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2003 DIGILAW 1335 (ALL)

Harihar Contractors v. State of U. P.

2003-05-23

TARUN CHATTERJEE, VINEET SARAN

body2003
JUDGMENT : VINEET SARAN, J. 1. The moot question in this writ petition is whether it is the sanctity of the auction proceeding which is to be preserved or the Revenue of the State which is to be of prime consideration. 2. In an auction held on 19.2.2003 for the grant of mining rights of minor minerals of Tehsil Sarila, district Hamirpur, the Respondent No. 4, M/s. Chaudhary Associates Co. was the highest bidder. Their bid of Rs. 1.51 crores was forwarded by the District Magistrate to the State Government for its approval. After the State Government accorded its approval, the lease deed for the said area was executed in their favour on 15.3.2003. By means of this writ petition the Petitioner M/s. Harihar Contractors have challenged the grant of the lease in favour of Respondent No. 4 and have also prayed that the offer of the Petitioner of 2% above the reserved price (fixed by the State at Rs. 2,21,19,485) be accepted, and the lease for a period of three years for excavation of minerals from the area in question be executed in their favour. 3. The facts, in brief relevant for the adjudication of this petition are that on 7.2.2003 a notice was issued by the Respondent No. 2, District Magistrate, Hamirpur fixing 19.2.2003 as the date for auction for grant of mining rights for 3 years of certain areas, including the area in question, i.e., Tehsil Sarila, district Hamirpur. The auction was to be conducted and lease granted in accordance with Rule 27 of the U.P. Minor Mineral (Concession) Rules, 1963 (hereinafter referred to as the Rules). It was also specified in the notice that in case if the auction for the entire area was not completed on the said date, then the remaining areas would be auctioned on 27.2.2003. The reserve price for the area in question was fixed at Rs. 2.21 crores and odd. At the auction held on 19.2.2003, the Respondent No. 4 was the highest bidder. Their bid of Rs. 1.51 crores, though about Rs. 70 lacs below the reserve price, was provisionally accepted by the Respondent No. 2. As per Rule 27 of the Rules read with the Government Order dated 2.11.2002, the papers were sent to the State Government for its approval/acceptance. Their bid of Rs. 1.51 crores, though about Rs. 70 lacs below the reserve price, was provisionally accepted by the Respondent No. 2. As per Rule 27 of the Rules read with the Government Order dated 2.11.2002, the papers were sent to the State Government for its approval/acceptance. The State Government accepted the said bid on 7.3.2003 and thereafter the lease deed for a period of three years was executed in favour of Respondent No. 4 on 15.3.2003. 4. The main grounds of challenge of the said auction are that the bid of Respondent No. 4 could not have been accepted as it was much below the reserve price; that the auction was not conducted in a free and fair manner; and that the offer of the Petitioner of 2% above the reserve price ought to have been accepted which would be in the interest of the State Revenue as well. Mala fides on the part of the Respondents were also alleged by the Petitioner. 5. At the time of filing of the writ petition, the Petitioner had made an offer of 2% above the reserve price, which comes to about Rs. 2.25 crores. In order to prove their bona fide, this Court vide order dated 27.3.2003 directed the Petitioner to deposit a sum of Rs. 1.12 crores with the District Magistrate, Hamirpur. The said amount has admittedly been deposited on 31.3.2003 and an affidavit to this effect has also been filed by the Petitioner. 6. We have heard Sri Yogeshwar Prasad, learned senior counsel assisted by Sri Madhur Prasad on behalf of the Petitioner; as well as Sri C.S. Singh, learned Standing Counsel for Respondent Nos. 1, 2 and 3 and Sri Rajiv Dhawan learned senior counsel assisted by Sri Prashant Kumar and Akhilesh Kalra for Respondent No. 4. 7. Sri Yogeshwar Prasad, learned senior counsel, has submitted that the Petitioner, through its various partners, participated in the auction proceedings on 19.2.2003 but their offer was not recorded and the State-Respondents, ignoring the bid of the Petitioner, accepted the bid of Respondent No. 4 which was much below the reserve price. It was thus contended that by having done so, substantial loss had been caused to the State exchequer. It was thus contended that by having done so, substantial loss had been caused to the State exchequer. He further submitted that the Petitioner had sent its offer by Fax as well as by registered post to the State Government on the very next day, i.e., 20.2.2003 stating that at the time of auction; the Petitioner was not aware of the reserve price and was now offering an amount 2% above the reserve price for the area in question. A copy of the said communication dated 20.2.2003, has been filed as Annexure-2 to the writ petition. Sri Prasad also submitted that the auction was not conducted in a free and fair manner. That the mala fides of the Respondents were clear as the bid of Respondent No. 4 was accepted for an amount substantially below the reserve price and also that the entire acceptance and the execution of the lease deed were clearly rushed through. 