Supreme Court overturns High Court order on lease cancellation: Debidutta Mohanty vs. Ranjan Kumar Pattnaik (2023)

Date of the Judgment: March 3, 2023
Citation: 2023 INSC 2032
Judges: M. R. Shah, J., B.V. Nagarathna, J.
Can a lease be cancelled if the bidder submits a solvency certificate not in his name, but in the name of a trust where he is the chairman? The Supreme Court of India recently addressed this question in a case concerning the grant of a sand mining lease in Orissa. The core issue revolved around whether a solvency certificate submitted by a bidder, which was not in his individual name but in the name of a trust, was a rectifiable defect or a fundamental flaw that invalidated the bid. The Supreme Court bench, comprising Justices M. R. Shah and B.V. Nagarathna, overturned the High Court’s decision, ruling in favor of the appellant.

Case Background

In 2018, an auction notice was published for granting a lease for sand mining. The notice required bidders to submit a solvency certificate from a Revenue Officer, with the amount not less than the royalty and additional charges fixed for the source. The respondent, Ranjan Kumar Pattnaik, participated in the tender process and submitted an application along with a solvency certificate dated 07.12.2017. This certificate was issued by the Tehsildar, Narasinghpur, despite an order from the Sub-Collector, Athagarh, dated 06.12.2017, stating that the solvency certificate should be issued in favor of “Gurukrupa Charitable Trust, Chairman of Village Kendupali.” However, the Tehsildar issued the certificate in favor of the respondent individually, who was the Chairman of the Trust at the time.

When the bids were opened, Sukanti Sahoo was the highest bidder, followed by the respondent, and then the appellant, Debidutta Mohanty. Sukanti Sahoo’s bid was cancelled because she was a defaulter. The respondent, being the second-highest bidder, was asked to operate the sand sairat at the rate quoted by the highest bidder. He deposited the required amount and complied with the requirements. A lease deed was executed in his favor on 01.01.2020.

Subsequently, the appellant filed a writ petition questioning the solvency certificate issued in favor of the respondent. The High Court directed the Collector, Cuttack, to consider the representation. The Tehsildar, Narasinghpur, cancelled the solvency certificate produced by the respondent, stating that it should have been issued in the name of the Trust, not the individual. The Collector then cancelled the lease in favor of the respondent, stating that the solvency certificate was not issued following the stipulated provisions of the law.

Timeline

Course of Proceedings

The High Court initially granted a stay order which was later vacated. The respondent then filed a writ petition for a direction to the Tehsildar for execution of the lease deed. Subsequently, another writ petition was filed against the grant of lease in favor of the respondent. The High Court initially stayed the operation of the lease deed, but later vacated the stay. The appellant then filed a writ petition questioning the solvency certificate, which was disposed of by directing the Collector to consider his representation. The High Court directed the Collector to dispose of the representation of the appellant questioning the solvency certificate. The Collector cancelled the lease in favor of the respondent. The High Court set aside the order of the Collector, which was challenged in this appeal.

Legal Framework

The case refers to the Orissa Minor Minerals Concession Rules, 2016 (OMMC Rules, 2016). The auction notice referred to these rules. The key provision discussed is Rule 51(7) of the OMMC Rules, 2016, which states:

“51(7) In case of any breach of any condition of the lease deed, the Tehsildar may, after giving the lessee an opportunity of being heard, cancel the lease deed and forfeit the security deposit.”

This rule specifies that the Tehsildar is the competent authority to cancel a lease deed in case of a breach of any condition of the lease deed.

Arguments

Appellant’s Arguments:

• The appellant argued that the High Court erred in setting aside the Collector’s order, which cancelled the lease in favor of the respondent.
• The solvency certificate used by the respondent was not in his name, but in the name of the Trust, making it a fraudulent act that rendered his bid void from the beginning.
• The High Court failed to appreciate that the respondent was attempting to pass off the property of the Trust as his own.
• The High Court wrongly applied Rule 51(7) of the OMMC Rules, 2016, as the case was not about a breach of the lease deed, but about a breach of the tender notice.
• The High Court erred in holding that the Tehsildar was the competent authority, especially when there were allegations of conspiracy against the Tehsildar.
• The High Court should not have considered the subsequent conduct of the respondent in obtaining a fresh solvency certificate.

Respondent’s Arguments:

• The respondent argued that the initial solvency certificate was issued in his name by mistake, and he later applied for a substitution.
• The respondent contended that he obtained a fresh solvency certificate, which was permitted to be substituted.
• The power to cancel the lease deed vested with the Tehsildar, not the Collector, according to Rule 51(7) of the OMMC Rules, 2016.
• The respondent also argued that the lease period had expired and a fresh lease deed was executed in his favor.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues, but the core issues that the Court addressed were:

• Whether the Collector had the authority to cancel the lease deed.
• Whether the initial solvency certificate submitted by the respondent was valid.
• Whether the subsequent conduct of the respondent in obtaining a fresh solvency certificate could be considered.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not cite any case laws or books in this judgment.

Judgment

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

How each authority was viewed by the Court?

