Allocation of Natural Resources Not a Mere Commercial Transaction But a Public Trust: Madras High Court Upholds Cancellation of Quarry Lease Tender

"When an authority under a tender misinterprets conditions that diminish State revenue, the constitutional duty of the Court to interfere is beyond question" – Madras High Court, in a significant ruling concerning the allocation of natural resources, dismissed two writ petitions challenging the cancellation of a tender-cum-auction for Dunite quarry leases in Salem District. The judgment, delivered by Justice N. Sathish Kumar in S. Senthilkumar v. The Additional Chief Secretary to Government Industries Department & Ors., reaffirmed the State’s role as trustee of mineral wealth and held that tender processes affecting public resources must prioritize maximization of public revenue and public interest.

The Court upheld the cancellation of the tender process after serious discrepancies were unearthed in the fixation of the upset price, which had led to potential losses to the State exchequer running into hundreds of crores. The petitioners, though declared as highest bidders, were held to have acquired no vested rights, and the cancellation was justified in furtherance of public trust and constitutional principles.

 “Tender of Natural Resources Is Not Just a Commercial Transaction but a Public Interest Exercise”

The writ petitions were filed under Article 226 of the Constitution, challenging the cancellation of quarry leases in Chettichavadi village. The petitioners had emerged as successful bidders in a tender-cum-auction conducted on 25.02.2021 and were declared as the highest bidders for leases over two parcels of land. Despite being awarded the bids, the lease deeds were never executed. The process was eventually scrapped through Government Order (G.O. (2D) No. 32) dated 29.12.2021, following a departmental enquiry into the fixation of the upset price.

Justice Sathish Kumar emphasized that “natural resources belong to the people and the State, as a trustee, is duty-bound to secure the best possible return,” invoking the Supreme Court's ruling in Natural Resources Allocation, In Re, (2012) 10 SCC 1.

Post-Tender Objections Sparked Enquiry into Potential Revenue Loss

Following complaints of irregularities, particularly regarding undervaluation of Dunite mineral deposits and fixation of upset price merely based on seigniorage fees, the State Government conducted a detailed enquiry. The Joint Director of Geology and Mining, acting as Enquiry Officer, discovered that the upset price had been fixed without considering the actual market value or net profit from Dunite reserves.

The petitioners contended that they were declared successful bidders after due process and had acted in good faith. They argued that the cancellation was arbitrary, based solely on an objection filed by an advocate post-auction, and that no substantial evidence of irregularity or existence of Magnesite reserves (a major mineral) was ever established. They relied on a report from the Indian Bureau of Mines to show absence of Magnesite in the area.

However, the Enquiry Officer's report revealed that only the statutory dues (seigniorage fees, District Mineral Foundation contributions, and income tax) had been factored into the upset price. The actual mineral value and resultant profits were left out, leading to what the Court described as “serious revenue leakage.”

“The State Must Act to Enhance, Not Diminish, Public Exchequer”: Court Relies on Apex Court Judgment

Justice Sathish Kumar squarely relied on the Supreme Court’s ruling in Shanti Construction Pvt. Ltd. v. State of Odisha, 2025 SCC OnLine SC 2368, to hold that courts are constitutionally bound to interfere where tender conditions are misinterpreted in a way that leads to substantial public revenue loss. Quoting paragraph 15 of the said judgment, the Court reiterated:

“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 observed that the upset price determined during the tender process was based merely on administrative fees and failed to factor in the intrinsic value and profitability of the Dunite mineral. Based on TANMAG's data (Tamil Nadu Magnesite Limited), Dunite’s market price stood at ₹6,500 per metric tonne, whereas the upset price was computed based on ₹1,933 per metric tonne. This discrepancy had led to estimated revenue losses ranging from ₹122 crores to ₹246 crores, depending on the percentage of net profit (50%, 60%, or 75%) used to calculate the upset price.

Justice Sathish Kumar emphasized:

“Tenders and public auctions with regard to natural resources are not mere commercial transactions, but an exercise in public interest. The State, as custodian of natural wealth, is obligated to secure the best value for public resources consistent with fairness and transparency.”

No Vested Right Merely by Being Declared a Successful Bidder

The Court categorically held that the petitioners acquired no enforceable right to the leases merely by being declared as highest bidders. The cancellation, being rooted in serious discrepancies and breach of public trust, was within the legitimate authority of the State and not arbitrary.

“Merely because the tender has been accepted at the earlier point of time, this Court, considering the natural resources and its value... cannot be a mute spectator.”

The Court dismissed the argument that the cancellation was based on mere allegations. Instead, it found that the departmental enquiry was supported by substantial data showing massive undervaluation and consequential fiscal loss.

Environmental Safeguards: Future Mining Must Comply with Supreme Court Ruling

During the hearing, it was admitted by the Advocate General that the proposed quarry areas were adjacent to reserved forests. The Court accordingly directed that any future tender for mining activity must strictly comply with the directions of the Supreme Court in In Re: T.N. Godavarman Thirumulpad v. Union of India, W.P.(C) No.202 of 1995, dated 13.11.2025, which prohibits mining within one kilometre of reserved forests.

Relief and Directions: Petitioners Entitled to EMD Refund with Interest

Though the petitions were dismissed on merits, the Court protected the petitioners’ financial interests by ordering refund of the earnest money deposit of ₹25 lakhs each with 7.5% interest from the date of deposit. It also granted liberty to the State to initiate a fresh tender in accordance with law, while leaving it open for the petitioners to participate in the re-auction process.

In conclusion, the judgment reinforces critical principles in the domain of public resource allocation – namely, that transparency, public interest, and revenue maximization must guide all administrative decisions. The case stands as a reminder that natural resource allocation is subject not just to economic evaluation but also constitutional scrutiny.

Date of Decision: 16.12.2025