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Unit-3. AUCTION (SEC-64)
What is an Auction Sale?
•An auction sale is a method of selling goods or property through a competitive bidding process, governed
by the Sale of Goods Act, 1930 in India.
•In an auction, goods are sold to the highest bidder among all present buyers. The sale takes place in a
public setting, where multiple interested parties make offers (bids) on the goods. The seller is not
obligated to accept any bid unless a reserve price (if set) is met.
Key Features of Auction Sale:
1. Public Bidding Process: Buyers openly compete by placing bids.
2. Sale to the Highest Bidder: The goods are sold to the person offering the highest price.
3. Freedom to Bid or Withdraw: Bidders can raise or withdraw bids before the final hammer falls.
4. Legal Framework: Governed under Section 64 of the Sale of Goods Act, 1930.
Rules of Auction Sales
1. Sale Completion:
•A sale is complete when the auctioneer announces it, typically by the fall of the hammer or any
customary method.
Bids can be withdrawn any time before the sale is completed.
•If the seller cannot complete the sale, he must inform buyers before the auction begins and refund any
money received.
2. Role of Auctioneer:
•The auctioneer announces items and invites bids from interested buyers.
•They act as a facilitator between the seller and buyers.
3. Reserve Price:
•The minimum price set by the seller.
•If bids do not reach this price, the goods remain unsold.
4. Bidding Increments:
•Pre-decided minimum increases in bid amounts ensure fair progression of prices.
5. Auction Closing Time:
•There must be a clearly defined ending time so all participants are aware of when bidding ends.
Section 64: Sale of Goods Act, 1930 –
Key Provisions for Auction Sales
1. Goods Sold in Lots:
Each lot in an auction is treated as a separate contract of sale.
2. Completion of Sale:
•Sale is complete only when the auctioneer declares it.
•Bids can be withdrawn before completion.
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3. Right to Bid by Seller:
•Seller may reserve the right to bid, but this must be expressly notified.
•The seller or their agent cannot bid unless this right is clearly declared.
4. Fraudulent Bidding:
•If the seller or agent pretends to bid to artificially increase the price, the buyer can void the sale.
5. No Credit Sales:
•Goods cannot be sold on credit unless permitted by the seller.
•Auctioneer may accept a bill of exchange if allowed.
Additional Context: Bank and Government Auctions
•Bank Auctions:
•Involve properties sold to recover debts.
•Bidding may occur via tender forms or competitive bidding.
•Failure to pay the remaining amount may lead to forfeiture of the initial deposit.
Types of Auction Sales
1. Private Auction
•The seller and buyers are known to each other.
•Often held in closed settings with limited participants.
2. Advertisement Auction
•The seller advertises the auction through newspapers, websites, or other media to invite public
participation.
3. Sealed Bid Auction
•Bidders submit their bids in sealed envelopes without knowing the bids of others.
•The highest bidder is awarded the item after all bids are opened.
4. Live Auction
•Conducted in real time, either in-person, via telephone, or online.
•Bidders compete actively and openly.
5. Auction by Lots
•Items are grouped and sold in lots (batches).
•Each lot may consist of similar or related items.
6. First Lot Auction
•Each individual lot is auctioned one at a time to the highest bidder.
•Typically used in traditional auctions.
7. Second Lot Auction
•Items are grouped into two main lots, and each is offered to bidders separately.
•Useful when the goods can be logically split into two major categories.
8. Auction of Unsold Lots
•Only unsold items from previous auctions (like first or second lot auctions) are re-auctioned.
•Provides another opportunity for buyers to acquire goods that didn't sell earlier.
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Types of Auctions in India
1. Railway Scrap Auctions
Indian Railways conducts auctions to sell scrap material collected from:
•Wagons
•Coaches
•Deserted rails
•Other obsolete railway assets
Since 2013, Indian Railways has fully adopted e-auctions, enhancing transparency and efficiency in the
sale process.
2. Real Estate Foreclosure Auctions
Conducted by banks under the SARFAESI Act, 2002.
•These auctions help banks recover loans by selling repossessed or foreclosed properties.
•Properties are seized when borrowers fail to make multiple payments on loans.
Pre-foreclosure stage:
•A notice period before the auction.
•Borrowers can still repay and reclaim their property.
•Considered a grace period before final foreclosure.
3. Government Land Auctions
•Land auctions by the government are conducted through public auctions.
•A public notification must be issued, ensuring wide publicity.
Upset Price:
•generally not fixed, except in railway relinquished lands.
•For these, a minimum price is determined in consultation with the Railway Administration.
Case law
Payne v. Cave (1789)
Judgment:
•The court held that a bid at an auction is an offer.
•This offer can be withdrawn at any time before acceptance, i.e., before the fall of the hammer.
•Therefore, Mr. Cave was not bound to buy the
item.
Conclusion
An auction sale is a recognized method of selling goods through a competitive bidding process where the
goods are sold to the highest bidder. It is governed by the Sale of Goods Act, 1930, which lays down the
legal framework for how such sales should be conducted. In an auction, each bid made by a buyer is
considered an offer, and the sale is completed only when the auctioneer accepts the highest bid, usually
signified by the fall of the hammer or any customary method. Until that moment, bidders are free to
withdraw their bids. This system ensures transparency and fairness in the selling
process. Auction sales can be carried out in various forms, such as English auctions, Dutch auctions, or online
auctions, depending on the mode of bidding. Overall, auction sales offer an effective and competitive way of
determining the value of goods and completing transactions in a public and open manner.
