid.In payne v. cave1,it was held
that in a sale by auction the bidder can revoke his bid at any time before the
hammer falls or the property is finally knocked down. This rule has been followed
in jorawarmal champamal v.joyagopaldas ghansyamdas.2In this case, before the
property was knocked down, the bidder came to know that the property in question
was subject to mortgage.he therefore revoked his bid.the owner of the property
sued him.his action was dismissed by the court on the ground that the bid of the
plaintiff was simply an offer and could be revoked at any time before it was
accepted by knocking down the property in his favor. In other words,the plaintiff
was entitled to revoke his offer before the sale was completed.Thus,”at an auction
sale,apart from any question of reserve price,when a lot is knocked down to the
highest bidder by the fall of the hammer,the property in lot passes to him.a contract
of sale is concluded in an auction sale on the fall of hammer unless that prima
facie rule is excluded from applying because of a different intention appearing or
because there were some conditions in the contract which prevented the rule from
applying.Under section64(2) the sale is complete at the fall of hammer or by an
announcement of the close of sale by the auctioneer. Until such announcement is
made,any bidder may revoke his bid. If the bidder revokes his bid before the fall of
hammer,his security may not be forfeited.

1
(1789) 3 TR 148
2
(1922) 43 MAD. LJ 132

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But after the fall of the hammer,the sale is complete and therefore if the sale is
complete and therefore if the highest bidder seeks to retract his bid,his security
amount may be forfeited

RIGHT TO RESERVE A BID

Generally,in a contract of sale, seller and buyer are two different persons because
a person cannot buy his own good. But auction sale is an exception to this rule.
according to section64(3),in the case of a sale by auction, a right to bid may be
reserved expressly by or on behalf of the seller and where such a right is expressly
so reserved,but not otherwise,the seller or any one person on his behalf may,bid at
any auction.

This exception or the provision contained in section64(3) is applicable only when

the sale is notified to be subject to a right to bid on behalf of the seller.

This is made clear in section 64(4)which provides that where the sale is not
notified to be subject to a right to bid on behalf of the seller.this is made clear in
section 64(4) which provides that where the sale is not notified to be subject to a
right to bid on behalf of 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.

It may also be noted that when sale is notified subject to a bid by seller,either the
seller himself may make the bid or may employ only one person to bid on his
behalf.if he employs more than one person,that will amount to fraud because only
one person is necessary to protect the property and employment of more than one
person to enhance the price would therefore render the sale void.

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 RESERVED OR UPSET PRICE

According to section 64(5), in the case of a sale by auction,the sale may be

notified to be subject to a reserved or a notified price. In such a case,the seller may
reject the highest bid if the same is less than the reserve price. This provision has
been enacted to enable the seller to protect his property against the upset price or
against collusion by the bidders in an auction sale.

It has been held by the division bench of the Madhya Pradesh high court3 that “an
agreement between the bidders to form a ‘ring’ or ‘knock-out’ would not be legal.

In Chelmsford auctions v.poole4,wherein LORD DENNING M.R observed that

on a sale by auction there are three contracts:

 Between the owner(vendor) and the highest bidder (purchaser).

 Between the owner (vendor) and the auctioneer.
 A collateral contract between the auctioneer and the highest
bidder(purchaser).

The first being a simple contract to which the auctioneer is not a party.the
auctioneer’s rights and obligations are under the other two categories.

3
m/s jai bhawani timber v. state of m.p,AIR 1992 MP250,256
4
(1973)1 qb 542:(1973) 2 WLR 219: (1972) 1 all ER 810

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 PRETENDED BIDDING
According to section 64(6),in the case of a sale by auction,if the seller makes
use of pretended bidding to raise the price,the sale is voidable at the option
of the buyer. According to section 64(3),the seller may either himself or by
employing a person can reserve expressly a right to make a bid. This right
has been given to the seller to protect his property.this right cannot be
misused for enhancing the price of the goods that is why,section 64(6)
makes provision against pretended bidding. If the seller misuses his right to
bid, the sale will be voidable at the option of the buyer.

However,it may be noted that in an auction sale,the auctioneer can set his
terms and conditions of the auctions and in such a case these terms and
conditions of the parties to an auction sale.this was held by the supreme
court in M. LACHIA SETTY AND SONS LTD. THE COFFEE
BOARD,BENGALURU5
In this case it was cited that “the seller does not bind himself to accept the
highest bid.he is not bound to assign any reasons for his decision,and his
decision shall be final and conclusive.”

5
(1980) 4 SCC 636,643:AIR 1981 SC 162.

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 RIGHTS OF BUYER AND SELLER

In an unconditional sale, title passes to the bidder when the auctioneer's

hammer falls. If conditions exist, title passes upon their fulfillment or
through their waiver, the intentional relinquishment of a known right. The
bidder is ordinarily entitled to possession when he or she pays the amount
bid.

