2024 Supreme(SC) 550

SUPREME COURT OF INDIA
Dhananjaya Y. Chandrachud, CJI, J.B. Pardiwala, Manoj Misra, JJ.
Subodh Kumar Singh Rathour - Appellant
Versus
The Chief Executive Officer & Ors. - Respondents
Civil Appeal No. 6741 Of 2024 (Arising Out Of Special Leave Petition (C) No. 12941 of 2023)
Decided On : 09-07-2024

IMPORTANT POINTS
(1) Cancellation of Tender – Sanctity of contracts is a fundamental principle that underpins stability and predictability of legal and commercial relationships – When public authorities enter into contracts, they create legitimate expectations that State will honour its obligations – Once a contract is entered, there is legitimate expectation, that obligations arising from contract will be honoured and that rights arising from it will not be arbitrarily divested except for a breach or non-compliance of terms agreed thereunder.
(2) Cancellation of Contract – If State deems it necessary to alter or cancel a contract on the ground of public interest or change in policy then such considerations must be bona-fide and should be earnestly reflected in decision-making process and also in final decision itself – Otherwise, it would have a very chilling effect as participating and winning a tender would tend to be viewed as a situation worse than losing one at threshold.
(3) Cancellation of Contract – Considerations of public interest should not be narrowly confined to financial aspects – Courts must have a more holistic understanding of public interest wherever fairness of public authorities is in question, giving due regard to broader implications of such action on stability of contractual obligations – Merely because financial terms of a contract are less favourable over a period of time does not justify its termination.
(4) Judicial Review – Once a decision is made, all opinions and deliberations pertaining to said decision in internal file-notings become a part of process by which decision is arrived at, and can be looked into for the purposes of judicial review – Any internal discussions or notings that have been approved and formalized into a decision by an authority can be examined to ascertain reasons and purposes behind such decisions for overall judicial review of such decision-making process and whether it conforms to principles enshrined in Article 14 of Constitution.

Headnote:

(A) Constitution of India – Articles 14 and 226 – Scope of Judicial Review in contractual matters – Government being decision-maker of State is said to be the best judge of when a contract or an agreement is in its interest and by its extension in interest of public, and as such courts should not interfere in State’s discretion to award or terminate contracts – Interplay between judicial review and administrative discretion has been a dynamic process – As new challenges and complexities kept on arising before courts as regards State’s actions and governance, it continued to refine its approach – Every action of State that has some degree of impact on public interest, can be challenged under writ jurisdiction to the extent that they are arbitrary, unfair or unreasonable, irrespective of fact that dispute falls within domain of contractual obligations – Power to issue writs under Article 226 being discretionary and plenary, same should only be exercised to set right arbitrary actions of State or its instrumentality in matters related to contractual obligations – Where State action is challenged on the ground of being arbitrary, unfair or unreasonable, State would be under obligation to comply with basic requirements of Article 14 of Constitution and not act in an arbitrary, unfair and unreasonable manner. (Paras 40, 44, 47, 48, 52 and 56)

(B) Government Contract – Tender – Cancellation of – Demarcation between a private law element and public law element in context of contractual disputes may be assessed by ascertaining whether dispute or the controversy pertains to consensual aspect of contract or tender in question or not – Present dispute even if related to a tender, cannot be termed as a pure contractual dispute, as dispute involves a public law element – Cancelling of tender carries a corresponding public duty to act in a reasonable and rationale manner – Cancellation of tender for work was neither due to any technical fault nor due to policy change in operation and maintenance of concerned underpasses but was for altogether a different reason – There is nothing to suggest that there was a technical fault in tender resulting in financial losses or that there was a possibility of fetching higher license fees – Blanket claim by State claiming loss of public money cannot be used to forgo contractual obligations – Public interest cannot be used as a pretext to arbitrarily terminate contracts and there must be clear and demonstrable ramification or detriment on public interest to justify any such action – Considerations of public interest should not be narrowly confined to financial aspects – Merely because financial terms of a contract are less favourable over a period of time does not justify its termination – Larger interest of upholding contracts cannot be discarded in name of monetary gain labelled as public interest – Notice of cancellation quashed and impugned judgment and order passed by High Court set aside. (Paras 58, 62, 91, 111, 112, 115, 116 and 134)

(C) Administrative Law – Control of Administrative Discretion – To enthuse efficiency in administration, balance between accountability and autonomy of action should be carefully maintained – Overemphasis on either would impinge upon public efficiency – Test of reasonableness is more strict – Public authorities should be duty conscious rather than power charged – Its actions and decisions which touch common man have to be tested on touchstone of fairness and justice – An arbitrary action is ultra vires – It does not become bona fide and in good faith merely because no personal gain or benefit to person exercising discretion has been established – An action is mala fide if it is contrary to purpose for which it was authorised to be exercised – Dishonesty in discharge of duty vitiates the action without anything more – 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 be looked into by Court for the purposes of judicial review in order to satisfy itself of impeccability of said decision. (Paras 67, 69, 70, 85 and 87)

(D) Government Contract – Sanctity of Tenders – Public tenders are a cornerstone of governmental procurement processes, ensuring transparency, competition, and fairness in the allocation of public resources. It emanates from the Doctrine of Public Trust – State is not the absolute owner of public resources and rather owns it in trust and as such it cannot utilize these resources as it pleases – Principles of transparency and fairness embedded in public tender processes also help to prevent corruption and misuse of public resources – Sanctity of public tenders lies in their role in upholding principles of equal opportunity and fairness – Once a contract has come into existence through a valid tendering process, its termination must adhere strictly to terms of contract – Once a contract is entered, there is a legitimate expectation that obligations arising from contract will be honoured and rights arising from it will not be arbitrarily divested except for breach or non-compliance of terms agreed thereunder – Arbitrary terminations of contract create uncertainty and unpredictability, thereby discouraging public participation in tendering process. (Paras 124, 125, 126, 127 and 128)

Facts of the case:

Present appeal arises out of final judgment and order dated 25.05.2023 passed by High Court of Calcutta in M.A.T. No. 744 of 2023, by which the High Court upheld decision of respondent to cancel tender that had been awarded to appellant for maintenance of two underpasses on Public-Private Partnership basis, and thereby dismissed writ appeal filed by the appellant.

Points for determination are:

(I) What is scope of judicial review of actions of State in matters relating to contract/tender disputes under writ jurisdiction?

(II) Whether action on part of respondent in cancelling tender vide its notice dated 07.02.2023 is amenable to writ jurisdiction of High Court? If so, whether said action could be termed as arbitrary or unfair and in consequence of violation of Article 14 of Constitution of India?

Findings of Court:

Order dated 16.09.2023 passed by Urban Development and Municipal Affairs Department, Government of West Bengal merely transferred operation and maintenance of underpasses including right to receive revenue from KMDA to KMC and therefore will have no effect on any rights that accrued in favour of appellant as such rights are independent of authority in control of operations and maintenance.

Result : Appeal allowed.