Misinterpretation That Diminishes Competition and Public Revenue Must Be Struck Down: Supreme Court Overturns Sand Lease Tender Rejection Over Income Tax Filing Deadline

“Previous Financial Year Must Be Harmoniously Interpreted with Income Tax Act Timelines” –  On 7 November 2025, the Supreme Court of India in M/s Shanti Construction Pvt. Ltd. v. The State of Odisha & Ors. delivered a significant judgment addressing the scope of judicial review in public tenders and the interpretation of the term “previous financial year” under Rule 27(4)(iv) of the Odisha Minor Mineral Concession Rules, 2016. The bench comprising Justice Sanjay Kumar and Justice Alok Aradhe held that the rejection of the highest bid submitted in a public auction for a sand mining lease was based on a legally erroneous and narrow understanding of statutory provisions. Setting aside the Orissa High Court’s ruling, the Supreme Court directed a fresh auction while reaffirming that tender conditions must be construed in a manner that advances public interest and does not frustrate competition.

The dispute arose when M/s Shanti Construction Pvt. Ltd., a company participating in the auction for Mahanadi Sand Quarry lease floated on 11 July 2022, was disqualified despite quoting the highest rate of ₹2127.27 per cubic meter. The rejection was solely based on the absence of Income Tax Return for the financial year 2021-2022, which the Tender Committee viewed as a mandatory requirement under Rule 27(4)(iv). In contrast, the successful bidder, quoting ₹1250 per cubic meter, was declared responsive and issued a Form-F, despite quoting nearly 41% lower than the disqualified highest bidder. The High Court upheld the disqualification but directed the lower bidder to match the higher rate “in the interest of the State exchequer.”

Challenging this outcome, both bidders approached the Supreme Court—M/s Shanti Construction against the disqualification, and the successful bidder against the directive to match the rejected bid.

The Supreme Court, examining the text and object of Rule 27(4)(iv), held that the term “previous financial year” must be construed in harmony with the timelines prescribed under the Income Tax Act, 1961. The Court noted that the bid submission deadline was 18 July 2022, whereas, under Section 139(1) of the Income Tax Act, companies had time until 31 October 2022 to file returns for the financial year 2021-2022.

Justice Aradhe, delivering the judgment, observed that “on the said date the bidder could not have been expected to file an Income Tax Return for Financial Year 2021-2022 along with its bid documents, as the statutory period for filing the same had not expired.”

The Court emphasised that a literal or rigid reading of the rule would be inconsistent with statutory filing deadlines and undermine the principles of fairness and equality in public procurement. It held that “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.”

Calling the Tender Committee’s view “a narrow and erroneous understanding,” the Court concluded that the rejection of the highest bidder was arbitrary, irrational, and against public interest. The Court declared, “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.”

Addressing the High Court’s failure to intervene, the Supreme Court held that the writ court had missed a vital legal error in the tendering process. The High Court’s attempt to balance the equities by requiring the successful bidder to match the disqualified bid could not cure the fundamental illegality of the disqualification itself.

The Supreme Court reiterated well-settled principles from TATA Cellular v. Union of India, Michigan Rubber v. State of Karnataka, and Natural Resources Allocation, In Re, stating that judicial review in contractual matters is limited but essential in cases of procedural unfairness, irrationality, or misapplication of the law.

“Public tenders are not mere commercial arrangements; they are instruments of governance. Their purpose is to secure the best value for public resources through transparency, fairness, and competition,” observed the Court.

In deciding the appropriate remedy, the Court recognised that more than three years out of the five-year lease period had already lapsed due to prolonged litigation. Though the previously successful bidder offered to match the disqualified bidder’s price, the Court noted that “the auction was vitiated from the outset due to misinterpretation” and fresh public bidding was the only legally sound solution.

The Court directed the Tehsildar, Tangi Chowdwar, to issue a fresh auction notice in accordance with the Odisha Minor Mineral Concession Rules, 2016. Both the previously disqualified and successful bidders, as well as other interested parties, were given the liberty to participate in the new auction process. Additionally, the Court ordered the State to refund the ₹1,26,75,000/- deposited by the successful bidder within 30 days, along with 6% interest per annum, on the principle of restitution.

The Court also invoked the maxim actus curiae neminem gravabit, stating that a party cannot be prejudiced by the act of the Court—an important reminder that delays caused by litigation should not lead to undue loss to either party.

In conclusion, the Court summed up the legal and constitutional principle involved: “The interpretation of tender conditions must enhance—not diminish—public revenue. When that fails, judicial intervention is not only justified, it is necessary.”

Date of Decision: 7 November 2025