Supreme
Court Affirms Duty of Care in Government Auctions: A Landmark Decision on
Competitive Bidding and Public Interest
In a landmark ruling, the Supreme Court of
India highlighted the critical need for diligence and meticulousness in
government auctions. The bench, comprising Justice Sanjiv Khanna and Justice
Dipankar Datta, emphasized that experienced corporate entities must exercise a
higher degree of care to protect public resources. This decision allowed for a
fresh auction of a mining lease due to an erroneous bid by the highest bidder,
M/s Omsairam Steels & Alloys Pvt. Ltd., while imposing costs for their lack
of due care.
The Case:
M/s Omsairam Steels & Alloys Pvt. Ltd. v. Director of Mines and Geology,
Bhubaneswar & Ors.
The case revolved around an e-auction
conducted by MSTC Ltd. for the Director of Mines and Geology, Bhubaneswar. The
State of Odisha had initiated the e-auction process for the Orahuri manganese
and iron ore block on January 9, 2023. M/s Omsairam Steels & Alloys Pvt.
Ltd. participated by submitting the necessary fees and an online bid, which
included a Bid Security of Rs. 9,12,21,315 in the form of a bank guarantee.
The Auction
and the Critical Error
The e-auction, governed by the Mineral Auction
Rules, 2015, had two rounds: technical bids and initial price offers, followed
by the e-auction for technically qualified bidders. On March 21, 2023, during
the e-auction with a Floor Price of 84.00 percent, the appellant mistakenly
entered a bid of 140.10 percent instead of the intended 104.10 percent after
nearly seven hours and 136 bid increments. With no counter-bids, the auction
concluded with the appellant's bid recorded at 140.10 percent.
Immediate
Repercussions and Legal Proceedings
Realizing the mistake, the appellant
immediately tried to rectify the bid, including sending an email to the
Director of Mines on the same day. However, the request was rejected, and the
appellant was confirmed as the Preferred Bidder. They were then directed to
deposit Rs. 3,64,88,526 as the first installment of the upfront payment within
fifteen days, failing which the security deposit would be forfeited. This led
the appellant to file a writ petition, arguing the mistake was a bona fide
error.
The Orissa High Court dismissed the petition,
stating the appellant was bound by its bid and that the issue was beyond the
scope of writ jurisdiction. Consequently, the appellant approached the Supreme
Court.
Supreme
Court’s Deliberation and Verdict
Senior Advocate Mukul Rohatgi, representing
the appellant, argued that the final bid of 140.10 percent was a human error,
pointing out that the erroneous bid was 36.05 percent higher than the previous
bid when only a 0.05 percent increment was required. Advocate Prakash Ranjan
Nayak, representing the respondents, contended that the e-auction process had
attained finality and could not be reopened due to an alleged mistake. The
respondents also noted that the e-auction platform required authentication via
a Digital Signature Certificate, which the appellant had complied with,
negating the claim of an unintentional error.
The Supreme Court acknowledged the limited
scope of judicial review in commercial matters but emphasized the possibility
of equitable relief for bona fide mistakes. The court noted the appellant’s
prompt action in informing the authorities about the error and found the
respondents’ argument about the finality of the e-auction unpersuasive. The
court held that the appellant's bid of 140.10 percent made little commercial
sense and was a bona fide mistake, and allowing it to stand would be
unconscionable.
Application
of the Doctrine of Proportionality
The court applied the doctrine of
proportionality, stating that forfeiture of the security deposit for a clear
human error, without any mala fides, was disproportionate and punitive. The
court observed that enforcing an otherwise commercially unviable bid, with the
forfeiture of the deposit looming over the appellant, was not in either party’s
best interests.
Implications
The court quashed the impugned communication
and allowed for a fresh e-auction. It ordered the appellant to pay Rs.
3,00,00,000 within a month, with Rs. 2,75,00,000 allocated for various costs
and Rs. 25,00,000 designated for charitable purposes for the young tribal
population of the district where the mine is located.
This judgment sets a precedent on the duty of
care expected in government auctions, reinforcing the necessity for
meticulousness in bidding processes to protect public resources.