A person who bids on behalf of another is personally liable for the bid unless
the person discloses this relationship to the auctioneer.
Fraud, or a Misrepresentation of a material fact on which the buyer
detrimentally relied, or the seller's failure to provide good title furnishes a
basis for setting aside the sale.
The seller has a lien, a security interest, on the property until the price is
paid. If the purchaser fails to comply with the conditions of a sale, the seller
can regard the sale as abandoned and sue for damages. Where a resale
occurs, and the price is lower than the contract price, the defaulting buyer in
some jurisdictions is liable to the seller for the difference between what he or
she had agreed to pay and what the seller received on the resale. In general,
whether a deposit or a partial payment must be repaid depends upon which
party was responsible for the uncompleted sale. If the buyer is responsible,
he or she cannot recover either the deposit or partial payment.

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 VALIDITY OF AUCTION SALE

The owner of the property has the right to control the sale until its
conclusion. Unless conditions are imposed by the seller, the auctioneer is
free to conduct the sale in any manner chosen, in order to bar fraudulent
bidders and to earn the confidence of honest purchasers. The auctioneer
cannot amend the printed terms and conditions of the auction, but he or she
is empowered to postpone the sale, if that is the desire. The auctioneer can
modify the sale terms of goods advertised in a catalog at any time during the
sale, if announced publicly and all of the bidders present are cognizant of it.
The auctioneer may also retain the right to resell should there be an error or
a dispute concerning the sale property. The description of the property in the
catalog must be unambiguous. A significant error in a description might
cause the cancellation of the sale, although trivial discrepancies between the
property and the description are not problematic. The seller can withdraw
property until the acceptance of a bid by an auctioneer.

A bid is an offer to purchase, and no obligations are imposed upon the seller
until the bid is accepted. It can be made in any manner that demonstrates the
bidder's willingness to pay a particular price for the auctioned property,
whether orally, in writing, or through bodily movements, such as a wave of
the hand. Secret signals between the bidder and the auctioneer militate
against equality in bidding and are thereby prohibited. The auctioneer
accepts a bid by the fall of the hammer or by any other perceptible method
that advises the bidder that the property is his or hers upon tendering the
amount of the bid in accordance with the terms of the sale. An auctioneer
can reject a bid on various grounds, such as when it is combined with terms
or conditions other than those of the sale, or is below the minimum price
acceptable to the owner.

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 CONDITIONS OF FRAUD
As a general rule, any act of the auctioneer, seller, or buyer that prevents an
impartial, free, and open sale or that reduces competition in the bidding is
contrary to public policy. An agreement among prospective buyers not to bid
has been held to void the sale to any buyer within this group. A purchase by
a person who has not participated in the illegal agreement remains in effect.
A puffer or shill is a person who has no intention of buying but is hired by
the seller to place fictitious bids in order to raise the bidding of genuine
purchasers. In general, if a purchaser at an auction can prove that a puffer
was employed, he or she can void the sale. Some jurisdictions require the
buyer to have been financially hurt by the puffer, but others permit an
individual to void a sale even if no harm occurred. Puffing and by-bidding
are synonymous.

A deposit is not a pledge but a partial payment of the purchase price, usually
made payable to the auctioneer who retains it until the completion of the
sale.The property of one person should not be commingled and sold with the
property of another by the auctioneer unless notice is furnished to all
interested parties, or it might constitute Fraud.An auctioneer is not entitled
to bid on property that he or she has been hired to sell, but the auctioneer
can, however, bid a particular sum for a purchaser without violating any
duties to the seller or even to other prospective bidders.An auctioneer who
does not have the required license but who executes a sale can be penalized,
but the sale remains valid; an auction is void, however, when it is conducted
without the owner's consent.

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 REFERANCE CASES

The petitioners are all traders in timber. The contention of the petitioners is
that the sales of various timber lots, for which they had offered the highest
bid, were complete.3. The respondents supported their actions stating that
the petitioners had formed a "ring". The "ring" may be explained as a sort of
combination or mutual understanding between the bidders to refrain from
bidding against each other.
the first question for decision before us is whether, as contended by the
petitioners, the highest bid can be held to have been accepted.
"Knock-outs".-- A conbination between intending bidders to refrain from
bidding against each other, commonly known as a knock-out, has been held
not to be illegal at common law and the same rule applies in India . The
bidders may form a "ring" and refrain from bidding in competition with each
other in order to depress the price .
The petition consequently succeeds and is allowed. The impugned
communication cancelling the auction-sales is quashed. It is directed that
the respondents shall treat the auction-sale held complete and valid. It is
further directed that The respondents shall give the petitioners, within a
month from today, notices in writing to enable them to deposit the balance
75% of the bid money against their bids offered and accepted . On such
deposits, the respondents shall deliver to the petitioners various lots knock-
ed-down in their favour .The petitioners shall also get the costs of this
petition. Counsel's fee Rs. 2000/-.

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 BIBLIOGRAPHY

1. www.indiankanoon.org
2. Contract and Specific Relief – Avatar Singh.
3. www.taxpointindia.com
4. www.ashurst.com

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