Institute of Legal and Management Studies

The Supreme Court set aside the Odisha High Court's order that had upheld the State Government's decision to award a five-year sand extraction lease for the Mahanadi Sand Quarry to a lower bidder. The Court held that the exclusion of the highest bidder was based on a misinterpretation of the tender conditions and resulted in an unfair decision that caused substantial loss to the state exchequer.

“A public tender is not a private bargain. It is instrument of governance, a mechanism through which the State discharges its solemn duty as trustee of public wealth”, observed a bench of Justice Sanjay Kumar and Justice Alok Aradhe while allowing the appeal filed by the highest bidder who was aggrieved by the arbitrary rejection of its bid.

The legal dispute centered on a 2022 auction for a five-year sand quarry lease in Cuttack. M/S Shanti Construction Pvt. Ltd. emerged as the highest bidder, quoting ₹2,127.27 per cubic meter. However, its bid was rejected by the Tender Committee for submitting its Income Tax Return (ITR) for the Financial Year (FY) 2020-21 instead of FY 2021-22, as required under the tender rules.

The lease was subsequently awarded to another bidder who had quoted a significantly lower rate of ₹1,250 per cubic meter. The Orissa High Court, while upholding the rejection of the highest bidder, had later directed the successful bidder to match the higher price, a decision challenged by both parties in the Supreme Court.

Deprecating the State's move to reject the Appellant's bid on technical grounds, of non-submission of the Income Tax Return, the judgment authored by Justice Aradhe said the tender's term was interpreted to minimise the competition to unfairly exclude the highest bidder, causing significant loss to the exchequer.

"The Tender Committee has erroneously interpreted the tender condition which excludes the highest bidder and defeats the purpose of the tender," the Court stated, adding that such an interpretation "undermines the principle that State must act to enhance and not diminish, the public exchequer."

“The reasonable understanding of the term 'previous Financial Year' must therefore, be treated to mean the year immediately preceding Financial Year i.e. 2020-2021, for which the unsuccessful bidder had filed the Income Tax Return. The term 'previous Financial Year' in the case of unsuccessful bidder was to be treated as Financial Year 2020-2021 and not 2021- 2022…The Tender Committee has erroneously interpreted the tender condition which excludes the highest bidder and defeats the purpose of the tender. Such an interpretation by the Tender Committee undermines the principle that State must act to enhance and not diminish, the public exchequer in case it is dealing with natural resources.”, the court added.

Accordingly, the appeal was allowed, with a direction to hold a fresh auction to ensure the public receives the current market value for its natural resource. The Court also directed the state to refund the deposit of the originally successful bidder with 6% interest.

Cause Title: M/S SHANTI CONSTRUCTION PVT. LTD. VERSUS THE STATE OF ODISHA & ORS.

Citation : 2025 LiveLaw (SC) 1077

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Appearance:

For Petitioner(s) : SLP(C) No. 5829/2023 Mr. Ashok Panigrahi, Sr. Adv. Mr. R. Chandrachud, AOR Ms. Geetanjali Das Krishnan, Adv. Mr. Dhuli Venkata Krishna, Adv. Mr. Aryan Singh, Adv. Mr. Surajit Bhaduri, Adv.

SLP(C) No. 16140/2023 Mr. Dhananjaya Mishra, AOR Mr. Amritesh Mohanty, Adv. Mr. Navneet Dogra, Adv.

For Respondent(s) : R-1 & R-2 in SLP(C) 5829/2023 and SLP(C) 16140/2023 Mr. Shibashish Misra, AOR

R-3 in SLP(C) 5829/2023 Mr. Dhananjaya Mishra, AOR Mr. Amritesh Mohanty, Adv. Mr. Navneet Dogra, Adv.

R-3 in SLP(C) 16140/2023 Mr. Ashok Panigrahi, Sr. Adv. Mr. R. Chandrachud, AOR Mr. Dhuli Venkata Krishna, Adv. Ms. Geetanjali Das Krishnan, Adv. Mr. Aryan Singh, Adv.