Date of the Judgment: 20 November 2023
Citation: 2023 INSC 1010
Judges: Sanjiv Khanna, J., S.V.N. Bhatti, J.
Can a state government be compelled to accept a single bid in a mineral auction if the first attempt at auction failed due to lack of any valid bids? The Supreme Court of India recently addressed this question in a case concerning the interpretation of the Mineral (Auction) Rules, 2015. The Court held that the State of Jharkhand was not obligated to accept a single bid in a second auction attempt when the first attempt had no valid bids, clarifying the application of the rules regarding mineral auctions. This judgment was delivered by a two-judge bench comprising Justice Sanjiv Khanna and Justice S.V.N. Bhatti, with Justice Bhatti authoring the opinion.
Case Background
The case revolves around a tender issued by the State of Jharkhand for the grant of mining leases for bauxite mineral in the Lodhapat, Jobhipat, and Hethilodha blocks. The initial tender notice (NIT) was issued on 25 October 2019. Sociedade De Fomento Industrial Pvt. Ltd. (the Respondent) submitted a physical bid but failed to upload the technical bid on the digital platform as required. Consequently, the Tender Evaluation Committee (TEC) recommended the annulment of this first attempt on 17 December 2019. Subsequently, a second NIT was issued on 28 January 2020, with the same terms and conditions as the first. In response to this second NIT, the Respondent was the sole bidder. The TEC found the Respondent’s bid to be compliant and recommended further action. However, the State Government decided to annul the entire auction process, leading to the Respondent filing a writ petition.
Timeline:
| Date | Event |
|---|---|
| 25 October 2019 | State of Jharkhand issues NIT for bauxite mineral mining leases. |
| 16 December 2019 | Last date for submission of technical bids and IPO for first NIT. |
| 13 December 2019 | Sociedade De Fomento Industrial Pvt. Ltd. submits physical bid but not on the digital platform. |
| 17 December 2019 | Tender Evaluation Committee (TEC) recommends annulment of the first auction attempt. |
| 28 January 2020 | State of Jharkhand issues a second NIT for the same mining leases. |
| 13 March 2020 | Last date for submission of technical bid and IPO on the MSTC website for second NIT. |
| 16 March 2020 | Date of opening the tender for the second NIT. |
| 11 June 2020 | TEC finds Sociedade De Fomento’s bid compliant in the second attempt and recommends further action. |
| 27 December 2021 | State Government decides to annul the auction process. |
| 24 August 2022 | High Court of Jharkhand allows the LPA filed by Sociedade De Fomento. |
| 20 November 2023 | Supreme Court of India sets aside the High Court judgment. |
Course of Proceedings
The Respondent filed a writ petition in the High Court of Jharkhand, seeking directions to the State to proceed with the second round of auction. The Single Judge dismissed the petition, holding that since the first attempt had no valid technical bids, there was no basis for a second auction attempt. The Division Bench of the High Court, however, allowed the appeal, stating that the State was obligated to proceed with the second round of auction even with a single bidder, based on the second proviso to Sub-Rule (12) of Rule 9 of the Mineral (Auction) Rules, 2015, as amended in 2017. The State of Jharkhand then appealed to the Supreme Court.
Legal Framework
The case is governed by the Mines and Minerals (Development and Regulation) Act, 1957 (the MMDR Act) and the Mineral (Auction) Rules, 2015 (M(A) Rules). Rule 9 of the M(A) Rules outlines the bidding process for mineral auctions. Key provisions include:
- ✓ Rule 9(4): “The auction shall be an ascending forward online electronic auction and shall comprise of attempts of auction with each attempt of auction consisting of a first round of auction and a second round of auction.”
- ✓ Rule 9(5): Specifies the requirements for submitting a technical bid and an initial price offer.
- ✓ Rule 9(6): Defines “technically qualified bidders” as those who meet eligibility criteria and whose initial price offer is at or above the reserve price.
- ✓ Rule 9(10): “Where the total number of technically qualified bidders is less than three, then no technically qualified bidder shall be considered to be qualified bidder and the first attempt of auction shall be annulled.”
- ✓ Rule 9(11): Allows the State Government to either commence a de novo auction or conduct a second attempt of auction upon annulment of the first attempt.
- ✓ Rule 9(12): “In case the State Government decides to conduct the second attempt of auction as per clause (b) of sub-rule (11), the terms and conditions of the second attempt of action shall remain the same as in the first annulled attempt of auction.”
- ✓ First Proviso to Rule 9(12): “Provided that the highest initial price offer of the technically qualified bidders if any in the first annulled attempt shall be the reserve price in the first round of the second attempt.”
