2024 (7) TMI 1598 - SC - Indian Laws

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 ... Cancellation of tender that had been awarded to the Appellant for the maintenance of two underpasses on Public-Private Partnership basis - scope of judicial review of the actions of the State in matters relating to contract/tender disputes under writ jurisdiction - violation of Article 14 of the Constitution of India. What is the scope of judicial review of the actions of the State in the matters relating to contract/tender disputes under writ jurisdiction? - HELD THAT:- The present dispute even if related to a tender, cannot be termed as a pure contractual dispute, as the dispute involves a public law element. Although there is no discharge of a public function by the Respondent towards the Appellant yet there is a right to public law action vested in him against the Respondent in terms of Article 14 of the Constitution. This is because the exercise of the executive power by it in the contractual domain i.e., the cancelling of the tender carries a corresponding public duty to act in a reasonable and rationale manner. Thus, the writ petition filed by the Respondent was maintainable and the relief prayed for could have been considered by the High Court in exercise of its writ jurisdiction. The approach of the court must be to respect the expertise and discretion of administrative authorities while still protecting against arbitrary and capricious actions. Whether the action on the part of the Respondent herein in cancelling the tender vide its notice dated 07.02.2023 was amenable to the writ jurisdiction of the High Court? 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 India? - HELD THAT:- Once a decision has been officially made through proper means and channel, any internal deliberations or file notings that formed a part of that decision-making process can certainly be looked into by the Court for the purposes of judicial review in order to satisfy itself of the impeccability of the said decision. Once a decision is made, all opinions and deliberations pertaining to the said decision in the internal file-notings become a part of the process by which the decision is arrived at, and can be looked into for the purposes of judicial review. In other words, any internal discussions or notings that have been approved and formalized into a decision by an authority can be examined to ascertain the reasons and purposes behind such decisions for the overall judicial review of such decision-making process and whether it conforms to the principles enshrined in Article 14 of the Constitution. If the purported action of cancelling the tender is claimed to have been taken in view of certain technical faults in the same or even a change in policy the same ought to be clearly reflected from its internal file notings as-well, pursuant to which the purported decision was taken. It is evident that the Notice of Cancellation dated 07.02.2023, issued to the Appellant, was at the behest of the concerned minister. The Respondent clearly recorded that, because instructions for cancellation had been received from the higher-ups, there was no option but to proceed with the cancellation. Even before the Respondent could properly and thoroughly explore the possibility of acceding to such request by consulting its legal cell, the tender was cancelled only at the instance and specific instructions of the concerned minister. Considerations of public interest should not be narrowly confined to financial aspects. The courts must have a more holistic understanding of public interest wherever the fairness of public authorities is in question, giving due regard to the broader implications of such action on the stability of contractual obligations. Merely because the financial terms of a contract are less favourable over a period of time does not justify its termination. Such decisions must be based on a careful consideration of all relevant factors, including the potential harm to the integrity and sanctity of contractual relationships. The larger interest of upholding contracts cannot be discarded in the name of monetary gain labelled as public interest. The present lis is nothing but a classic textbook case of an arbitrary and capricious exercise of powers by the Respondent to cancel the tender that was issued to the Appellant on the basis of extraneous considerations and at the behest of none other but the concerned Minister-In-Charge. Conclusion - i) 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. ii) The litigation at hand is nothing but a classic textbook case of an arbitrary exercise of powers by the Respondent in cancelling the tender that was issued in favour of the Appellant and that too at the behest of none other than the concerned Minister-In-Charge and thereby rendering the Notice of Cancellation dated 07.02.2023 illegal. iii) The order dated 16.09.2023 passed by the Urban Development and Municipal Affairs Department, Government of West Bengal merely transferred the operation and maintenance of the underpasses including the right to receive revenue from KMDA to KMC and therefore will have no effect on any rights that accrued in favour of the Appellant as such rights are independent of the authority in control of operations and maintenance. The notice of cancellation dated 07.02.2023 is quashed and the impugned judgment and order passed by the High Court is hereby set aside - Appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe 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 ANALYSISi. 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 HOLDINGSThe 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.