Legal Review and Analysis of Ms Shanti Construction Pvt Ltd vs The State of Odisha & Ors 2025 INSC 1295

In-Short

Case: M/s Shanti Construction Pvt. Ltd. vs The State of Odisha & Ors. (2025 INSC 1295)The Supreme Court set aside the Orissa High Court's judgment, holding that the Tender Committee's interpretation of "previous Financial Year" was arbitrary and defeated public interest by wrongly excluding the highest bidder. The Court directed a fresh auction for the sand quarry lease to ensure maximum revenue for the State.

1. Heading of the Judgment

Case Title: M/s Shanti Construction Pvt. Ltd. vs The State of Odisha & Ors.
Citation: 2025 INSC 1295
Court: Supreme Court of India
Judges: Justice Sanjay Kumar and Justice Alok Aradhe
Date of Decision: November 7, 2025

2. Related Laws and Sections

The judgment primarily interprets statutory rules and constitutional principles governing public tenders.

• The Constitution of India, 1950:
  Article 14: Guarantees the right to equality and is the bedrock for ensuring non-arbitrariness and fairness in State action, including in contractual matters.
  Article 226: Specifies the power of High Courts to issue certain writs, under which the original petition was filed.

• Odisha Minor Mineral Concession Rules, 2016:
  Rule 27(4)(iv): The core rule under interpretation, which prescribes the financial eligibility criteria for bidders.

• Income Tax Act, 1961:
  Section 139(1): Pertains to the time limit for filing income tax returns, which was crucial for interpreting the timeline in the tender rule.

3. Basic Judgment Details

This case involved two appeals emanating from a common judgment of the Orissa High Court concerning the auction of a sand quarry lease. An auction notice was issued on July 11, 2022, for a five-year lease. The appellant, M/s Shanti Construction ("the unsuccessful bidder"), submitted the highest bid of ₹2127.27 per cubic meter. However, its bid was declared non-responsive because it did not submit an Income Tax Return (ITR) for the financial year 2021-22, which the Tender Committee interpreted as the "previous Financial Year" under Rule 27(4)(iv). The bid of the respondent ("the successful bidder"), who quoted ₹1250 per cubic meter, was accepted. The High Court upheld the bid rejection but directed the successful bidder to match the higher bid. Both parties appealed to the Supreme Court.

4. Core Principle of the Judgment: Judicial Correction of an Arbitrary Tender Condition Interpretation

The Central Issue

The core legal question before the Supreme Court was the correct interpretation of the phrase "previous Financial Year" as used in Rule 27(4)(iv) of the Odisha Minor Mineral Concession Rules, 2016, and whether the Tender Committee's rejection of the highest bidder based on a narrow interpretation was arbitrary and violative of public interest.

The Supreme Court's Analysis and Ruling

The Supreme Court allowed the appeal of the unsuccessful bidder, set aside the High Court's judgment, and ordered a fresh auction. Its reasoning is structured under the following key headings:

4.1. The Established Principles of Judicial Review in Tender Matters
The Court began by reaffirming the settled law that while judicial interference in contractual matters is limited, it is imperative when the State's decision-making process is arbitrary, irrational, or contrary to public interest. Citing precedents like Tata Cellular v. Union of India (1994) 6 SCC 651 and Michigan Rubber (India) Ltd. v. State of Karnataka (2012) 8 SCC 216, the Court emphasized that a public tender is an "instrument of governance" and a mechanism of public trust. The State's obligation is twofold: to interpret tender terms consistently and to ensure that such interpretation advances the object of the tender, which, for natural resources, is to maximize revenue for the public exchequer through a fair and competitive process.

4.2. The Misinterpretation of "Previous Financial Year"
The Court focused on the critical flaw in the Tender Committee's reasoning. Rule 27(4)(iv) required bidders to submit the "Income Tax Return of previous financial year." The auction was held on July 11, 2022. The Court held that the phrase "previous Financial Year" had to be read in harmony with the Income Tax Act, 1961. Since the statutory deadline for a company to file its ITR for FY 2021-22 was October 31, 2022, it was impossible for any bidder to have submitted that ITR by the bid submission deadline of July 18, 2022. Therefore, the only reasonable and practical interpretation of "previous Financial Year" was the one immediately preceding the current financial year, i.e., FY 2020-21, for which the ITR was already available. The Tender Committee's insistence on the FY 2021-22 ITR was a "narrow and erroneous understanding" that had no basis in law or practicality.

4.3. Vitiation of the Decision-Making Process and Public Interest
The Court held that this misinterpretation was not a mere technical error but one that vitiated the entire decision-making process. By wrongly excluding the highest bidder, the Tender Committee acted in a manner that "diminishes competition and deprives the State of its legitimate revenue." This was directly contrary to the constitutional duty of the State to secure the best value for public resources, especially natural resources like sand, as held in Natural Resources Allocation, In Re, Special Reference No.1 of 2012 (2012) 10 SCC 1. The Court concluded that such an arbitrary interpretation warranted judicial intervention to uphold the "heart beat of fair play" in State action.

5. Final Outcome and Directions

• Appeal Allowed: The appeal filed by the unsuccessful bidder (M/s Shanti Construction) was allowed.

• High Court Judgment Quashed: The impugned judgment of the Orissa High Court dated March 1, 2023, was set aside.

• Fresh Auction Ordered: The Tehsildar, Tangi Chowdwar, Cuttack, was directed to issue a fresh auction notice for the grant of the sand quarry lease. Both the original unsuccessful and successful bidders were permitted to participate.

• Refund with Interest: The State was directed to refund the amount deposited by the successful bidder within 30 days, along with interest at the rate of 6% per annum from the date of deposit until payment.

6.  (MCQs) Based on the Judgment

Question 1: In M/s Shanti Construction vs State of Odisha (2025 INSC 1295), the Supreme Court held that the Tender Committee's interpretation of "previous Financial Year" was erroneous because?
a) The committee should have accepted a provisional balance sheet instead of an Income Tax Return.
b) The interpretation made it impossible for any bidder to comply with the rule by the tender deadline.
c) The rule itself was unconstitutional and violated Article 14 of the Constitution.
d) The committee was biased against the highest bidder from the beginning.

Question 2: The Supreme Court justified its intervention in the tender process primarily on the ground that?
a) The successful bidder had connections with the Tender Committee.
b) The State government had requested the Court to cancel the tender.
c) The misinterpretation of a tender condition deprived the State of substantial revenue and was against public interest.
d) The duration of the lease had already been significantly reduced due to litigation.