The Supreme Court of India has set aside a judgment of the Orissa High Court and ordered a fresh auction for a sand quarry, ruling that a tender committee’s misinterpretation of the term ‘previous Financial Year’—which led to the disqualification of the highest bidder—was erroneous and vitiated the decision-making process.
The judgment, delivered by a bench of Justice Sanjay Kumar and Justice Alok Aradhe, clarified that the tender condition must be read in harmony with the Income Tax Act, 1961. The Court directed the State of Odisha to refund the deposit made by the bidder who had been declared successful, along with 6% annual interest.
The appeals before the Supreme Court involved the interpretation of Rule 27(4)(iv) of the Odisha Minor Mineral Concession Rules, 2016 (hereinafter, the ‘Rules’).
Background of the Case
The case originates from an auction notice issued by the Tehsildar, Tangi Chowdwar, Cuttack, on July 11, 2022, for the lease of the Mahanadi Sand Quarry for a five-year period. Bids were to be submitted by July 18, 2022, and were opened on July 19, 2022.
Clause 5 of the tender, incorporating Rule 27(4)(iv) of the Rules, required bidders to submit either: (i) An Income Tax Return of the ‘previous financial year’ showing annual income not less than the additional charge offered and royalty payable for one year; or (ii) A Bank Guarantee for that amount.
In response, M/s Shanti Construction Pvt. Ltd. (the ‘unsuccessful bidder’) submitted the highest bid, quoting a rate of Rs. 2127.27 per cubic meter. Another bidder (the ‘successful bidder’) quoted a significantly lower rate of Rs. 1250/- per cubic meter.
On July 19, 2022, the Tender Committee declared the bid of M/s Shanti Construction “non-responsive,” stating it had failed to comply with Rule 27(4)(iv) by not submitting the Income Tax Return (ITR) for the financial year 2021-2022. The tender was consequently awarded to the lower bidder, who was found to be technically responsive.
On July 25, 2022, the Tehsildar issued Form-F to the ‘successful bidder’, who accepted the terms and deposited Rs. 1,26,75,000/-.
M/s Shanti Construction challenged this award before the High Court of Orissa. By its judgment dated March 1, 2023, the High Court upheld the rejection of the highest bid. However, noting the “huge difference” in rates and the potential “huge loss to public exchequer,” the High Court directed the ‘successful bidder’ to match the highest price offered by M/s Shanti Construction.
This judgment was appealed by both parties; the ‘unsuccessful bidder’ challenged the rejection of its bid, while the ‘successful bidder’ challenged the direction to match the higher price.
Arguments of the Parties
Learned senior counsel for the ‘unsuccessful bidder’ (M/s Shanti Construction) argued that it had submitted the ITR for the financial year 2020-2021. It was contended that as the tender was floated on July 11, 2022, and the last date for a company to file its ITR for FY 2021-2022 was October 31, 2022, the Tender Committee had misinterpreted the rule.
Learned counsel for the ‘successful bidder’ countered that the rejection was justified and that the terms of a tender are not open to judicial scrutiny absent arbitrariness. It was argued that upon acceptance and deposit, a vested right was created, and the delay in execution was due to litigation. The counsel submitted that the ‘successful bidder’ was now ready to match the highest rate and should be granted the lease.
Learned counsel for the State of Odisha submitted its willingness to either award the tender for the remainder of the period at the higher rate or refund the deposit without interest.
Supreme Court’s Analysis and Findings
The Supreme Court first reiterated the settled law on judicial review in contractual matters, stating that the “court’s interference is limited to cases where the decision making process is shown to be arbitrary, irrational, mala fide or contrary to public interest.”
The judgment observed that “A public tender is not a private bargain. It is instrument of governance, a mechanism through which the State discharges its solemn duty as trustee of public wealth.” The Court stated that the object is to “maximise the revenue to the State” when dealing with natural resources.
The bench held that the controversy turned upon the correct interpretation of ‘previous Financial Year’ under Rule 27(4)(iv). The Court found that the rule must be “read in harmony with the provisions of the Income Tax Act, 1961.”
Delivering the judgment, Justice Aradhe stated: “Under Section 139(1) of the aforesaid Act, a company may file the Income Tax Return for the Financial Year 2021-2022 up to 31st of October, 2022. As per auction notice, the bids were required to be submitted on 18.07.2022. The period for filing the Income Tax Return for Financial Year 2021-2022… was yet to expire.”
The Court concluded, “Therefore, on the said date the bidder could not have been expected to file an Income Tax Return for Financial Year 2021-2022 along with its bid documents, as the statutory period for filing the same had not expired.”
The Supreme Court held that the “reasonable understanding” of the term ‘previous Financial Year’ in this context must be treated as the financial year 2020-2021, for which the bidder had filed its return.
The Court found the Tender Committee proceeded on a “narrow and erroneous understanding” of the rule. It held: “The Tender Committee has erroneously interpreted the tender condition which excludes the highest bidder and defeats the purpose of the tender. Such an interpretation by the Tender Committee undermines the principle that State must act to enhance and not diminish, the public exchequer in case it is dealing with natural resources.”
The judgment further noted, “When an authority acting under a tender misinterprets the tender condition that diminishes competition and deprives the State of its legitimate revenue, the constitutional duty of the court to interfere is beyond question.” The Supreme Court found that the High Court had “failed to advert itself to the aforesaid aspect of the matter.”
Decision and Directions
The Supreme Court, noting that the State as custodian is “obligated to secure the best value for public resources” and that three years and three months of the five-year lease period had already lapsed, issued the following directions:
- The impugned judgment of the High Court dated March 1, 2023, is “quashed and set aside.”
- The Tehsildar, Tangi Chowdwar, Cuttack, shall issue a “fresh auction notice” for the lease of the Mahanadi Sand Quarry.
- The ‘unsuccessful’ and ‘successful’ bidders from the original process, along with all other concerned parties, shall be entitled to submit bids in the fresh auction.
- The State shall “refund the amount deposited by the successful bidder within 30 days along with interest at the rate of 6% per annum from the date of deposit till such payment is made.”
The appeals were disposed of accordingly.
