E-Auction Error Rectification Allowed: Supreme Court Rules in Favor of OMSAIRAM STEELS in Mining Lease Case (2024)

Introduction

Date of the Judgment: 15th July 2024

Citation: 2024 INSC 520

Judges: Sanjiv Khanna, J., Dipankar Datta, J.

Can a bidder rectify a significant error made during an online auction, or are they bound by the mistaken bid? The Supreme Court of India recently addressed this critical question in a case involving a mining lease e-auction. The Court considered whether a bidder could be relieved of their obligations due to a genuine mistake in submitting their bid. The judgment was delivered by a two-judge bench comprising Justice Sanjiv Khanna and Justice Dipankar Datta, with Justice Dipankar Datta authoring the opinion.

Case Background

The case revolves around an e-auction for a mining lease of the Orahuri manganese and iron ore block. The State of Odisha floated a tender on January 9, 2023. M/s OMSAIRAM STEELS & ALLOYS PVT. LTD. (the appellant) participated in the auction, submitting the required fees and a bid security of Rs 9,12,21,315 in the form of a bank guarantee. The e-auction process involved two rounds: technical bids and initial price offers, followed by an e-auction for technically qualified bidders to propose their final price offer. The e-auction was scheduled for March 21, 2023, with a floor price of 84.00%. During the auction, the appellant intended to bid 104.10%, but mistakenly entered 140.10%. After realizing the error, the appellant immediately contacted the authorities to rectify the mistake, but was denied. The High Court of Orissa dismissed the appellant’s writ petition, leading to the appeal to the Supreme Court.

Timeline:

Legal Framework

The case is governed by the Mines and Minerals (Development and Regulation) Act and the Mineral Auction Rules, 2015 (MA Rules). The MA Rules contemplate a two-round process for e-auctions: (i) submission of technical bids and initial price offers; and (ii) selection of technically qualified bidders for participation in the e-auction. The rules specify that qualified bidders propose their Final Price Offer over and above the Floor Price, with a minimum increment of 0.05%. Rule 20 of the MA Rules allows rectification of clerical or arithmetic mistakes only with respect to orders passed by the Government or authorities, but not bids of the nature under consideration.

Arguments

Appellant’s Submissions:

• The appellant argued that the bid of 140.10% was a result of a bona fide human error. The appellant contended that during the seven-hour bidding period, bids had only increased from 84.00% to 104.05%, with most increments being a minimum of 0.05%. The appellant stated that it intended to bid 104.10%, but mistakenly entered 140.10%.
• The appellant submitted that no reasonable businessman would submit a bid of 140.10% when the prevailing highest bid was 104.05%, especially when the minimum required increment was only 0.05%.
• The appellant argued that the e-auction platform did not provide any scope for rectification of errors. The system only displayed the bid amount, but there was no method for correction or cancellation of the bid.
• The appellant contended that the forfeiture of the security deposit of Rs 9,12,21,315 for a human error was a disproportionate punishment.

Respondents’ Submissions:

• The respondents argued that the e-auction process had attained finality, and the appellant could not be allowed to reopen the same for what it claimed was a mistake.
• The respondents submitted that once a bid is typed by the bidders on the e-auction platform and authenticated with a Digital Signature Certificate, the bid is recorded by the system. The appellant complied with this formality, hence, it cannot claim that the bid was a mistake.

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the appellant can attribute the bid of 140.10% to a bona fide mistake and request for re-commencement of the e-auction process.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court in Silppi Constructions Contractors v. Union of India and Ors [2019 SCC OnLine SC 1133]* was used to emphasize the need for judicial restraint in commercial matters, but also the duty to interfere in cases of arbitrariness.
• The Supreme Court in W. B. State Electricity Board v. Patel Engg. Co. Ltd. [(2001) 2 SCC 451]* was distinguished on facts, noting that in the present case, the appellant had acted promptly upon realizing the mistake.
• The principle from American Jurisprudence (2nd Edn., Vol 64, p. 944) was used to support the idea that equitable relief can be granted in cases of material mistake.
• The Supreme Court in Coimbatore District Central Coop. Bank v. Employees Assn. [(2007) 4 SCC 669]* was used to explain the doctrine of proportionality, which was applied to mitigate the harsh consequences of the mistake.
• Rule 20 of the Mineral Auction Rules, 2015 was considered to highlight the absence of a mechanism for rectifying bid errors.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

• Bona Fide Human Error: The Court was convinced that the appellant’s bid of 140.10% was a genuine mistake and not an attempt to gain an unfair advantage. The court noted that the appellant had acted promptly to inform the authorities of the error.
• Lack of Rectification Mechanism: The Court emphasized that the e-auction platform did not provide any mechanism for rectifying errors, leaving the appellant with no recourse.
• Doctrine of Proportionality: The Court applied the doctrine of proportionality, finding that the forfeiture of the entire security deposit was a disproportionate punishment for a human error.
• Equity and Justice: The Court aimed to balance the interests of the State and the private party, ensuring that neither party suffered disproportionately.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The Court’s reasoning was based on the following:

