2020 (10) TMI 746 - SC - Indian Laws

Tender cancellation set aside for violating natural justice principles, successful bidder denied hearing opportunity

STATE OF U.P. Versus SUDHIR KUMAR SINGH AND ORS.

The SC upheld the HC's decision setting aside the cancellation of a tender for foodgrains/fertilizer handling services, finding violation of natural ... Violation of Principles of Natural Justice - Cancellation of second tender - E-Tender notice for unloading/loading of foodgrains/fertilizer bags from/into railway wagons, trucks etc., stacking the foodgrains/fertilizers in bags, bagging, weighment, standardisation, cleaning of foodgrains/fertilizers etc. and transporting of foodgrains/fertilizers etc. from Railway Station to Corporation godowns or vice versa - Managing Director of the Corporation cancelled the aforesaid tender apparently on the ground that it was “impractical” to go ahead with such tender. HELD THAT:- Despite the fact that the prayer in the Writ Petition filed by Respondent No.1 was set out in the very beginning of the impugned judgment, confining itself to the cancellation of the second tender, the impugned judgment went ahead and not only set aside such cancellation vide the letter dated 26.07.2019, but also went ahead and set aside the Managing Director’s report dated 14.06.2019, and the Special Secretary’s order of 16.07.2019, which required the taking of disciplinary action and recovery of financial loss from those who are responsible. Shri Rakesh Dwivedi also fairly conceded that his client had not asked for any relief qua the delinquent officers. This being the case, we set aside the impugned judgment insofar as it has quashed the Managing Director’s report dated 14.06.2019, and the order of the Special Secretary dated 16.07.2019. Any consequential action that is to be taken pursuant to these orders must follow in accordance with law. It may be added that every case in which a citizen/person knocks at the doors of the writ court for breach of his or its fundamental rights is a matter which contains a “public law element”, as opposed to a case which is concerned only with breach of contract and damages flowing therefrom. Whenever a plea of breach of natural justice is made against the State, the said plea, if found sustainable, sounds in constitutional law as arbitrary State action, which attracts the provisions of Article 14 of the Constitution of India - The present case is, therefore, a case which involves a “public law element” in that the petitioner (Respondent No.1 before us) who knocked at the doors of the writ court alleged breach of the audi alteram partem rule, as the entire proceedings leading to cancellation of the tender, together with the cancellation itself, were done on an ex parte appraisal of the facts behind his back. Judged by the touchstone of these tests, it is clear that Respondent No.1 has been completely in the dark so far as the cancellation of the award of tender in his favour is concerned, the audi alteram partem rule having been breached in its entirety. As has been correctly argued by Shri Rakesh Dwivedi, prejudice has indeed been caused to his client, not only from the fact that one year of the contract period has been taken away, but also that, if the impugned High Court judgment is to be set aside today, his client will be debarred from bidding for any of the Corporation’s tenders for a period of three years. Undoubtedly, prima facie, the rates at which contracts have been awarded pursuant to the tender dated 01.06.2018 are way above the rates that were awarded of the same division, and for exactly the same amount of work awarded vide the earlier tender advertisement dated 01.04.2018. Shri Dwivedi’s argument that in the neighbouring regions the rates tendered were also high, and nothing has yet been done to nullify these tenders and the financial loss caused, does carry some weight. That a huge financial loss to the Corporation has also taken place is something for the Corporation to probe, and take remedial action against the persons responsible. The impugned judgment of the High Court is upheld on the ground that natural justice has indeed been breached in the facts of the present case, not being a case of admitted facts leading to the grant of a futile writ, and that prejudice has indeed been caused to Respondent No.1. In view of this finding, there is no need to examine the other contentions raised by the parties before us - appeal disposed off. Issues Involved:1. Cancellation of e-tender notice.2. Procedural defects in enquiry reports.3. Justification for cancelling the written agreement.4. Authority of the Corporation to take action under executive fiat.5. Bias in the cancellation order.6. Maintainability of writ petition under Article 226.7. Breach of natural justice and its consequences.Detailed Analysis:1. Cancellation of e-tender notice:The U.P. State Warehousing Corporation issued an e-tender on 06.01.2018, which was cancelled on 16.01.2018 due to 'administrative reasons.' A subsequent e-tender on 01.04.2018 was also cancelled on 04.05.2018 by the Managing Director, citing impracticality. The same tender was reissued on 01.06.2018, leading to the selection of contractors at significantly higher rates. Complaints about financial irregularities prompted an ex parte enquiry resulting in the cancellation of the tender on 26.07.2019.2. Procedural defects in enquiry reports:The High Court identified procedural defects in the enquiry reports, noting that the findings were based on no material evidence and were perverse. The reports from the Managing Director and the Commissioner were conducted ex parte, without involving the affected party, Respondent No.1. The High Court quashed these reports due to the breach of natural justice.3. Justification for cancelling the written agreement:The High Court found that the cancellation of the agreement after one year without notice to Respondent No.1 was unjustified. The tender process had been completed, and the agreement was being executed without any breach of terms by Respondent No.1. The cancellation was deemed arbitrary and lacked any substantial reason or evidence of wrongdoing by the contractor.4. Authority of the Corporation to take action under executive fiat:The High Court held that the Corporation, being an autonomous body, should not have acted solely based on the executive fiat of the Special Secretary. The Managing Director's action to cancel the agreement under the direction of the Special Secretary was found to be improper and without independent application of mind.5. Bias in the cancellation order:The High Court concluded that the Managing Director, who conducted the enquiry and prepared the report, exhibited bias by not offering Respondent No.1 an opportunity to defend himself. The cancellation order was thus vitiated by bias and could not be sustained in law.6. Maintainability of writ petition under Article 226:The Supreme Court upheld the maintainability of the writ petition under Article 226, citing that the State's arbitrary actions in contractual matters can be challenged through writ petitions. The Court referenced several judgments affirming that writ petitions are appropriate when the State acts unfairly or in violation of natural justice.7. Breach of natural justice and its consequences:The Supreme Court emphasized that the breach of natural justice was evident as the cancellation of the tender and subsequent actions were taken without hearing Respondent No.1. This breach caused significant prejudice, including the loss of one year of the contract and potential debarment from future tenders. The Court upheld the High Court's decision to quash the cancellation order and related enquiry reports, reinforcing the importance of adhering to principles of natural justice.Conclusion:The Supreme Court partially allowed the appeals, setting aside the High Court's quashing of the Managing Director's report and the Special Secretary's order. However, it upheld the High Court's decision on the breach of natural justice and the consequent quashing of the tender cancellation. The Court ordered the return of the earnest money deposit and security deposit to Respondent No.1 and allowed for the possibility of claiming unpaid amounts for work done. The judgment emphasized the necessity of procedural fairness and the right to a fair hearing in administrative actions.