Auction Sales Explained

An auction sale is the sale of goods through a bidding process and is covered under the Sale of Goods Act, 1930. The process of sale by auction involves the selling of any goods and property of value, in a public gathering where buyers make a bid for the purchase and the sale is made to the highest bidder. Let us understand in detail an auction sale, parties involved, and their rights and obligations. 

Auction of goods to the highest bidder among all buyers present at the time. Auction Sale is an economic system where sellers offer goods for sale, and bidders compete with one another, based on the price or quality of the item being offered. Auction Sales can be conducted either through oral or written bidding methods like Dutch Auction (where bids are sealed), English Auction (traditional ), and Online Auction (in which bidders bid via the internet).

Different Types of Auction Sales

1. Private Auction: This is an auction sale where the seller and buyers are known to each other.

2. Advertisement Auction: In this type of auction, the seller publishes a notice in newspapers or online about the product he wishes to sell through auction.

3. Sealed Bid Auction: In this type of auction, potential buyers send their bids to the seller in sealed envelopes. The highest bidder wins the product at the end of the bidding process.

4. Live Auction: This is an auction sale where bidders participate live either by attending physically or participating through phone or the internet.

5. Sale in lots: Auction Sale where the items are sold in lots or batches.

6. First Lot Auction: In this type of auction, each lot is sold to the highest bidder at a time.

7. Second Lot Auction: This type of Auction allows for batching of goods into two parts and then offering these as individual lots to potential buyers interested in acquiring them during an auction sale process.

8. Auction Sale of Unsold Lots: In this kind of Auction, the seller offers only those lots that he has not been able to sell in first or second lot auctions to interested bidders during an auction sale process.

Railway Auctions

Railway scrap collected from wagons, coaches, deserted rails, etc is sold by the railways through auction. Indian railways have completely switched to e-auctions since 2013.

Real Estate Foreclosure Auctions

Banks can hold a real estate foreclosure auction under the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act, 2002. This allows the banks to auction repossessed or foreclosed properties to recover their losses. These properties are seized by the banks after the borrowers fail to make multiple payments towards principal and interest. A property in the early stages of foreclosure by the banks is in pre-foreclosure auction. It is a kind of notice to the borrower that the property will be auctioned if the payment is not made to the lender. This stage is considered the grace period that is given to the borrower before the foreclosure auction. 

Land Auction

In case of a land auction done by the government, the land must be sold through a public auction and the government must give a notification for the same through wide publicity. In the case of government land auctions, there is no upset price except in the case of railway relinquished lands where a minimum or upset price is fixed in consultation with the Railway Administration before the auction. 

The difference between first and second lot auctions is that while both allow bidders who have lost interest in one product category to switch over their bidding efforts towards another product category still available on offer through any remaining/unsold lots, they also bring together similar products from different categories for simultaneous availability under one roof which results in better price discovery across all types of products as well as greater choice for potential buyers.

Auction Rules and regulations vary from country to country depending on various factors like customs and practices followed by a particular society. However, it is very important for both sellers and buyers who intend to participate in an Auction Sale to learn about these rules before taking part in such bidding processes so they can make informed decisions when transacting with one another through Auction Sale online or offline channels/platforms.

Rules of Auction Sales Are

1. Sale Completion: It is one of the most important Auction Sale rules that the seller must complete the sale once a bid has been accepted. In case, he is unable to do so for any reason, he must inform all potential buyers of this before the Auction commences and also refund their money

2. Auctioneer: The Auctioneer conducts the Auction Sale by announcing each product being put up for bidding and calling for bids from interested buyers.

3. Reserve Price: This is the minimum price at which the seller is willing to sell a particular item in an auction sale. If no bidder meets or exceeds this price, then the item goes unsold.

4. Bidding Increments: In most auctions, there are predetermined bidding increments that determine how much a can increase her/his bid amount.

5. Auction Closing Time: The Auction Sale must have a definite ending time so that all interested buyers are aware of when the bidding process will end.

Section 64 of the Sale of Goods Act states the rules applicable in case of an auction sale.

• Sale of Goods in Lots

When the auction involves the sale of goods in different lots, each lot of goods are covered under a separate contract of sale. 

• Sale Completion

An auction sale is deemed to be complete when the auctioneer says so. The same can be done by the fall of the hammer or any other means used to signify the completion of the sale. The bidder can withdraw the bid anytime before the completion of the sale is declared.

• The Right to Bid Reserved for the Seller

The seller can reserve his right to bid at the auction but he must expressly reserve this right. He can appoint an agent to bid on his behalf.

• Notification of the Right to Bid by the Seller

If the seller has not expressly reserved his right to bid and has not been informed about the same, he or his agent is not authorized to bid at the auction. The auctioneer is not entitled to accept any bids made by the seller or his agent if the buyer has not expressed his intent to do so.  Any sale that is in contradiction to this rule will be deemed unlawful and fraudulent by the buyer.

• Reserve Price

The goods for sale at the auction may be subject to a reserve price or an upset price. The auctioneer cannot sell goods below this price. 

• Pretend Bidding by the Seller or His Agent

In case the seller or his agent pretends to bid for the goods purposely to raise the bid price of the goods, the buyer of the goods has the right to treat the sale as void.

• No Credit Sale

The property in an auction cannot be sold on credit or as per his will by the auctioneer. The auctioneer can accept a bill of exchange in an auction sale but only if it has been allowed by the seller.

Let us look at different kinds of auctions like real estate foreclosure auctions and government auctions.

• Bank Auction Properties for Sale

In case of properties up for sale through a bank option, buyers can submit their bids through a bid form or a tender form. In some cases, competitive bidding is allowed between the buyers by the bank to raise the price of the auction property for sale. If the buyer or the winner of the bank auction does not pay the balance amount within a specified time, then the entire amount paid is forfeited by the bank.

Solved Question on Auction Sale

Q1. Can the Auctioneer Sell a Property Below the Reserve Price?

Ans: The auctioneer cannot sell a property below the reserve price or the upset price. In certain cases, however, the auctioneer can be relieved if his actions were a result of a mistake on his part.

Let us explain this with case law. 

Case Law: McManus vs Fortescue

In this case, the auctioneer had sold the property below the reserve price by mistake. The reserve price had been stated in a catalog for each lot. The auctioneer was relieved by the court as it was considered a mistake on the part of the auctioneer. 

Q2. When is the Auction Sale Said to be Complete?

Ans: An auction sale is said to be complete when the auctioneer puts down the hammer after giving the final call to the highest bidder. The auctioneer can also declare the auction sale complete in any other manner normally used in auction sales. 

Case Law: Payne vs Cave

In this case, the highest bidder withdraws his bid before the fall of the hammer of the auctioneer. Though Mr. Cave was the highest bidder, he had withdrawn his bid before the auction sale was deemed complete. He was not held liable to purchase the goods for which he had made the bid.