- ✓ Second Proviso to Rule 9(12): “Provided further that the bidding shall continue to the second round even in case the number of technically qualified bidders is less than three.”
Arguments
Appellant’s Arguments (State of Jharkhand):
- ✓ The High Court erred in exercising judicial review in a matter of contract and state largesse.
- ✓ The Division Bench did not appreciate the structured bidding process under Rule 9 of the M(A) Rules.
- ✓ The first attempt of auction was invalid as the Respondent did not submit the technical bid through the required electronic platform.
- ✓ The first proviso of Sub-Rule (12) of Rule 9 requires the highest initial price from the first attempt to be the reserve price for the second attempt, which was not available in this case.
- ✓ Compelling the State to consider the lone bid of the Respondent is illogical, illegal, against public interest, and a loss to the exchequer.
Respondent’s Arguments (Sociedade De Fomento Industrial Pvt. Ltd.):
- ✓ The auction was conducted as per the MMDR Act and M(A) Rules.
- ✓ The State chose to annul only the first attempt and not the entire process, thus opting for a second attempt.
- ✓ The second attempt must adhere to Sub-Rules (11) and (12) of the M(A) Rules.
- ✓ The rules are intended to ensure certainty in the finalization of mining leases, and the absence of a minimum number of bidders in the second attempt is insignificant.
- ✓ The TEC’s decision on 11 June 2020, was to proceed with the second attempt, and the State’s decision to annul the tender process was flawed.
- ✓ The second proviso to Sub-Rule (12) of Rule 9 mandates that the bidding continues even if there are less than three technically qualified bidders.
| Main Submission | Sub-Submissions by Appellant | Sub-Submissions by Respondent |
|---|---|---|
| Validity of First Auction Attempt |
|
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| Obligation to Proceed with Second Attempt |
|
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| Decision-Making Process |
|
|
Innovativeness of the argument: The respondent’s argument that the second proviso to Sub-Rule (12) of Rule 9 mandates the continuation of the bidding process even with less than three technically qualified bidders, was innovative in the sense that it sought to apply the rule literally, irrespective of the fact that the first attempt failed due to lack of a valid bid, and not merely due to less than 3 bidders.
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section. However, the core issues addressed by the Court were:
- Whether the State Government was correct in annulling the first auction attempt, given the non-compliance by the Respondent in submitting the technical bid electronically.
- Whether the second proviso to Sub-Rule (12) of Rule 9 of the M(A) Rules mandates the State to proceed with the second round of auction even when the first attempt had no valid bids and only one bidder is present in the second attempt.
Additionally, the Court also dealt with the sub-issue of whether the decision-making process of the State Government was flawed in annulling the tender process despite the TEC recommendation to proceed further in the second attempt.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reason |
|---|---|---|
| Validity of annulling the first auction attempt | Upheld | The first attempt was invalid due to non-compliance with electronic submission requirements. |
| Obligation to proceed with second attempt with a single bidder | Rejected | The second proviso to Rule 9(12) does not apply when the first attempt had no valid bids. The rule is applicable where there are some technically qualified bidders but less than three. |
| Flaw in decision-making process | Rejected | The State’s decision to annul was justified as the first attempt was non-responsive and the decision was in public interest. |
Authorities
The Supreme Court relied on the following cases and legal provisions:
Cases:
- ✓ Jagdish Mandal v. State of Orissa and Others, (2007) 14 SCC 517: The Supreme Court discussed the scope of judicial review in tender processes, emphasizing that courts should not interfere unless the decision is mala fide, arbitrary, or against public interest. The Court held that judicial review is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides. Its purpose is to check whether choice or decision is made “lawfully” and not to check whether choice or decision is “sound”.
- ✓ Michigan Rubber (India) Ltd. v. State of Karnataka and Others, (2012) 8 SCC 216: The Supreme Court reiterated the principles of judicial review in tender matters, emphasizing that the court should not interfere unless the process is mala fide, arbitrary, or against public interest.
Legal Provisions:
- ✓ Mines and Minerals (Development and Regulation) Act, 1957: The governing law for the regulation of mines and minerals.
- ✓ Mineral (Auction) Rules, 2015: The rules that govern the auction process for mineral leases.
