Supreme Court overturns High Court order on lease cancellation: Debidutta Mohanty vs. Ranjan Kumar Pattnaik (2023) INSC 179

Date of the Judgment: March 3, 2023

Citation: (2023) INSC 179

Judges: M. R. Shah, J. and B.V. Nagarathna, J.

Can a lease be valid if it was awarded based on a solvency certificate that was not issued in accordance with the law? The Supreme Court of India addressed this critical question in a recent case concerning a sand mining lease in Odisha. The core issue revolved around the validity of a lease granted to a bidder who submitted a solvency certificate that was not in his name, but rather in the name of a charitable trust he chaired. The Supreme Court, in this judgment, overturned the High Court’s decision and upheld the cancellation of the lease.

The judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice B.V. Nagarathna. Justice M.R. Shah authored the judgment.

Case Background

The case originated from an auction notice published on January 8, 2018, for the grant of a sand mining lease. The notice required bidders to submit a solvency certificate, the value of which should not be less than the royalty and additional charges fixed for the source, along with details of their movable properties. The auction was conducted under the Orissa Minor Minerals Concession Rules, 2016 (OMMC Rules, 2016).

Ranjan Kumar Pattnaik, the original writ petitioner and respondent no. 1 in this appeal, participated in the tender process. He submitted a solvency certificate dated December 7, 2017, issued by the Tehsildar, Narasinghpur. However, this certificate was issued despite a prior order from the Sub-Collector, Athagarh, dated December 6, 2017, which directed that the solvency certificate be issued in the name of “Gurukrupa Charitable Trust, Chairman of Village Kendupali.” Pattnaik was the chairman of the trust, but the certificate was issued in his individual name.

Initially, Sukanti Sahoo was the highest bidder, but her bid was cancelled due to her being a defaulter. Pattnaik, the second-highest bidder, was then asked to match the highest bid, which he agreed to. He deposited ₹26,28,450 and completed the necessary requirements. A lease deed was executed in his favor on January 1, 2020.

Subsequently, Debidutta Mohanty, the appellant and original respondent no. 5, filed a writ petition challenging the solvency certificate issued to Pattnaik. The High Court directed the Collector, Cuttack, to consider Mohanty’s representation. The Tehsildar, Narasinghpur, cancelled Pattnaik’s solvency certificate on March 8, 2021, stating that it should have been issued in the name of the trust.

Pattnaik had also written to the Tehsildar, Sadar Cuttack, on January 29, 2021, to substitute the solvency certificate submitted with his bid with a new one issued on January 27, 2021, for ₹4.6 crores.

The Collector, Cuttack, cancelled Pattnaik’s lease on March 24, 2021, concluding that the solvency certificate was not issued as per the law, as it was in Pattnaik’s name and not the trust’s. This order was challenged by Pattnaik before the High Court, which set aside the Collector’s order, leading to the present appeal before the Supreme Court.

Timeline:

Course of Proceedings

The High Court initially granted a stay order in a writ petition filed by Sukanti Sahoo, the original highest bidder, which was later vacated. Pattnaik then filed a writ petition seeking a direction to the Tehsildar for the execution of the lease deed. Subsequently, Sahoo filed another writ petition against the grant of the lease to Pattnaik, where the High Court initially stayed the operation of the lease but later vacated it, stating that the lease operation would be subject to the final outcome of the pending writ petition.

Debidutta Mohanty filed a writ petition challenging the solvency certificate issued to Pattnaik. The High Court directed the Collector, Cuttack, to consider his representation. The Tehsildar, Narasinghpur, cancelled the solvency certificate, and the Collector, Cuttack, cancelled the lease granted to Pattnaik. Pattnaik then challenged this cancellation before the High Court, which ruled in his favor, leading to the present appeal before the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation and application of the Orissa Minor Minerals Concession Rules, 2016 (OMMC Rules, 2016), specifically concerning the requirements for solvency certificates in the tender process for mining leases. The auction notice referred to these rules.

Rule 51(7) of the OMMC Rules, 2016, was also discussed in the judgment. This rule pertains to the cancellation of a lease deed for breach of any condition of the lease. The Supreme Court noted that this rule was not applicable in this case, as the issue was not a breach of the lease deed, but the submission of an invalid solvency certificate during the bid process.

Arguments

Arguments by the Appellant (Debidutta Mohanty):

• The High Court erred in setting aside the Collector’s order which cancelled the lease in favor of Respondent no. 1.

  The initial solvency certificate, which was in the name of Gurukrupa Charitable Trust, was misused by Respondent no. 1 in his individual capacity. This was not a genuine mistake but a deliberate act to pass off the Trust’s property as his own, rendering his bid void from the beginning.

  The High Court failed to appreciate that Respondent no. 1 had misused the same solvency certificate in another tender, leading to his disqualification, indicating a pattern of fraudulent behavior.

  Rule 51(7) of the OMMC Rules, 2016, is not applicable because it pertains to breaches of lease conditions, not breaches of tender conditions.

  The Collector was justified in taking action because there were allegations against the Tehsildar for conspiring with Respondent no. 1.

  The High Court erred in considering Respondent no. 1’s subsequent conduct in obtaining a fresh solvency certificate. The validity of the bid should be determined based on the solvency certificate at the time of the bid.