✓ Rule 51(7) of the OMMC Rules, 2016: The Court held that this rule was not applicable to the facts of the case, as the case was not about a breach of the lease deed but about producing an invalid solvency certificate at the time of submission of the bid.

What weighed in the mind of the Court?

The Supreme Court was primarily influenced by the fact that the respondent had deliberately misused the solvency certificate by obtaining it in his individual name, despite the Sub-Collector’s specific direction to issue it in the name of the Trust. The Court also emphasized that the validity of the bid had to be determined based on the documents submitted at the time of the bid, not on any subsequent actions by the respondent. The Court was also influenced by the fact that the respondent had tried to use the same solvency certificate in another tender and was disqualified by the Tehsildar and Sub-Collector.

Logical Reasoning:

The Court considered the argument that the initial solvency certificate was issued by mistake but rejected it, stating that the Tehsildar issued the certificate despite the Sub-Collector’s specific direction to issue it in the name of the Trust. The Court also rejected the argument that the subsequent solvency certificate could rectify the defect, stating that the validity of the bid had to be determined based on the documents submitted at the time of the bid.

The Supreme Court held that the High Court had committed a serious error in quashing the order passed by the Collector. The Court stated:

“Under the circumstances, the bid by using the solvency certificate dated 07.12.2017 by respondent no.1 was non-est and void ab initio and therefore, the lease in his favour on the basis of such solvency certificate was rightly cancelled by the Collector.”

The Court further stated:

“It appears that the respondent no.1 deliberately and willfully obtained the solvency certificate in his own name though the property belonged to the Trust and the solvency certificate was required to be issued in the name of the Trust.”

The Court also observed:

“Now so far as the submission on behalf of respondent no.1 that subsequently respondent no.1 obtained the fresh solvency certificate which was sought to be substituted/exchanged is concerned, it is required to be noted that what is required to be considered is the solvency certificate produced along with the bid and not the subsequent solvency certificate.”

The Supreme Court overturned the High Court’s judgment, setting aside the order that had reinstated the lease in favor of the respondent. The Court restored the Collector’s order, which had cancelled the lease. The fresh lease deed issued in favor of the respondent was also set aside. The bench comprised Justices M. R. Shah and B.V. Nagarathna.

Key Takeaways

• A bid submitted with an invalid solvency certificate is void from the beginning.
• The validity of a bid is determined based on the documents submitted at the time of the bid, not on subsequent actions.
• Authorities must follow the prescribed procedures while issuing certificates and not issue them contrary to the directions.
• Lease deeds obtained through fraudulent means can be cancelled.

Directions

The Supreme Court directed that the order passed by the Collector, Cuttack, dated 24.03.2021, cancelling the lease deed in favor of the respondent, is restored. The fresh lease deed in favor of the respondent was also set aside.

Development of Law

The ratio decidendi of this case is that a bid submitted with a solvency certificate that is not in the name of the bidder, especially when there are specific directions to issue it in the name of a trust, is invalid and void from the beginning. This judgment clarifies that the validity of a bid is determined at the time of submission, and subsequent actions cannot rectify a fundamental flaw in the initial bid.

Conclusion

The Supreme Court’s decision in Debidutta Mohanty vs. Ranjan Kumar Pattnaik (2023) emphasizes the importance of adhering to the prescribed procedures in tender processes. The Court’s ruling that a bid submitted with an invalid solvency certificate is void ab initio underscores the need for bidders to ensure that all documents submitted are valid and in compliance with the tender requirements. The judgment also clarifies that subsequent actions cannot rectify a fundamental flaw in the initial bid.

Category

• Tender Law
  • Solvency Certificate
  • Bid Validity
  • Tender Process
• Orissa Minor Minerals Concession Rules, 2016
  • Rule 51(7), Orissa Minor Minerals Concession Rules, 2016

FAQ

Q: What was the main issue in the Debidutta Mohanty vs. Ranjan Kumar Pattnaik case?

A: The main issue was whether a lease could be cancelled if the bidder submitted a solvency certificate not in his own name, but in the name of a trust where he was the chairman.

Q: What did the Supreme Court decide about the solvency certificate?

A: The Supreme Court held that the solvency certificate submitted by the respondent was invalid because it was deliberately obtained in his individual name, despite the Sub-Collector’s direction to issue it in the name of the Trust.

Q: Can a bidder rectify a mistake in the solvency certificate after submitting the bid?

A: The Supreme Court held that the validity of a bid is determined at the time of submission, and subsequent actions cannot rectify a fundamental flaw in the initial bid.

Q: Who has the authority to cancel a lease deed according to the OMMC Rules, 2016?

A: The Supreme Court clarified that Rule 51(7) of the OMMC Rules, 2016, which gives the Tehsildar the power to cancel a lease deed, is applicable only in cases of breach of the lease deed. In this case, the cancellation was due to an invalid solvency certificate at the time of the bid.

Q: What was the final outcome of the case?

A: The Supreme Court overturned the High Court’s order and restored the Collector’s order, which had cancelled the lease in favor of the respondent. The fresh lease deed was also set aside.