8. Sri C.S. Singh, learned Standing Counsel, has in reply submitted that even prior to 19.2.2003 the auction for the said area had been held on several dates but no bid equalling the reserve price was made and ultimately in the absence of any higher bid coming forth, the highest bid of Rs. 1.51 crores made by Respondent No. 4 was accepted. It was further submitted that even after 19.2.2003, the auction for the said area was again held on 27.2.2003, in which no bidder participated. Thereafter the area was re-auctioned on 28.2.2003 and again none came forward with any bids. Thus, the District Magistrate was left with no option but to forward the papers of the highest bid of Respondent No. 4 made in auction dated 19.2.2003 to the State Government for its approval. 9. We had called for the original record of the State Government relating to the auction proceedings which was placed before us and we have examined the same. However, we may state that for reasons best known to the State-Respondents, the papers relating to the grant of the final approval by the State Government were not placed for our consideration. 10. Sri Rajiv Dhawan, learned senior counsel appearing for Respondent No. 4 M/s. Chaudhary Associates Co. However, we may state that for reasons best known to the State-Respondents, the papers relating to the grant of the final approval by the State Government were not placed for our consideration. 10. Sri Rajiv Dhawan, learned senior counsel appearing for Respondent No. 4 M/s. Chaudhary Associates Co. submitted that the filing of the petition was motivated and intentional as admittedly the Petitioner-firm could not have participated in the auction held on 19.2.2003, as the firm itself was not in existence on the said date. Undisputedly the firm was registered only on 25.2.2003. He also submitted that the Petitioner-firm had not completed the requisite formalities for participating in the auction and that the partners of the firm participated in the auction proceedings in their individual capacity and had also made bid against each other. That the filing of the writ petition was only an after-thought and no bid had been made on behalf of the firm. He submitted that after the auction was held on 19.2.2003, the Petitioner firm merely sent their offer on 20.2.2003, which may have been for 2% above the reserve price, but the State Government was not under any obligation to accept the same. On a request made by Sri Dhawan, we had summoned the original record of the State Government pertaining to the auction proceedings. Sri Dhawan further contended that despite the auction having been held on several occasions, since there was no higher bid than the one made by the Respondent No. 4, the State Government was justified in accepting their bid, as otherwise daily loss was being caused to the State exchequer as they were losing royalty on the minerals everyday. He also submitted that it would be inequitable to interfere with or set aside a contract already concluded in favour of his client, as they had deposited over Rs. 75 lakhs as half of the bid amount initially, and besides that they had invested about Rs. 50 lakhs on stamp duty and over Rs. 40 lakhs on structures, etc. constructed for the purpose of excavating the minerals. Learned Counsel also submitted that mala fide should be specifically pleaded and in the absence of the same, the argument based on mala fide could not be looked into. 11. 50 lakhs on stamp duty and over Rs. 40 lakhs on structures, etc. constructed for the purpose of excavating the minerals. Learned Counsel also submitted that mala fide should be specifically pleaded and in the absence of the same, the argument based on mala fide could not be looked into. 11. Having heard the learned Counsel for the parties at length as well as on perusal of the record of the case, and also the record of the State Government relating to the said auction as placed before us by the learned Standing Counsel, we are of the view that although the Petitioner firm may not have been able to establish their right for the contract being awarded in their favour, but once from the record of the State Government and otherwise also, it has been established before us that the auction proceedings had neither been conducted fairly nor strictly in compliance with the Rules, the acceptance of the bid of Respondent No. 4, which was much below the reserve price fixed by the State Government, as well as the finalisation of the contract in favour of Respondent No. 4, are liable to be set aside. The Courts cannot be expected to shut their eyes to the irregularities and illegalities of the Respondents, even though the same may not have been specifically pleaded but are otherwise clear from the perusal of the original record of the auction proceedings. 