- ✓ Rule 9 of the Mineral (Auction) Rules, 2015: The specific rule that deals with the bidding process, including the first and second attempts of auction.
| Authority | Court | How Considered |
|---|---|---|
| Jagdish Mandal v. State of Orissa and Others, (2007) 14 SCC 517 | Supreme Court of India | Followed to define the scope of judicial review in tender matters. |
| Michigan Rubber (India) Ltd. v. State of Karnataka and Others, (2012) 8 SCC 216 | Supreme Court of India | Followed to reiterate the principles of judicial review in tender matters. |
| Mines and Minerals (Development and Regulation) Act, 1957 | Parliament of India | Cited as the governing law for mineral regulation. |
| Mineral (Auction) Rules, 2015 | Ministry of Mines, Government of India | Cited as the rules governing the auction process. |
| Rule 9 of the Mineral (Auction) Rules, 2015 | Ministry of Mines, Government of India | Cited as the specific rule dealing with the bidding process. |
Judgment
The Supreme Court allowed the appeal filed by the State of Jharkhand and set aside the judgment of the Division Bench of the High Court. The Court held that the State was not obligated to accept the single bid of the Respondent in the second attempt of auction, as the first attempt had no valid bids. The Court reasoned that the second proviso to Sub-Rule (12) of Rule 9 of the M(A) Rules is applicable only when the first attempt had some technically qualified bidders, though less than three, and not when there were no valid bids at all. The Court emphasized that the State has a duty to act in public interest while granting mining leases and that the decision to annul the tender process was justified in this case.
| Submission by Parties | How Treated by the Court |
|---|---|
| The State’s decision to annul the first attempt was flawed. | Rejected. The Court held that the first attempt was invalid due to non-compliance by the Respondent. |
| The State was obligated to proceed with the second attempt with a single bidder. | Rejected. The Court held that the second proviso to Rule 9(12) does not apply when the first attempt had no valid bids. |
| The State’s decision-making process was flawed. | Rejected. The Court held that the State’s decision was justified in the circumstances and in public interest. |
How each authority was viewed by the Court?
- ✓ Jagdish Mandal v. State of Orissa and Others, (2007) 14 SCC 517* was used by the court to emphasise the limited scope of judicial review in tender matters.
- ✓ Michigan Rubber (India) Ltd. v. State of Karnataka and Others, (2012) 8 SCC 216* was used to reiterate the principles of judicial review, stating that courts should not interfere unless the process is mala fide, arbitrary, or against public interest.
- ✓ The Mines and Minerals (Development and Regulation) Act, 1957 was cited as the governing law for the regulation of mines and minerals.
- ✓ The Mineral (Auction) Rules, 2015 were cited as the rules that govern the auction process for mineral leases.
- ✓ Rule 9 of the Mineral (Auction) Rules, 2015 was the central provision under consideration, and the Court interpreted it to mean that the second proviso to Sub-Rule (12) applies only when there were some technically qualified bidders in the first attempt, not when there were no valid bids at all.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- ✓ The need to ensure a fair and competitive bidding process.
- ✓ The importance of adhering to the statutory rules governing mineral auctions.
- ✓ The obligation of the State to act in public interest while granting mining leases.
- ✓ The fact that the first attempt of auction was non-responsive, as the Respondent did not submit the technical bid through the required electronic platform.
- ✓ The interpretation of Rule 9 of the M(A) Rules, specifically the second proviso to Sub-Rule (12), to mean that it applies only when there were some technically qualified bidders in the first attempt, and not when there were no valid bids at all.
The Court also considered the potential loss to the exchequer if the State was compelled to accept a single bid without a competitive process. The Court emphasized the importance of a structured bidding process to ensure transparency and objectivity.
| Sentiment | Percentage |
|---|---|
| Public Interest | 30% |
| Statutory Compliance | 30% |
| Fair Bidding Process | 25% |
| Interpretation of Rules | 15% |
| Ratio | Percentage |
|---|---|
| Fact | 40% |
| Law | 60% |
Fact:Law Ratio: The sentiment analysis of the Supreme Court shows that the legal considerations (60%) weighed more in the Court’s decision than the factual aspects of the case (40%). This indicates that the Court primarily focused on the interpretation of the relevant rules and their application to the given facts, rather than the facts alone.
Logical Reasoning:
First NIT issued (25.10.2019)
Respondent submits physical bid but not online
TEC recommends annulment (17.12.2019) due to non-compliance
Second NIT issued (28.01.2020) with same terms
Respondent is sole bidder
State decides to annul entire process
Court holds that first attempt was non-responsive
Second proviso to Rule 9(12) not applicable as first attempt had no valid bids
State not obligated to accept single bid
The Court considered the argument that the second proviso to Sub-Rule (12) of Rule 9 mandates continuation of the bidding process even with less than three technically qualified bidders. However, the Court rejected this interpretation, holding that the proviso applies only when there were some technically qualified bidders in the first attempt, not when there were no valid bids at all. The Court reasoned that the purpose of the rules is to ensure a competitive bidding process and that accepting a single bid without competition would be against public interest. The Court also noted that the State has a duty to act in public interest while granting mining leases and that the decision to annul the tender process was justified in this case.
