Supreme Court Imposes Rs.3 Crore Penalty on Bidder for Negligence, Stresses Need for Greater Care in Public Auctions to Avoid Public Fund Waste

In a recent judgment, the Supreme Court (SC) of India ruled that government auctions require a high level of care from bidders to avoid costly mistakes. In a case involving an e-auction for a mining lease in Odisha, the court found that the highest bidder made an error but still imposed a penalty to balance interests. "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," the court stated. A bench of Justice Sanjiv Khanna and Justice Dipankar Datta ordered a fresh auction and fined the bidder for not being careful enough.

The issue arose during an e-auction by MSTC Ltd. for a mining lease of the Orahuri manganese and iron ore block. The appellant mistakenly entered a bid of 140.10 percent instead of 104.10 percent, ending the auction with no further bids. Despite immediately notifying the authorities of the error, the appellant's request for rectification was denied, leading to the appellant being confirmed as the Preferred Bidder with the erroneous bid. The Orissa High Court dismissed the appellant's petition, stating that the bidder was bound by its bid and the matter was beyond the court's jurisdiction. The Orissa High Court dismissed the appellant’s plea, leading to an appeal to the Supreme Court. Senior Advocate Mukul Rohatgi argued that the mistake was an honest error, while the respondents noted that the auction platform required confirmation of the bid amount.

The Supreme Court acknowledged the appellant's quick action ruling the bid a bona fide mistake, stating, “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.” The bench ruled “...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.” Further, The court added that the appellant should pay Rs. 3,00,00,000 within a month, with Rs. 2,75,00,000 covering various costs and Rs. 25,00,000 allocated for charitable purposes for the young tribal population of the district where the mine is located.