12. From the record it is clear that the auction was postponed on several occasions earlier. After it was held on 19.2.2003, the office of the District Magistrate, Hamirpur, in its memorandum dated 20.2.2003, clearly stated that in the said auction held on 19.2.2003, the bid offered was for much less than the minimum official bid for Tehsil Sarila. As a result, the auction was to take place again on the already determined date i.e., 27.2.2003 and if the same could not be held on the said date, then it was to be held on 28.2.2003. This notice/memorandum makes it clear that the bids offered on 19.2.2003 had not become final. As a result, the auction was to take place again on the already determined date i.e., 27.2.2003 and if the same could not be held on the said date, then it was to be held on 28.2.2003. This notice/memorandum makes it clear that the bids offered on 19.2.2003 had not become final. It is not clear that in what circumstances, when the bid at the auction dated 19.2.2003 had neither been accepted nor had become final and re-auction was directed to be held, the District Magistrate accepted the deposit of 25% of the bid towards security amount plus another sum of 25% towards first instalment of royalty from Respondent No. 4 under Rule 27 (e) (i) of the Rules. However, thereafter on 27.2.2003 and 28.2.2003 no bidder came forward for the area in question. Then on 1.3.2003 the District Magistrate forwarded the minutes/ report of the Auction Committee relating to the auctions dated 19.2.2003, 27.2.2003 and 28.2.2003 to the State Government without making its recommendation for acceptance of the said bids as was required under Rule 27 read with the Government order dated 2.11.2002, which was further clarified by Government order dated 28.11.2002. Para 3 of the latter Government order required that just after receiving the bids in the auction proceedings, the details thereof, along with the recommendations, were to be forwarded to the State Government for its approval. A perusal of the communication dated 1st March, 2003, shows that on the basis of the recommendation of the Auction Committee, the final bid at the auction held on 19.2.2003 for Tehsil Sarila was not accepted, as the same was lower than the minimum prescribed Government bid. However, still, without there being any recommendation for its acceptance, the said bid of the Respondent No. 4 was accepted by the State Government on 7.3.2003, in pursuance of which the lease deed was executed in their favour on 15.3.2003. The papers relating to the acceptance of the bid by the State Government have not been placed before us. It is not known to us that under what circumstances the bid of Respondent No. 4, which was substantially lower than the reserve price fixed by the State Government, was accepted by them. The papers relating to the acceptance of the bid by the State Government have not been placed before us. It is not known to us that under what circumstances the bid of Respondent No. 4, which was substantially lower than the reserve price fixed by the State Government, was accepted by them. This was done in spite of the offer made by the Petitioner vide communication dated 20.2.2003, which was on record, and on such offer, an endorsement had been made on 25.2.2003 by an officer of the State Government that an enquiry be conducted through a committee. The outcome of such enquiry, which was directed to be conducted on the offer made by the Petitioner, is not on the record placed before us, and the learned Standing Counsel has also not been able to apprise us of any such decision of the committee. Learned Standing Counsel has also not been able to explain as to why the bid of Respondent No. 4 had been accepted before the conclusion of the said enquiry, specially when the bid of Respondent No. 4 was substantially lower than the reserve price, and also when a positive offer of 2% above the reserve price, which comes to about Rs. 2.25 crores, had already been made. This offer comes to about 50% over the bid amount of Respondent No. 4, which was only for Rs. 1.51 crores. Why the same was not considered by the State Government before the finalisation of the auction, or why they did not await the outcome of the enquiry as had been directed on such offer, are questions which raise serious doubts on the fairness and the intention of the State Government in hurriedly finalising the contract. 13. As has already been noted above, the Petitioner-firm has already deposited an amount of Rs. 1.12 crores to show their bona fide and seriousness of the offer made by them, which was for 2% above the reserve price of about Rs. 2.21 crores and amounts to about Rs. 2.25 crores. During the course of hearing, the learned Counsel for the Petitioner also stated that the Petitioner would be prepared to deposit any further amount as may be directed by this Court. 