“The construction or interpretation of Rule 9 of the M(A) Rules in any other way firstly would be defeating the plain meaning of Rule 9 and also the purpose of bid-cum-e-auction through which the rights in mineral extraction is granted by the State/Appellants.”
“In the case on hand, the first attempt of the auction was similar to being void, not for want of requisite number of technically qualified bidders, but for want of a valid bidder and any financial bid.”
“The Appellants are governed by the MMDR Act and M(A) Rules, for identifying, auctioning the blocks and granting mining lease rights to successful participants. The first and foremost obligation on the Appellants is to act in trust and advance the public interest while granting mining leases.”
Key Takeaways
- ✓ The State is not obligated to accept a single bid in a second auction attempt if the first attempt failed due to the absence of any valid bids.
- ✓ The second proviso to Sub-Rule (12) of Rule 9 of the M(A) Rules applies only when the first attempt had some technically qualified bidders, though less than three.
- ✓ The State has a duty to act in public interest while granting mining leases, and this includes ensuring a competitive bidding process.
- ✓ Non-compliance with the specified mode and manner of submitting bids can result in the bid being considered as not received.
- ✓ Courts will not interfere in tender matters unless the decision is mala fide, arbitrary, or against public interest.
Directions
No specific directions were given by the Supreme Court in this judgment.
Development of Law
The ratio decidendi of this case is that the second proviso to Sub-Rule (12) of Rule 9 of the Mineral (Auction) Rules, 2015, does not apply when the first attempt of auction is annulled due to the absence of any valid bids. This clarifies the interpretation of the rule and provides guidance on the obligations of the State in such situations. The judgment reinforces the importance of a fair and competitive bidding process in mineral auctions.
Conclusion
The Supreme Court’s decision in State of Jharkhand vs. Sociedade De Fomento Industrial Pvt. Ltd. clarifies the application of the Mineral (Auction) Rules, 2015, particularly regarding second attempts at auction. The Court held that the State was not obligated to accept a single bid when the first attempt had no valid bids, emphasizing the need for a competitive bidding process and the State’s duty to act in public interest. This judgment provides important guidance for future mineral auctions and underscores the importance of adhering to statutory rules.
Category:
Parent category: Mines and Minerals (Development and Regulation) Act, 1957
Child category: Mineral (Auction) Rules, 2015
Child category: Rule 9, Mineral (Auction) Rules, 2015
Parent category: Mineral Auction
Child category: Bidding Process
Child category: Tender Process
Child category: State Largesse
Parent category: Judicial Review
Child category: Tender Process
Child category: Contractual Matters
FAQ
Q: What is the main issue in the State of Jharkhand vs. Sociedade De Fomento Industrial Pvt. Ltd. case?
A: The main issue was whether the State of Jharkhand was obligated to accept a single bid in a second attempt at a mineral auction when the first attempt had no valid bids.
Q: What did the Supreme Court decide in this case?
A: The Supreme Court decided that the State was not obligated to accept the single bid. The Court held that the second proviso to Sub-Rule (12) of Rule 9 of the Mineral (Auction) Rules, 2015, applies only when the first attempt had some technically qualified bidders, not when there were no valid bids at all.
Q: What are the Mineral (Auction) Rules, 2015?
A: The Mineral (Auction) Rules, 2015, are the rules that govern the auction process for mineral leases in India. They specify the procedures for conducting auctions, including the requirements for submitting bids and the criteria for selecting successful bidders.
Q: What is the significance of Rule 9 of the Mineral (Auction) Rules, 2015?
A: Rule 9 of the Mineral (Auction) Rules, 2015, outlines the bidding process for mineral auctions, including the first and second attempts of auction. It specifies the requirements for submitting technical bids, initial price offers, and the conditions for proceeding to the second round of auction.
Q: What is the second proviso to Sub-Rule (12) of Rule 9 of the Mineral (Auction) Rules, 2015?
A: The second proviso to Sub-Rule (12) of Rule 9 states that the bidding shall continue to the second round even if the number of technically qualified bidders is less than three. However, the Supreme Court clarified that this proviso applies only when the first attempt had some technically qualified bidders, not when there were no valid bids at all.
Q: What is the responsibility of the State Government in granting mining leases?
A: The State Government has a responsibility to act in public interest while granting mining leases. This includes ensuring a fair and competitive bidding process and maximizing revenue for the state.
Q: What does the Supreme Court mean by “non-responsive tender”?
A: A “non-responsive tender” refers to a tender where the bidder has not complied with the essential requirements of the tender document. In this case, the Respondent’s bid was considered non-responsive because it did not submit the technical bid through the required electronic platform.