• The court found that the appellant had made a genuine error while entering the bid, noting the unusual jump in the bid amount from 104.05% to 140.10%.
• The court observed that the e-auction platform did not provide any mechanism for rectifying errors, leaving the appellant with no recourse. “…the system does not apparently provide any option to cancel such bid or to re-type the bid amount, should any error or mistake in the bid be noticed.”
• The court applied the doctrine of proportionality, finding that the forfeiture of the entire security deposit was a disproportionate punishment for a human error. “If the balancing test is applied to the factual matrix of the present case, it is as clear as day light that the forfeiture of the entirety of the appellant’s security deposit worth Rs 9,12,21,315/- (Rupees nine crore twelve lakh twenty one thousand three hundred and fifteen only) as against evident human error…is punitive.”
• The court aimed to balance the interests of the State and the private party, ensuring that neither party suffered disproportionately. “…the path of rendering justice to the parties has to be treaded carefully to ensure that the interests of both the respondents and the appellant do not suffer disproportionately.”

The Court rejected the respondents’ argument that the e-auction process had attained finality, holding that the mistake was genuine and required rectification. The court also rejected the argument that the appellant was bound by its bid since it was authenticated with a Digital Signature Certificate, holding that the authentication was a mere formality and the bid was a result of a mistake.

The Court considered the trend of bids offered by the bidders as noticed in paragraph 4 of the judgment and found that the appellant did not consciously enhance its bid to 140.10% to take undue advantage. The court also noted that the appellant acted promptly to inform the authorities of the error and sought an opportunity to rectify the same.

The Court did not delve into the issue of whether the forfeiture of the security deposit was in the form of penalty or liquidated damages. Instead, it exercised its power under Article 142 of the Constitution to pass orders in the interest of equity.

Key Takeaways

• Rectification of Errors: The judgment highlights that in certain circumstances, a bidder can seek rectification of a bid submitted in an e-auction due to a bona fide human error.
• Importance of Due Diligence: Bidders are expected to exercise a high degree of caution and care, and any error may result in financial consequences.
• Proportionality: The doctrine of proportionality can be applied to mitigate the harsh consequences of mistakes in commercial matters.
• E-Auction System Improvements: The judgment suggests that e-auction platforms should consider providing mechanisms for rectifying errors to prevent such situations in the future.

Directions

The Supreme Court issued the following directions:

• The impugned communication issued by the first respondent was quashed.
• The respondents were given the liberty to conduct a fresh e-auction.
• The appellant was directed to pay Rs 3,00,00,000 (Rupees three crore only) to the first respondent within a month. In default, the bank guarantee furnished by the appellant may be encashed.
• Out of the Rs 3 crore paid by the appellant, Rs 2.75 crore was to be appropriated towards loss of revenue and expenses, and Rs 25 lakh was to be spent towards charitable purposes for development of the young tribal population of the district where the subject mine is located.

Development of Law

The ratio decidendi of this case is that a bidder can seek rectification of a bid submitted in an e-auction due to a bona fide human error, especially when the e-auction system does not provide any mechanism for rectifying errors. The Supreme Court also emphasized the application of the doctrine of proportionality to mitigate the harsh consequences of mistakes in commercial matters. This decision clarifies that while bidders are expected to exercise due diligence, there is scope for equitable relief in cases of genuine mistakes, particularly where the system does not allow for rectification.

Conclusion

In conclusion, the Supreme Court allowed the appeal in part, setting aside the High Court’s decision. The Court held that the appellant’s bid of 140.10% was a result of a bona fide human error and that the e-auction system did not provide any mechanism for rectifying such errors. The Court applied the doctrine of proportionality to mitigate the harsh consequences of the mistake and directed the respondents to conduct a fresh e-auction. This judgment underscores the importance of balancing the interests of the State and private parties and provides guidance on the treatment of human errors in e-auction processes.

Category

• Mining Law
  • E-Auction
  • Mining Lease
• Contract Law
  • Bidding
  • Mistake in Contract
• Writ Jurisdiction
  • Judicial Review
  • Error Rectification
• Mineral Auction Rules, 2015
  • Rule 20, Mineral Auction Rules, 2015
• Mines and Minerals (Development and Regulation) Act
  • Mining Regulations

FAQ

Q: What was the main issue in the OMSAIRAM STEELS case?

A: The main issue was whether a bidder could seek rectification of a bid submitted in an e-auction due to a bona fide human error.

Q: What did the Supreme Court decide in this case?

A: The Supreme Court held that a bidder could seek rectification of a bid submitted in an e-auction due to a genuine human error, especially when the e-auction system does not provide any mechanism for rectifying errors.

Q: What is the doctrine of proportionality and how was it applied in this case?

A: The doctrine of proportionality involves a balancing test and a necessity test. The Supreme Court applied this doctrine to mitigate the harsh consequences of the mistake, finding that the forfeiture of the entire security deposit was a disproportionate punishment.

Q: What are the practical implications of this judgment for future e-auctions?

A: This judgment suggests that e-auction platforms should consider providing mechanisms for rectifying errors. It also underscores the importance of due diligence by bidders while also providing a remedy in case of genuine mistakes.

Q: What was the reason for the Supreme Court to allow for a fresh e-auction?

A: The Supreme Court allowed for a fresh e-auction to balance the interests of the State and the private party, ensuring that neither party suffered disproportionately due to the mistake. The court also took into account the delay and loss of revenue that had resulted from the error.