State or State instrumentalities are bound by fairness and reasonableness under Article 14 of the Constitution in contractual matters, and the writ jurisdiction under Article 226 is maintainable for challenging their actions.

1. Identical dispute is involved in both the writ applications, which have been filed by the same petitioner in respect of two contracts which were awarded to the petitioner. The challenge is to the cancellation of the contract by the respondent Central Public Works Department by identical letters dated 11-1-2008, which is Annexure-16, in the first writ application and Annexure-15, in the second writ application. While cancelling the agreement earnest money of Rs. 48,87,500 and performance guarantee of Rs. 2,52,39,000 in the first case and similar amounts in the second case have been ordered forfeited.

2. During pendency of the writ applications fresh advertisements were issued inviting tenders the finalization of which was stayed by interim order of this Court passed on 6-2-2008, Central Public Works Department and its Officials connected with Rashtriya Sam Vikas Yojana (RSVY) have appeared and filed detailed counter-affidavit and rejoinder thereto filed by the petitioner.

3. Learned Advocate General of Bihar appeared suo motu in the general interest of the State of Bihar though State of Bihar is not a contesting party.

4. Parties were heard and with their consent the writ application is being disposed of at the stage of admission of itself.

5. Petitioner is a company, which is engaged in large infrastructure development programmes all over the country and has its registered Office at Pune in the State of Maharashtra. Central Public Works Department (hereinafter referred to as CPWD) is a department under Union of India and had been entrusted in the State of Bihar the task of development of State High Ways under the Rashtriya Sam Vikas Yojana.

6. CPWD through its consultancy service organization issued notices inviting tender being NIT No. 63/NIT/RSVY (Bihar)/ 2006-07 in the first case, and 62/NIT/ RSVY/(Bihar)/2006-07 in the second case. In the first case which is commonly referred as Package No. 10-B, it relates to the State High Way connecting Sheikhpura to Ramgarh and the road Sikandra to Lakhisarai via Ramgarh falling within the districts of Sheikhpura and Lakhisarai of the State. In the second case it related to State Highway between Bar Bigha to Sikandra via Sheikhpura and is commonly referred to as Package No. 10-A. The total estimated cost of package of 10-B was Rs. 47, 21, 94, 960 and that of Package 10-A was Rs. 38,87,16,498.

7. The petitioner company having requisite qualification and experience of undertaking such works filed their tender for both the packages separately. When tender documents were opened negotiations were held on 4-6-2007 petitioner agreed to reduce its rates to a point which was then accepted by respondents letter dated 22-6-2007 for total value far above the estimated cost. Therefore, the acceptance was formally conveyed by letter dated 25-6-2007 by the Executive Engineer, RSVY, Project Division CPWD, Gaya. The said letter of acceptance mentioned that the time allowed for carrying out the work was 19 months which would reckon from 10 days from the issuance of this letter dated 25-6-2007, but, letter of commencement of work would be issued and the site of work shall be handed over to the petitioner of receipt of performance guarantee which was indicated in the said letter. The petitioner thereafter was issued another letter dated 30-7-2007, after performance guarantee was deposited, directing the petitioner to complete formal agreement and contract the respondent-Assistant Executive Engineer for taking possession of site and start the work immediately.

8. It may be mentioned that in the notice inviting tender in Chapter 1 Clause 3, it had been stipulated that the time allowed for carrying out the work was 19 months from the 10th day after issuance of letter of acceptance or from the first day of handing over the site, whichever is later. It was stated that the site for work was available.

9. The petitioner approached respondent Assistant Engineer to hand over the site and start work but