2021 Supreme(SC) 755

SUPREME COURT OF INDIA
(From the High Court of Judicature at Bombay)
N.V. RAMANA, CJI., VINEET SARAN, SURYA KANT, JJ.
The Vice Chairman & Managing Director, City And Industrial Development Corporation Of Maharashtra Ltd. & Anr. – Appellants
Versus
Shishir Realty Private Limited & Ors. Etc. – Respondents
Civil Appeal Nos. 3956-3957 OF 2017
With
Sanjay Kumar Surve – Appellant
Versus
The State of Maharashtra & Ors. etc. – respondents
Civil Appeal Nos. 3959-3961 of 2017
Decided on : 29-11-2021

IMPORTANT POINTS
(1) While recognising existing principle of freedom to enter or not to enter into contracts by State and its instrumentalities, manner, method and motive behind the decision can be subjected to judicial review on touchstone of equality, fairness, proportionality and natural justice.
(2) Natural justice is sworn enemy of intolerant authority.
(3) A blanket claim by State claiming loss of public money cannot be used to forgo contractual obligations, especially when it is not based on any evidence or examination.
(4) It is imperative that Government when seeking exoneration from liability of enforcing contract, must satisfy Court as to how public interest overrides necessity of enforcing contract.

Headnote:

(A) Government Contract – Tender – Scope of Judicial Review – Constitution of India allows government to enter into contracts and perform certain commercial activities – Due to increase in government business, there is a requirement of this Court to uphold certain discretion accruing to government and disallow certain conduct in light of prevailing circumstances – Merely instilling an agency with discretion may not be prohibited by Constitution, rather it is unfettered use of such discretion, that is prohibited – Constitution frowns upon those decisions which are taken in gross abuse of law – Being governed under “rule of law” every action of State or its instrumentality while exercising its executive powers must met aforesaid requirements – While recognising existing principle of freedom to enter or not to enter into contracts by State and its instrumentalities, manner, method and motive behind the decision can be subjected to judicial review on touchstone of equality, fairness, proportionality and natural justice – Decision of executive must strike a balance with alleged violation with that of penalty imposed – Power of judicial review accorded to Constitutional Court of India and its jurisdiction is supervisory – Public interest litigation has opened a large window to entertain any tender, regardless of scale, which are now sought to be challenged as a matter of routine – Such disruption could hardly have been objective of expanding need of Constitutional Review – Close scrutiny of minute details, contrary to view of tendering authority, makes execution of contracts in public sector a cumbersome exercise – Purpose of imbibing spirit of competition in a process such as that of bidding process, is lost in this meandering exercise and delays suffered due to pending litigation – This causes great disadvantage to government and public sector in general – Apex Court, in appropriate cases while interpreting contract, can restrict review mechanism by not inuring to interpretation so provided by third parties or parties competing for tender, unless impugned interpretation is shown to be gross abuse of law – Object of judicial review cannot be that in every contract where some parties lose out, a second opportunity is provided to such parties to pick holes so as to disqualify successful parties, on grounds which even party floating tender find to be without merit. (Paras 25, 26, 27 and 30)

(B) Natural Justice – Effective Hearing – Natural justice is an important aspect while reviewing administrative orders – Providing effective natural justice to affected parties, before a decision is taken, it is necessary to maintain rule of law – Natural justice is sworn enemy of intolerant authority – Any attempt by authority to circumvent requirement of providing effective hearing before reaching a conclusion, cannot pass muster. (Para 38)

(C) Government Contract – Lease-Deeds – Cancellation of – Illegal procedure adopted, clearly vitiates subsequent order by Vice-Chairman, due to irregularity which goes to root of matter – Conduct of appellant authorities indicate that enquiry was not conducted with an open mind – Pre-existing findings of Principal Secretary recommending cancellation of allocation has the potential to colour entire proceedings held subsequently just to meet procedural requirements – Post-decisional hearing given to respondent-lessee is reduced to a lip-service, which cannot be upheld in eyes of law – When statutory functionaries such as CIDCO render an order based on certain grounds, its validity must be judged by reasons so mentioned and cannot be supplemented by fresh reasons in shape of an affidavit or otherwise – Power of change of land of use does exist with CIDCO and has, on multiple occasions, been used to change land use pattern – Prevailing circumstances and changes in factual conditions need to be appropriately considered – When a contract is being evaluated, mere possibility of more money in public coffers, does not in itself serve public interest – A blanket claim by State claiming loss of public money cannot be used to forgo contractual obligations, especially when it is not based on any evidence or examination – Larger public interest of upholding contracts and fairness of public authorities is also in play – Courts need to have a broader understanding of public interest, while reviewing such contracts – One cannot change rules of game once it has started. (Paras 37, 38, 39, 45, 49, 50, 54 and 57)

(D) Government Contract – Lease-Deeds – Cancellation of – It is imperative that Government when seeking exoneration from liability of enforcing contract, must satisfy Court as to how public interest overrides necessity of enforcing contract – Although appellants are right in claiming that Government cannot be compelled to perform its undertaking, but equity demands that Government must place on record sufficient material on record to claim such exemption – High Court while passing impugned judgment has correctly held that respondents-lessees have acted pursuant to permission granted by CIDCO – Equity demands that when State failed to produce an iota of evidence of either financial loss or any other public interest that has been affected, it should be compelled to fulfill its promises – Right to equality under Article 14 abhors arbitrariness – Public authorities have to ensure that no bias, favouritism or arbitrariness are shown during bidding process – A transparent bidding process is much favoured by this Court to ensure that constitutional requirements are satisfied – Fairness and good faith standard ingrained in contracts entered into by public authorities mandates such public authorities to conduct themselves in a non-arbitrary manner during performance of their contractual obligations – By merely using grounds of public interest or loss to treasury, successor public authority cannot undo work undertaken by previous authority – Such a claim must be proven using material facts, evidence and figures – There is an element of abuse of bureaucratic power behind subsequent change in tender allotment – After conducting a tender process and receiving money, Government backtracked which led to present prolonged litigation – Impugned order of CIDCO, annulling allotment on hypertechnical grounds cannot be sustained for being contrary to doctrine of fairness – Appeals dismissed with costs. (Paras 60, 61, 64, 65, 67, 68, 70, 71 and 72)

Facts of the case:

Present Civil Appeals arise out of the impugned judgment dated 06.12.2013 passed by the High Court of Judicature at Bombay in Writ Petition No. 702 of 2011, Writ Petition No. 5245 of 2011, and Public Interest Litigation No. 55 of 2011. Aggrieved by the cancellation of the lease deeds, M/s. Metropolis Hotels and Shishir Realty Pvt. Ltd., challenged order of the Vice Chairman, CIDCO, through two writ petitions being Writ Petition No. 702 of 2011 and Writ Petition No. 5245 of 2011 before the High Court of Judicature at Bombay. Separately, a PIL was also filed challenging the allotment of the plot in question, change of land use, and subdivision of the said plot. High Court, vide impugned order dated 06.12.2013, while quashing the aforesaid cancellation order passed by CIDCO, held that the change of land use and subdivision of plot had taken place with due authorization of CIDCO. Further, it held that the CIDCO was not able to show any concrete violations which go to the root of matter.

Findings of Court:

The constitutional guarantee against arbitrariness as provided under Article 14, demands the State to act in a fair and reasonable manner unless public interest demands otherwise. However, the degree of compromise of any private legitimate interest must correspond proportionately to public interest, so claimed.

Result : Appeals dismissed with costs.