State authority's arbitrary tender cancellation violated Article 14 despite claiming public interest and financial gains

SC held that tender cancellation by state authority was arbitrary and violated Article 14. The Court established that contract/tender disputes involving public authorities are subject to writ jurisdiction when they contain public law elements, even without direct public function discharge. Internal file notings and deliberations can be examined during judicial review to assess decision-making processes. The cancellation was deemed arbitrary as it was made at ministerial behest without proper legal consultation or consideration of broader public interest beyond financial aspects. The Court emphasized that contractual stability cannot be sacrificed merely for monetary gains labeled as public interest. The cancellation notice was quashed and HC judgment set aside.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• What is the scope of judicial review of the actions of the State in matters relating to contract/tender disputes under writ jurisdictionRs.
• Whether the action of the Respondent in cancelling the tender via its notice dated 07.02.2023 was amenable to the writ jurisdiction of the High CourtRs. If so, whether the said action could be termed as arbitrary or unfair and in consequence of violation of Article 14 of the Constitution of IndiaRs.

2. ISSUE-WISE DETAILED ANALYSIS

i. Scope of Judicial Review of the actions of the State in matters relating to Contract/Tender under Writ Jurisdiction.

a. Earlier Position of Law and Misconception of the State as a Largesse.

The earlier position of law was that disputes arising from contracts with the State were not adjudicated under writ jurisdiction, as they were considered private law matters. This position was established in cases like Radhakrishna Agarwal v. State of Bihar, where the court held that contractual disputes should be resolved through ordinary suits, not writ petitions.

Over time, this view evolved. Courts recognized that State actions in contracts could involve public law elements, subjecting them to judicial review if they were arbitrary or unfair. This shift acknowledged that the State's actions, even in contracts, must comply with Article 14 of the Constitution, ensuring fairness and non-arbitrariness.

b. Concept of 'Public Law' Element: Scope of Judicial Review in Contractual Matters.

The courts developed doctrines to guide judicial review, ensuring administrative actions were not arbitrary or discriminatory. This evolution allowed for judicial oversight in contractual matters involving the State, balancing efficiency and fairness.

In Mahabir Auto Stores v. Indian Oil Corporation, the court held that even contractual actions by the State could be reviewed for arbitrariness, discrimination, or unfairness. The decision in LIC v. Consumer Education & Research Centre further established that actions with public elements could be challenged under writ jurisdiction.

The decision in ABL International Ltd. v. Export Credit Guarantee Corporation of India marked a turning point, affirming that relief against State actions in contractual obligations could be sought under writ jurisdiction.

c. Meaning and True Import of Arbitrariness of State Actions in Contractual Disputes.

Arbitrariness in State actions is assessed by examining if the decision is based on discernible principles and if it satisfies the test of reasonableness. An action uninformed by reason is arbitrary and violates Article 14. The courts ensure that State actions in contractual matters are not capricious or motivated by extraneous considerations.

ii. Whether the action of cancelling the tender is arbitrary or unfair and in consequence of violation of Article 14 of the ConstitutionRs.

The Respondent's cancellation of the tender was challenged as arbitrary and influenced by extraneous considerations. The cancellation notice cited technical faults and a change in policy as reasons. However, the internal file-notings revealed that the cancellation was at the behest of a minister, without genuine consideration of the alleged faults or policy change.

The court scrutinized the internal file-notings, concluding that the cancellation was not based on valid reasons or public interest. The decision was deemed arbitrary, influenced by extraneous factors, and not supported by the internal deliberations or the actual circumstances.

3. SIGNIFICANT HOLDINGS

The court held that the writ petition filed by the Appellant was maintainable, as the cancellation of the tender involved a public law element. The cancellation was not a mere contractual dispute but an arbitrary exercise of executive power.

The court emphasized the importance of maintaining the sanctity of public tenders, ensuring transparency, competition, and fairness in public procurement processes. Arbitrary cancellations undermine trust in public procurement and deter participation.

The court quashed the notice of cancellation dated 07.02.2023, setting aside the High Court's judgment. The decision reinforced the obligation of the State to act fairly and not arbitrarily, even in contractual matters, upholding the principles of Article 14 of the Constitution.

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