To understand this let focus on some popular trading pattern that is intraday trading and positional trading
Intraday Trading : where you buy stock on a day sell it on same day before market close.
Positional Trading : Where you want to hold the stock , if you have buy the stock on today its delivery you will receive on T+ 2 days here T day is trading day.
Short sell is an intraday mechanism. where you sell the stock first an buy it on same day to square off the position on same day.
In market if you have buy the stock on then you will receive its delivery on T+2 days. In same way if you have sell the stock then you have to delivery the stock within T+2 days,
But if we doesn’t have the same stock then how we can sell it. here you transfer your position by purchasing the same stock form another person at lowest level that would be your profit,
In short sell you generally sell the stock at highest level to one person (buyer ) and buy it at lowest level from another person (seller) at lowest level that would be your profit. and if you square off the position at highest level to selling price that would be your loss.
Auction is the process where exchange provide the delivery of share to buyer on behalf of defaulter (who have hold the short sell position) , here in auction window except defulter and his broker ,other broker an individual can participate ,
here exchange buy the share at 20% (positive and negative of valuation price) means the closing on the same day.
here auction is a separate window where exchange invite bids for buying the share , that doesn’t affect normal market buying an selling
when the upper circuit is applicable on that condition exchange will buy the share at lowest price among the different seller offering.