[Mining Lease] Forfeiture Of Earnest Money Only When Documents Found Fabricated: Allahabad High Court Directs Refund Of Rs. 90 Lakhs

The Allahabad High Court has held that earnest money deposited for mining lease can only be forfeited when the documents of an individual are found to be false or fabricated upon investigation.

The bench comprising of Justice Anjani Kumar Mishra and Justice Jayant Banerji held that “forfeiture of earnest money could be ordered only when, upon the verification, any document or certificate filed by an individual was found false, fabricated or incorrect”.

Case Background

An advertisement was issued on 03.01.2020 inviting bids for the grant of mining leases in the district of Hamirpur. Petitioner submitted his bid on 24.04.2020 along with a sum of Rs. 90 lakhs as earnest money. Petitioner's bid was accepted and he was asked to submit relevant documents for the issuance of a letter of intent in his favour by communication dated 05.03.2020.

Petitioner contended that he could not comply with the letter dated 05.03.2020 due to the then ongoing pandemic. Thereafter, a reminder was issued to the petitioner requiring the submission of the relevant documents within a period of three days. However, in the meantime, petitioner participated in two other bids for the grant of mining leases in the District Fatehpur. First bid in which petitioner participated was subsequently cancelled. In the second bid, petitioner was issued a letter of intent.

Thereafter, petitioner made a representation on 19.06.2020 to the District Magistrate, Hamirpur for the refund of the earnest money of Rs. 90 lakhs deposited by him with regard to the bid dated 03.01.2020, the initial bid. The application of the petitioner was rejected on grounds that he deliberately failed to furnish documents within the required period, as mandated by the tender, causing huge losses to the State. It was concluded that petitioner was not entitled to a refund and that the earnest money deposited by him would be forfeited in the favour of the State. The petitioner preferred a revision against the aforesaid application which was also rejected. Aggrieved by the same, he filed a writ petition before the High Court.

Counsel for petitioner submitted that application dated 19.06.2020 by which he sought refund of earnest money was in accordance with Rule10(3) of the U.P. Minor Minerals (Concessions)Rules, 1963, as mandated by the 47^th Amendment Rules, 19.10.2019.

Rule 10(3) required that no person in the State of Uttar Pradesh could be granted leases in excess of an area of 50 hectares. It further provided the procedure for the refund of earnest money where more than two mining leases had been granted in favour of one entity or the total area of land granted was in excess of 50 hectares.

Per contra, counsel for respondent contended that petitioner was required to submit his documents before the grant of letter of intent in his favour, within three days of the acceptance of his bid. It was submitted that petitioner did not comply with this direction despite reminders, thereby causing substantial losses to the State. It was argued that the earnest money had been rightly forfeited in the favour of the state as due to the petitioner's inaction, the lease could not be operated by any other individual as well.

Counsel for respondent placed reliance on Clause 17 of the Government Order No. 1875/86-2017-57(सामान्य)/2017, dated 14.08.2017, which had also been relied upon by the revisional authority. The said government order required that after the acceptance of the bid, the successful bidder was required to submit his document within a period of 3 days for the purpose of verification. It also stated that if any document that was submitted was found to be forged, false or incorrect, the letter of intent would not be issued and the earnest money would be confiscated. Additionally, respondent also referred to Clause 19 of the tender notice dated 03.01.2020 which stated that petitioner had not complied with the directions issued to him with regard to the submission of relevant documents and thus, no proceedings could be continued in his case.

In response, counsel for petitioner submitted that the Government Order dated 14.08.2017 did not empower the respondents to forfeit the earnest money deposited by the petitioner. Petitioner further submitted that the condition that relevant documents that were to be submitted by the person whose bid was found to be highest within three days after such acceptance did not provide for a penal clause in the case of non-compliance. It was contended that this condition was merely directory and not mandatory.

Petitioner relied on State of Bihar and Ors. v. Rajya Bhumi Vikas Bank Samiti, where the Supreme Court held that any requirement under a statue in the absence of a penal clause or provision for its non-compliance would be deemed to be directory and not mandatory.

High Court Verdict

The Court held that regarding Clause 17 of Government Order dated 14.08.2017, forfeiture of money could only be ordered when a document or certificate filed by an individual was found to be false, fabricated or incorrect. It was held that there would not be any penal consequence for non-compliance for the part of the provision which required the highest bidder to submit the required documents within 3 days from the acceptance of his bid.

The Court held that as per Government Order No. 2168/86-2019-57(सामान्य)/2017, dated 09.10.2017, no person in the State of U.P. could be granted more than two mining leases for an aggregate area in excess of 50 hectares. It was further held that in the case where this condition stood violated, the last lease would be cancelled and the earnest money deposited for the same would be forfeited and only the first two leases which were not more than a total of 50 hectares would remain approved. In the case that the applicant had been issued two letters of intent for two or more mining leases or that their areas were in excess of 50 hectares, he would have the right to choose any of the mining areas and the amount deposited for the remaining would be returned after verification.

The Court held that petitioner had already intimated its choice of two leases to the authorities and thus, had the option to choose which of the two leases, issued in his favour, to retain.

Accordingly, the Court held that forfeiture of Rs. 90 lakhs was unsustainable and directed the respondents to refund the earnest money deposited by petitioner.

Case Title: M/S Pragyason Constructions Private Limited v. State Of U.P. And 2 Others [WRIT - C No. - 21022 of 2021]

Citation: 2024 LiveLaw (AB) 367

Click Here To Read/Download Order