Supreme Court Imposes ₹3 Crore Cost On Bidder for Negligence, Says Greater Care Needed In Public Auctions To Prevent Waste Of Public Funds

“the bidders being experienced corporate entities are expected to have the assistance of technical experts, and exercise a greater than ordinary degree of care, if not meticulousness, to obviate and prevent such situations, in order to maintain the sanctity and integrity of the tender process”, said the court.

A bench of Justice Sanjiv Khanna and Justice Dipankar Datta allowed a fresh auction for a mining lease due to an erroneous bid by the highest bidder but imposed costs on it for not exercising due care.

“in order to maintain the balance between the interest of the State and the private party, i.e., the appellant, we do not wish to let the appellant go scot-free. On account of the appellant's failure to act with the required degree of care, which has not only had the effect of inevitably delaying the mining project but would also cost both the respondents and the other participant bidders precious time, effort and money, we direct the appellant to pay to the first respondent Rs 3,00,00,000/- (Rupees three crore only) within a month from date.”

The case involves an e-auction conducted by MSTC Ltd. under the aegis of the Director of Mines and Geology, Bhubaneswar. The State of Odisha had floated a tender document for the e-auction of a mining lease for the Orahuri manganese and iron ore block on January 9, 2023.

The appellant participated by submitting the requisite fees of Rs. 5,00,000 and subsequently submitted its online bid. Clause 14 of the tender document required a Bid Security of Rs. 9,12,21,315 in the form of a bank guarantee, which the appellant complied with on February 17, 2023.

The e-auction process, governed by the Mineral Auction Rules, 2015, involved two rounds: the submission of technical bids and initial price offers, followed by the selection of technically qualified bidders for the e-auction. Qualified bidders then had to propose their Final Price Offer over and above the Floor Price, with bids to be made in minimum increments of 0.05 percent within eight minutes of the previous bid.

The appellant cleared the first round and the e-auction took on March 21, 2023, with a Floor Price of 84.00 percent. The auction lasted nearly seven hours, with bids increasing from 84 percent to 104.05 percent after 136 attempts. At 6:13 PM, the appellant mistakenly entered a bid of 140.10 percent instead of the intended 104.10 percent. With no counter-bids, the auction concluded with the appellant's bid recorded at 140.10 percent.

Upon realizing the mistake, the appellant made numerous calls to the Director of Mines and sent an email at 8:17 PM the same day, seeking rectification of the bid. On March 22, 2023, the appellant's request for rectification was rejected and it was confirmed as the Preferred Bidder. The appellant was directed to deposit Rs 3,64,88,526 as the first instalment of the upfront payment within fifteen days, failing which the security deposit would be forfeited. The appellant filed a writ petition, arguing the mistake was a bona fide error.

The Orissa High Court dismissed the petition, holding the appellant bound by its bid and stating the dispute was beyond the confines of writ jurisdiction. Thus, the appellant approached the Supreme court.

Senior Advocate Mukul Rohatgi for the appellant argued that the appellant made 47 of the 137 bids, with increments ranging between 0.05 percent and 2.00 percent. The final bid of 140.10 percent was a human error, not a deliberate act, he said, highlighting that the erroneous bid was 36.05 percent higher than from the previous bid, when the requirement was for it to be merely 0.05 percent higher.

Advocate Prakash Ranjan Nayak for the respondents contended that the e-auction process had attained finality, and the appellant could not reopen it due to an alleged mistake.

The respondent informed the court that the e-auction platform shows a pop-up displaying the bid amount both numerically and in words, requiring authentication via a Digital Signature Certificate, which the appellant complied with. Consequently, the respondents argued the appellant could not claim that the bid of 140.10 percent was a mistake.

The court highlighted that while judicial review in commercial matters is limited, equitable relief can be granted for bona fide mistakes. The court noted the appellant's prompt action in informing the authorities about the mistake and found the respondents' argument about the finality of the e-auction unpersuasive.

The court noted that no scope for rectification or retraction of bid existed. The court held that the appellant's bid of 140.10 percent made little commercial sense and was a bona fide mistake, allowing which to stand would be unconscionable.

The court applied the doctrine of proportionality, stating that the forfeiture of the security deposit for a clear human error, without any mala fides, is disproportionate and punitive.

“The enforcement of an otherwise commercially unviable bid, with the forfeiture of the deposit hanging over the appellant's head akin to a sword of Damocles, can hardly be said to be in either party's best interests. Perhaps, the respondents could consider to provide a cross check and affirmation, from the party, to avoid human errors and mistakes”, the court further observed.

The court quashed the impugned communication and allowed for a fresh e-auction. It ordered the appellant to pay Rs. 3,00,00,000 within a month. Rs. 2,75,00,000 will be used for various costs and Rs. 25,00,000 for charitable purposes for the young tribal population of the district where the mine is located, the court held.

Case no. – SLP (CIVIL) No. 6920 Of 2023

Case Title – M/s Omsairam Steels & Alloys Pvt. Ltd. v. Director of Mines and Geology, Bhubaneswar & Ors.

Citation : 2024 LiveLaw (SC) 477