In a significant judgment aimed at protecting the rights of property buyers, the Supreme Court of India has ruled that authorities conducting public auctions—including banks, recovery officers, and state bodies—are legally mandated to disclose all known encumbrances and pending litigation related to the property.

The Court held that the failure to disclose such material facts "vitiates" (invalidates) the auction process, as it amounts to a material irregularity or even fraud. Transparency, the Court emphasized, is the cornerstone of public dealings by state authorities.

The ruling came in an appeal filed by Viney Kumar Sharma, who had participated in a public auction conducted by the Ludhiana Improvement Trust in May 2021. Sharma was the highest bidder for a plot and deposited a substantial sum of ₹1,57,04,580 towards the sale price.

However, the dream of owning the property quickly turned into a legal nightmare. Before the sale certificate could be issued or the conveyance deed executed, the Trust informed Sharma that it could not proceed. The reason? A civil suit involving a third party had been pending regarding that specific plot since 2020—a year before the auction took place.

Despite the Trust’s failure to mention this lawsuit in the auction notice, the Punjab and Haryana High Court dismissed Sharma’s writ petition, suggesting he wait for the civil suit to be decided. Sharma then approached the Supreme Court seeking a refund of his money.

A Bench comprising Justice JB Pardiwala and Justice KV Viswanathan expressed strong disapproval of the Trust’s conduct. The Court pointed out that as a public body, the Trust had a "legal duty" to be upfront with potential bidders.

"It was the legal duty on the part of the Trust to have made it clear in the auction notice itself that the subject plot is a subject matter of litigation," the Court observed.

The Bench clarified that when a public authority suppresses such critical information, the auction loses its legitimacy. The Court noted that an auction purchaser enters the fray in "good faith," believing that the authority is offering a clear title.

The Supreme Court used this case to remind public authorities of their broader responsibilities. A public auction is not just a mechanism to get the highest price; it is a process that must reflect fairness and objectivity.

The Court stated:

"Public auction also ensures fairness in actions of the public authorities and their officers who should act fairly and objectively. Their actions should be legitimate. Their dealing should be free from suspicion. Nothing should be suggestive of bias, favouritism, nepotism or beset with suspicious features."

By hiding the fact that the property was under litigation, the Trust placed an innocent purchaser in a "precarious position," forcing them to tie up their capital in a disputed asset.

The Court relied on the principle of unjust enrichment and restitution. It referred to a recent 2025 ruling (Delhi Development Authority v. Corporation Bank), which held that no one should be allowed to keep money obtained through an illegal or flawed process.

The Bench noted that Sharma was the only "innocent actor" in this legal drama. He had neither breached any contract nor failed in his diligence. Therefore, returning his money was not just a legal requirement but a "moral imperative."

Setting aside the High Court's judgment, the Supreme Court directed the Ludhiana Improvement Trust to refund the entire amount of ₹1,57,04,580.

To compensate the purchaser for the loss of time and the use of his funds, the Court ordered the Trust to pay interest at the rate of 9% per annum from July 19, 2021 (the date the money was deposited). The Trust has been given six weeks to comply with this order "without fail."

This judgment serves as a vital shield for those participating in public auctions. It establishes that:

Full Disclosure is Mandatory: Authorities cannot hide "bad news" about a property to secure a higher bid.
Auction Notices Must Be Clear: Any pending court cases or bank charges (encumbrances) must be clearly stated in the advertisement.
Purchasers Are Protected: If an authority hides litigation, the purchaser has a right to cancel the deal and get a full refund with interest.

Case Details: Viney Kumar Sharma v. The Improvement Trust and another

Date of Order: January 16, 2026

Court: Supreme Court of India