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

The SC upheld the HC's decision setting aside the cancellation of a tender for foodgrains/fertilizer handling services, finding violation of natural justice principles. The Corporation's Managing Director cancelled the second tender without providing the successful bidder an opportunity to be heard, breaching the audi alteram partem rule. The SC confirmed this constituted arbitrary state action under Article 14. However, the SC partially set aside the HC judgment insofar as it quashed the Managing Director's report and Special Secretary's disciplinary order against delinquent officers, as the respondent had not sought relief regarding these officers. The SC noted significant financial loss occurred due to substantially higher rates in subsequent contracts and directed the Corporation to take remedial action against responsible persons. The appeal was disposed of with the tender cancellation remaining set aside.

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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.

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