The Service Tax department which has to recover dues of over Rs 500 crore from Mr Mallya's defunct Kingfisher Airlines, had attached the plane in December 2013.
The aircraft is grounded since October 2012. The Mumbai International Airport Ltd (MIAL) has also approached the court, claiming hangar charges of the plane from SGI Commex, the purported bid winner.
However, SGI Commex told the court that it wanted to withdraw from the process because "it was not acceptable to other side and the deal could not be struck under a cloud." "A fresh auction may be permitted (by the court)...We may bid again if we feel necessary," said its lawyer.
A division bench headed by Justice S C Dharmadhikari recorded the statement and allowed a fresh auction.
The bench also gave an option to C J Leasing, the company which owns the aircraft and which had given it to Mr Mallya on lease, to pick an agency to conduct the fresh auction.
The next hearing would be on October 6 when C J Leasing's lawyer would inform the court the name of the agency it wants to appoint for the fresh auction.
The high court was hearing a petition filed by the Service Tax department seeking recall the auction as the highest bid was lower than the reserve price.
The department's counsel Anil Singh argued that the bid of SGI Commex was 81.8 per cent lower than the reserve price of Rs 152 crore, whereas the company had contended that no reserve price had been set to start with.
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