14. At the time of arguments, Sri Yogeshwar Prasad had also stated that in case if the area is put to re-auction, the offer of Rs. 2.25 crores. During the course of hearing, the learned Counsel for the Petitioner also stated that the Petitioner would be prepared to deposit any further amount as may be directed by this Court. 14. At the time of arguments, Sri Yogeshwar Prasad had also stated that in case if the area is put to re-auction, the offer of Rs. 2.25 crores of the Petitioner may be taken as its reserve price for which the amount of Rs. 1.12 crores already deposited by the Petitioner may be kept as security, and in case if the Petitioner does not make a bid of at least Rs. 2.25 crores, the security amount deposited under orders of this Court may be forfeited. At this stage, Sri Rajiv Dhawan appearing for Respondent No. 4, also made a conditional offer, that in case if the present dispute could be put to rest and the parties, which include the Petitioner as well as State Government, would not raise any further dispute, his client was also prepared to enhance the amount of his bid to Rs. 2.25 crores. 15. Be that as it may, on considering the totality of the circumstances as well as the fact that both the contesting parties, i.e., the Petitioner and Respondent No. 4 are now prepared to pay a minimum amount of Rs. 2.25 crores for getting the mining rights in their favour, and also considering the fact that the records of the State Government pertaining to the auction proceedings placed before us clearly disclose that the auction dated 19.2.2003, had actually not become final, and the State Government did re-auction the said area again on 27.2.2003 as well as on 28.2.2003, which virtually amounted to washing off the earlier auction, we cannot accept the submission of the Respondents that the auction proceedings had been conducted in a fair manner so as to get the best price. In fact, on the contrary, the record speaks otherwise. 16. Although, the Courts normally do not interfere in matters where a contract has been concluded, but still in a matter like the present case, the conscience of the Court is pricked. In fact, on the contrary, the record speaks otherwise. 16. Although, the Courts normally do not interfere in matters where a contract has been concluded, but still in a matter like the present case, the conscience of the Court is pricked. We find from the record that the finalisation of the contract was done in a hurry, and at a price much below than the one which could have been procured by the State Government or that which had been fixed by them as its reserve price. The minimum amount, which has now actually been offered by both the contesting parties, is nearly 50% more than the amount on which the contract had been awarded. Learned Counsel for the Petitioner made a statement that his client was prepared to raise the amount further in case if this Court permitted the bidding between the contesting parties at the time of hearing itself. We, however, are not inclined to permit bidding in Court, as there could be other parties also interested in participating, who would not have notice of such process having been undertaken by this Court. However, the loss to the State exchequer would come to about Rs. 75 lakhs per annum if calculated on the basis of the difference between the offer now made by both the contesting parties and the earlier accepted bid amount. Since the contract is for a period of three years, the cumulative loss comes to about Rs. 2.25 crores. We have no reason to believe that in case if the area in question is put to re-auction, and if the same is held in a free and fair manner, the bid amount could go well over Rs. 2.25 crores per annum. Thus, it is obvious from the facts of the case and the record, that the true potential of the mining price of the area had not been exploited by the State-Respondents, thereby causing immense loss to the State exchequer. Even though the sanctity and finality of the contract is normally required to be preserved but in the present case, the difference between the accepted bid of Rs. 1.51 crores and the reserve price fixed by the State Government of over Rs. 2.21 crores is reasonably high. Further, the offer of about Rs. Even though the sanctity and finality of the contract is normally required to be preserved but in the present case, the difference between the accepted bid of Rs. 1.51 crores and the reserve price fixed by the State Government of over Rs. 2.21 crores is reasonably high. Further, the offer of about Rs. 2.25 crores made by the Petitioner on 20.2.2003 is even more than the reserve price, and the Respondent No. 4 has also agreed to enhance the amount of his bid matching the said offer. In such circumstances, we cannot let the State exchequer be put to such a huge loss by permitting the auction to become final, which was apparently done surreptitiously. In our view, if the reserve price fixed by the Respondents was not being reached at the auction dated 19.2.2003, and re-auction had already been held on 27.2.2003 and 28.2.2003, and there was no recommendation for acceptance of the highest bid made at the auction held on 19.2.2003, which in any case had not become final because of the order of re-auction, such bid should not have been accepted. In such a situation, the only option left for the State-Respondents was to re-advertise the area for re-auction. 