Mineral (Auction) Rules 2015 - State Entitled To Annul Tender Notification When Number Of Technically Qualified Bidders Is Less Than 3 : Supreme Court

The Supreme Court recently validated the authority of the state to annul a tender process, with a specific focus on adherence to Rule 9 under the Mineral (Auction) Rules, 2015.

Referring to Rule 9(10) of the Mineral (Auction) Rules, the Court said that 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.

As per Rule 9(9), the auction process shall proceed to the second round of auction only when there are three or more technically qualified bidders.

The Supreme Court bench comprising Justices Sanjiv Khanna and Justice SVN Bhatti was hearing an appeal filed by the State of Jharkhand against the division bench of the Jharkhand High Court judgment which allowed the petition directing the appellants to proceed with the second round of the auction.

The dispute stemmed from a tender notice issued on 25.10.2019, inviting bids for the allocation and grant of a mining lease for bauxite mineral in Lodhapat, Jobhipat, and Hethilodha blocks.

The Technical Evaluation Committee (TEC) found that Sociedade De Fomento Industrial Private Limited(Respondent) submitted the technical bid physically at the department's office, not electronically on the MSTC website, as required by the tender document. Based on this, the TEC recommended the annulment of the auction.

Subsequently, the Appellants issued a notification on 28.01.2020, for a second attempt at the auction. Only one expression of interest, from the Respondent, was received.

The Appellants decided to annul both the tenders initiated on 25.10.2019 and 28.01.2020. In response, Sociedade De Fomento Industrial Private Limited filed a writ petition seeking a court order directing the Appellants to proceed with the second round of the auction. On 22.04.2022, the Writ Petition was dismissed, holding that even if the Respondent's technical bid was compliant, it couldn't progress to the next stage. Subsequently, the Respondent approached the Division Bench which allowed the L.P.A holding that the Appellants are bound by the statutory obligation under the second proviso to Sub-Rule (12) of Rule 9 of Mineral (Auction) Rules

Aggrieved by this, the State and the Director of Mines and Geology moved an appeal before the Supreme Court.

Annulment of a tender notification arises when the required number of technically qualified bidders is less than three

The Court examined the legality and validity of the respondent's claim to have its technical bid considered in the second round of a mineral auction. The case centered around the interpretation of Rule 9 of the Mineral (Auction) Rules, 2015, as amended by the Mineral (Auction) Amendment Rules, 2017.

The Supreme Court acknowledged the State Government's presumed awareness of the commercial value of natural resources put up for tender, as well as the mechanisms in place to ensure transparency and objectivity in the bidding process. It stressed the need for statutory rules to guide the bid cum e-auction process, which includes shortlisting technically qualified bidders and scrutinizing bids that meet eligibility criteria. The court cautioned against the judiciary substituting executive discretion by issuing directions in the writ jurisdiction.

The Court observed “The annulment of a tender notification arises when the required number of technically qualified bidders is less than three. In other words, there could be less than three bidders, but it does not include a case where there is none, as in the present case. The Appellants are confronted by a very peculiar situation viz., no responsive bid in the first attempt and in the second attempt one bid/response is available and without a floor rate or reserved price or auction the rights in mineral extraction to third parties. It is a case of no bid. No value can be ascribed so as to constitute a reserve price.”

Insisting upon strict adherence to statutory rules, the court held that the state and the Dept of Mines(Appellants) were right in annulling the tender process. It opined “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.”

Rule 9(10) attracted when there are less than 3 technically qualified bidders in a responsive tender

The Court referred to Sub-Rule (9) of Rule 9 to emphasize that for the auction to proceed to the next stage, there must be a minimum of three qualified bidders. If there are less than 3 qualified bidders, then Sub-Rule (10) stipulates that no bidder shall be considered qualified, resulting in the annulment of the first attempt of the auction.

The Court noted that as per the scheme of the rules, the appellants can either annul the first round and proceed with a de novo auction, with changed or modified conditions or conduct the second attempt without altering the terms and conditions of the first attempt. The highest initial bid offered by technically qualified bidders in the first canceled attempt shall serve as the minimum reserve price for the first round of the second attempt.

The Court observed “The consequences of Sub-Rule (10) of Rule 9 are attracted only when the number of technically qualified bidders is less than three in a responsive tender.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 present case, the court noted that no responsive bid was received in the first attempt, and only one bid was obtained in the second attempt without a floor rate or reserved price. Even if the authorities decided to proceed with the second attempt, the court noted challenges in objectively evaluating the tender, particularly when only one response was received in the second auction attempt.

The Technical Evaluation Committee (TEC) recommended further action based on the respondent's bid, but the court observed that this did not obligate the appellants to process the price bid of the respondent under the relevant rule.

Judicial review in tender or contractual matters only when malafide intent or arbitrariness

The court, citing precedents such as Michigan Rubber (India) Ltd. v. State of Karnataka and Jagdish Mandal v. State of Orissa, highlighted the limited scope of judicial review in tender or contractual matters. It outlined specific criteria for interference, emphasizing factors like mala fide intentions, arbitrariness, and the impact on public interest.

The Court allowed the appeal and set aside the judgment by the division bench of the HC.

It concluded, “the Impugned Judgment did not appreciate the want of a bidder in the first round of auction in the first attempt but examined the decision-making process of the Appellants in annulling the tender process and had set aside the well-considered judgment of the Single Judge; which according to us, for the above discussion, is erroneous and unsustainable.”

Case title: State of Jharkhand v. SOCIEDADE DE FOMENTO INDUSTRIAL PVT. LTD

Citation: 2023 LiveLaw (SC) 1002

For Appellants: Senior Counsel, Mr. Arunab Chowdhury

For Respondent: Mr. Dhruv Mehta, Senior Advocate

Click here to read the judgment