No Notice, No Forfeiture: HP High Court Refunds Contractor's ₹15.67 Lakh Over Festival Encroachment Row

In a strong rebuke to hasty administrative actions, the Himachal Pradesh High Court has quashed the forfeiture of a contractor's security deposit, ordering a full refund of ₹15.67 lakh. The Division Bench of Chief Justice G.S. Sandhawalia and Justice Jiya Lal Bhardwaj ruled that penalizing M/s Zenith-Event & Services without a show-cause notice violated core principles of natural justice, even in a high-stakes public tender for Kullu Dussehra festivities.

From Festival Tents to Court Battle: The Tender That Sparked the Dispute

The saga unfolded around the iconic Kullu Dussehra festival in 2023. The Dussehra Festival Committee, under the Deputy Commissioner Kullu, issued a tender on September 12 for allotting space and erecting four massive "German Hangers" – temporary dome structures – at Dhalpur Sports Ground. Bids poured in, and Zenith emerged as the highest bidder at over ₹2 crore (later negotiated down), securing all four hangars via an approval letter dated October 6.

As per tender terms, the firm deposited ₹16 lakh in Fixed Deposit Receipts (FDRs): ₹1 lakh earnest money per hanger plus ₹4 lakh performance security each, adjustable against EMD. They duly installed the structures, the festival dazzled from October 24 to November 12, and Zenith vacated the site promptly afterward, seeking release of their deposit.

But trouble brewed post-festival. Citing an inspection report from the Town & Country Planner dated January 3, 2024 – nearly two months later – authorities alleged encroachment beyond the allotted 31,954 sq ft. On February 9, 2024, they forfeited ₹15,67,597, refunding a mere ₹46,887 for "proportionate unauthorized encroachment." No prior notice, no hearing – just deduction.

Zenith fired back with RTI queries, revealing no complaints, no removal notices, and no encroachment reports during the event. This led to their writ petition under Article 226, challenging the action as arbitrary and unconstitutional.

Petitioners Cry Foul, State Defends 'Festival Chaos'

Zenith's pitch was straightforward: They completed the job flawlessly, handed over vacant space without demur, and faced no on-site complaints. Post-festival RTIs confirmed zero formal notices or probes during the event. The "encroachment" report, they argued, was a post-facto fabrication – aerial photos and sketches unreliable, prepared behind their back after structures were dismantled. Forfeiture without audi alteram partem (hear the other side) smacked of Articles 14 and 19 violations, demanding writ relief over civil suits.

The State countered aggressively, insisting writ jurisdiction barred contractual disputes (citing National Highways Authority of India v. Ganga Enterprises ). Tender addendum Clause 31 and allotment letter Clauses 3, 9, 13 explicitly banned encroachments outside hangars, with penalties from security deposits. Inspection sub-committees spotted extra space sublet for profit during the festival; verbal warnings were issued amid "pre-occupation with law and order." No formal notice needed for contractual enforcement, they claimed, with Kullu courts holding exclusive jurisdiction.

Why 'Busy Festival' Doesn't Excuse Skipping Fair Play

The Bench cut through the noise, invoking Supreme Court wisdom to affirm writ powers against State arbitrariness. Unlike Ganga Enterprises – where a bidder withdrew post-acceptance – here civil consequences (near-total forfeiture) triggered natural justice mandates.

Drawing from Gorkha Security Services v. Govt. of NCT of Delhi (2014), the Court stressed show-cause notices before actions like blacklisting or forfeiture, equating them to "civil death" barring future tenders. Erusian Equipment v. State of West Bengal (1975) reinforced equality in public contracts under Article 14. Recent precedents like State Bank of India v. Rajesh Agarwal (2023) and Uflex Ltd. v. Govt. of Tamil Nadu (2022) hammered home: No hearing means no validity, even sans explicit rules.

The State's "festival frenzy" excuse fell flat – sub-committees existed to monitor encroachments precisely. Why no notice while hangars stood? Post-event reports (December 14, 2023, query; January 3 report) couldn't retroactively justify silent penalties. Photos didn't prove Zenith's hand in alleged sheds, underscoring the need for real-time rebuttal opportunity.

Key Observations from the Bench

"The principles of natural justice as such have to be followed when civil consequences are entailed... the action of the respondents can be stated to be arbitrary."

"It was the bounden duty as such of the respondents-State to have issued the necessary show-cause notice for the area which had been occupied by the petitioners outside the German Hangers and specify the area which had been occupied as and when the German Hangers were still standing at the spot."

"The Rule of Audi Alteram Partem has to be applied... fundamentals of fair play require that the person concerned should be given an opportunity to represent his case."

"Having let the Dussehra Festival as such come to an end... the resort as such to call for a report... is not liable to be accepted as the basic principles of natural justice have been violated."

Refund Ordered: A Blueprint for Future Tenders?

The petition succeeded emphatically. The February 9 order stands quashed; authorities must refund ₹15,67,597 within four weeks. No interest, as unprayed, but the message resonates: Remand unnecessary post-dismantling, but procedural fairness is non-negotiable.

This ruling fortifies contractors against post-hoc penalties in festival or event tenders, ensuring States can't wield contract clauses as unchecked swords. For Kullu Dussehra – a cultural juggernaut – it signals tighter, transparent oversight, blending tradition with justice.

(Case: M/s Zenith-Event & Services v. State of HP; CWP No. 6271 of 2024; Reported: Yes)