Arguments by the Respondent No. 1 (Ranjan Kumar Pattnaik):

• The initial solvency certificate issued in favor of Respondent no. 1 was a mistake, as it should have been issued in the name of Gurukrupa Charitable Trust.

  Respondent no. 1 himself applied for the substitution of the solvency certificate and obtained a fresh one, thus rectifying the defect.

  The power to cancel the lease deed lies with the Tehsildar, not the Collector, as per Rule 51(7) of the OMMC Rules, 2016.

  The lease period has expired, and a fresh lease deed has been executed pursuant to the High Court’s judgment.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues can be summarized as:

1. Whether the High Court was correct in setting aside the order of the Collector, Cuttack, which cancelled the lease deed in favor of Respondent No. 1.
2. Whether the initial solvency certificate submitted by Respondent No. 1 was valid, and if not, what is its impact on the validity of the lease granted to him.
3. Whether the Collector had the authority to cancel the lease, or if that power vested solely with the Tehsildar under the OMMC Rules, 2016.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court did not explicitly cite any cases or books in this judgment. However, it did discuss the following legal provisions:

• Orissa Minor Minerals Concession Rules, 2016 (OMMC Rules, 2016): The Court examined the provisions of these rules, particularly concerning the requirements for solvency certificates and the authority to cancel leases.

• Rule 51(7) of the OMMC Rules, 2016: This rule was specifically discussed in relation to the authority to cancel lease deeds. The Court clarified that this rule applies to breaches of lease conditions, not to issues arising from the tender process.

Judgment

The Supreme Court overturned the High Court’s decision, holding that the Collector, Cuttack, was correct in cancelling the lease granted to Respondent No. 1. The Court found that the initial solvency certificate submitted by Respondent No. 1 was invalid and that the lease was therefore void from the beginning.

“…the High Court has materially erred in observing and holding that the initial subject solvency certificate which as such was in the name of Gurukrupa Charitable Trust, but was used by respondent no.1 in his individual capacity in order to participate in the tender was a genuine mistake and not a deliberate act and therefore a rectifiable defect.”

“…it cannot be said that the original solvency certificate dated 07.12.2017 was issued in favour of respondent no.1 in his individual capacity by mistake. 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.”

“…what is required to be considered is the solvency certificate produced along with the bid and not the subsequent solvency certificate.”

What weighed in the mind of the Court?

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

• Deliberate Misrepresentation: The Court emphasized that Respondent No. 1’s actions were not a mere mistake but a deliberate attempt to misuse the solvency certificate. The fact that the Sub-Collector had specifically directed the Tehsildar to issue the certificate in the name of the Trust, and not in the individual capacity of Respondent No. 1, was a key factor.

• Invalidity of the Bid: The Court concluded that the bid submitted by Respondent No. 1 was void from the beginning because it was based on an invalid solvency certificate. This made the subsequent lease also invalid.

• Relevance of Subsequent Actions: The Court clarified that the subsequent attempt by Respondent No. 1 to substitute the solvency certificate was irrelevant. The validity of the bid had to be assessed based on the documents submitted at the time of the bid.

• Authority of the Collector: The Court held that the Collector was within his rights to cancel the lease, as the issue was not a breach of the lease conditions but a problem with the tender process itself.

Key Takeaways

• Importance of Accurate Documentation: Bidders must ensure that all documents submitted during a tender process are accurate and in compliance with the specified requirements. Any misrepresentation or submission of invalid documents can lead to the cancellation of the bid and any subsequent lease or contract.

• No Rectification of Fraudulent Acts: A deliberate misrepresentation cannot be rectified by subsequent actions. The validity of a bid is determined at the time of submission, and any later attempts to correct errors will not be considered.

• Authority of the Collector: The Collector has the authority to cancel a lease if it is found that the lease was granted based on invalid documents or through fraudulent means, especially when the issue is related to the tender process rather than a breach of the lease conditions.

• Strict Compliance with Rules: All parties must strictly adhere to the rules and regulations governing the tender process. Any deviation or attempt to circumvent these rules can have serious consequences.

Directions

The Supreme Court did not issue any specific directions other than setting aside the High Court’s judgment and restoring the Collector’s order. The fresh lease deed issued in favor of Respondent No. 1 was also set aside.

Development of Law

The ratio decidendi of this case is that a lease granted based on an invalid solvency certificate is void ab initio. The Supreme Court clarified that a deliberate misrepresentation cannot be rectified by subsequent actions and that the authority to cancel a lease in such cases lies with the Collector, especially when the issue is related to the tender process rather than a breach of the lease conditions. This judgment reinforces the importance of strict compliance with tender rules and regulations.

Conclusion

In conclusion, the Supreme Court’s decision in Debidutta Mohanty vs. Ranjan Kumar Pattnaik & Ors. underscores the importance of transparency and adherence to rules in tender processes. The Court’s ruling that a lease obtained through the submission of an invalid solvency certificate is void ab initio serves as a stern warning against fraudulent practices. The judgment clarifies that subsequent actions cannot rectify a deliberate misrepresentation and that the validity of a bid is determined at the time of submission. The decision also confirms the authority of the Collector to cancel leases in such cases.