17. In view of the aforesaid, positive conclusion that we have arrived at on the basis of the examination of the original record relating to the auction proceedings, we do not consider it necessary to go into the other questions raised by Respondent No. 4 relating to the Petitioner firm not being in existence on the date of auction. We are also not inclined to consider the various cases cited by the Respondents in support of their contention that judicial review in cases of tender or auction is very limited, since there is no quarrel with the said proposition. The same, however, does not mean that the Court should not interfere even when it finds that the State Government has not acted fairly. The Apex Court in the case of M/s. Monarch Infrastructure (P) Ltd. Vs. Commissioner, Ulhasnagar Municipal Corporation and Others, AIR 2000 SC 2272 has laid down the principles on which the Courts may interfere and one of such principle is when the Government acts arbitrarily or contrary to public interest. The Apex Court in the case of M/s. Monarch Infrastructure (P) Ltd. Vs. Commissioner, Ulhasnagar Municipal Corporation and Others, AIR 2000 SC 2272 has laid down the principles on which the Courts may interfere and one of such principle is when the Government acts arbitrarily or contrary to public interest. In the facts of the present case, we have no doubt that the State Government has finalized the auction in an arbitrary manner which is indefensibly unreasonable and is also against the public interest, as a huge loss to the State exchequer has been caused by such action of the State Government. 18. In the light of the above discussion, we direct that the auction dated 19.2.2003, on the basis of which the contract had been awarded in favour of Respondent No. 4, be set aside and the mining rights of the area i.e., Tehsil Sarila, district Hamirpur be put to re-auction, in accordance with the Rules and the Government orders, on the condition that the Petitioner deposits a further amount of Rs. 1.13 crores by 31st May, 2003. This deposit is to be made in addition to the sum of Rs. 1.12 crores which has already been deposited by them on 31.3.2002 as directed by this Court vide order dated 27.3.2003. The said re-auction should take place within a period of six weeks from the date of deposit of the further amount of Rs. 1.13 crores by the Petitioner, i.e., when the total sum of Rs. 2.25 crores has been deposited by the Petitioner. The reserve price for the said re-auction shall be fixed at Rs. 2.25 crores which is the minimum amount offered by both the contesting parties. It is made clear that in case if the Petitioner does not deposit the further sum of Rs. 1.13 crores within the time granted, which would mean that they do not wish to participate in the re-auction, the sum of Rs. 1.12 crores already deposited by them under orders of this Court shall stand forfeited. 19. It is further provided that under the contract dated 15.3.2003, the Respondent No. 4 shall be permitted to excavate the minerals from the area in question only upto 31st May, 2003. 1.12 crores already deposited by them under orders of this Court shall stand forfeited. 19. It is further provided that under the contract dated 15.3.2003, the Respondent No. 4 shall be permitted to excavate the minerals from the area in question only upto 31st May, 2003. Out of the amount deposited by them under the contract, the State Government shall charge only for the proportionate period during which they have carried on the excavation, and refund the balance amount to the said Respondent No. 4. In case if Respondent No. 4 is inclined to participate in the re-auction proceedings, the amount to which they may be entitled to refund, may be kept as security on their behalf till the finalisation of the re-auction. It is also made clear that in case if the bid of either the Petitioner or Respondent No. 4 is not accepted in the re-auction, they shall be refunded their respective security amounts forthwith. 20. In the result, subject to the directions issued above, the writ petition is partly allowed, without there being any order as to costs. The auction dated 19.2.2003, in pursuance of which the contract has been granted in favour of Respondent No. 4, is set aside. The other prayer for the acceptance of the offer of the Petitioner at 2% above the reserved price is, however, refused.