Pursuant to the aforesaid, the tendering process was undertaken and the appellant herein on 13.06.2022 submitted his bid with a quotation of Rs. 29,55,555/- for the Bellingham Underpass and Rs. ...
No Acts & Articles mentioned in this case
2024 INSC 486 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6741 OF 2024
(ARISING OUT OF SPECIAL LEAVE PETITION (C) NO. 12941 OF 2023)
SUBODH KUMAR SINGH RATHOUR ...APPELLANT
VERSUS
THE CHIEF EXECUTIVE OFFICER & ORS. ...RESPONDENTS
J U D G M E N T
Civil Appeal No. 6741 of 2024 Page 1 of 83
J.B. PARDIWALA, J.:
For the convenience of exposition, this judgment is divided in the following parts: -
INDEX
A. FACTUAL MATRIX ................................................................................ 2
B. IMPUGNED ORDER ................................................................................ 7
C. DEVELOPME NTS THAT OCCUR RED DURING THE PENDENCY
OF THE PRESENT APPEAL. ............................................................... 10
D. SUBMISSIONS ON BEHALF OF THE APPELLANT ........................ 15
E. SUBMISSIONS ON BEHALF OF THE RESPONDENT ..................... 17
F. POINTS FOR DETERMINATION ........................................................ 18
G. ANALYSIS ............................................................................................... 19
i. Scope of Judicial Review of the actions of the State in matters relating to
Contract / Tender under Writ Jurisdiction. ................................................ 19
a. Earlier Position of Law and Misconception of the State as a Largesse. .............. 19
b. Concept of ‘Public Law’ Element: Scope of Judicial Review in Contractual
Matters. ............................................................................................................. 25
c. Meaning and True Import of Arbitrariness of State Actions in Contractual
Disputes. ........................................................................................................... 47
ii. Whether the action of cancelling the tender is arbitrary or unfair and in
consequence of violation of Article 14 of the Constitution? ........................ 53
a. Scrutiny of Internal File-Notings and Deliberations of the State. ........................ 55
b. Concept of Public Interest in Administrative Decisions. .................................... 69
iii. Sanctity of Public-Private Partnership Tenders ......................................... 77
H. FINAL CONCLUSION ........................................................................... 81
Civil Appeal No. 6741 of 2024 Page 2 of 83
1. This appeal arises out of the final judgment and order dated 25.05.2023 passed
by the High Court of Calcutta in M.A.T. No. 744 of 2023 (“Impugned
Order”), by which the High Court upheld the decision of the respondent to
cancel the tender that had been awarded to the appellant for the maintenance
of two underpasses on Public-Private Partnership basis, and thereby dismissed
the writ appeal filed by the appellant.
A. FACTUAL MATRIX
2. The respondent floated a tender notice dated 12.05.2022 inviting bids for the
maintenance of two underpasses on the Eastern Metropolitan Bypass and its
abutting area against a License Fee for Advertisement Rights over designated
sites at each underpass, for a period of 10-years. As per the aforesaid tender,
the scope of work included the regular maintenance of the aforementioned
underpasses and the upkeep of its garden area and electro-mechanical fittings.
The relevant portion reads as under: -
Sl.
No
Name of Work
License Fee of the
Yearly Charge for
the 1
st
year (Rs.)
Earnest Money
(Rs.)
Allotted Time
Period for
License & Work
(1) (2) (3) (4) (5)
1. REGULAR MAINTENANCE OF
BELIAGHATA UNDERPASS
INCLUDING UPKEEPING OF
UNDERPASS PROPER,
GARDEN AREA, AT GRADE
UNDERPASS AREA AND ALL
ELECTRO-MECHANICAL
FITTINGS AGAINST LICENSE
FEE OF ADVERTISEMENT
RIGHTS OVER (10) YEARS.
Tender ID –
2022_KMDS_380215_1
TO BE QUOTED
5,00,000.00
[Rupees Five
Lakh Only]
Online
(Net Banking/
NEFT/RTGS)
10 (Ten) Years
2. REGULAR MAINTENANCE OF
SWABHUMI UNDERPASS
Civil Appeal No. 6741 of 2024 Page 3 of 83
INCLUDING UPKEEPING OF
UNDERPASS PROPER,
GARDEN AREA, AT GRADE
UNDERPASS AREA AND ALL
ELECTRO-MECHANICAL
FITTINGS AGAINST LICENSE
FEE OF ADVERTISEMENT
RIGHTS OVER (10) YEARS.
Tender ID –
2022_KMDS_380215_1
TO BE QUOTED
5,00,000.00
[Rupees Five
Lakh Only]
Online
(Net Banking/
NEFT/RTGS)
10 (Ten) Years
3. Pursuant to the aforesaid, the tendering process was undertaken and the
appellant herein on 13.06.2022 submitted his bid with a quotation of Rs.
29,55,555/- for the Beliaghata Underpass and Rs. 23,55,555/- for the
Swabhumi Underpass. Out of the total bids received, the appellant’s
quotations were found to be the highest and was classified as ‘H1’ for both the
underpasses.
4. Accordingly, the respondent issued two Letter of Intents dated 27.06.2022 in
favour of the appellant, accepting the quotation offered by him and declaring
his firm as the successful bidder for the aforementioned tender, and a formal
Memorandum of Tender for Work was executed and issued to the appellant.
5. As per the Memorandum of Tender for Work, the detailed ‘Scope of Work’
inter-alia included (i) the sweeping of floors & cleaning of the walls, stairwell,
escalators, railings and glass-fixtures, (ii) regular emptying of dustbins and
removal / processing of waste trash, (iii) upkeep of the garden and plants and
(iv) the maintenance of light-fittings, escalators, water pumps and other
electro-mechanical fixtures.
Civil Appeal No. 6741 of 2024 Page 4 of 83
6. Furthermore, the Special Terms & Conditions of the Memorandum, more
particularly Clause 35 therein stipulated that the contract would be liable to be
terminated inter-alia in the event of any failure, breach or non-compliance of
any of the obligations or terms delineated in the tender by the successful
bidder.
7. Upon completion of all the formalities, the Work Orders dated 18.10.2022
were issued by the Executive Engineer, pursuant to which the appellant
commenced his work in terms of the contract.
8. On 01.12.2022, the Urban Development and Municipal Affairs Department,
Government of West Bengal issued an Order directing that the maintenance
of the roads and drainage of the E.M. Bypass including the two subject
underpasses shall be handed over by the Kolkata Metropolitan Development
Authority (KMDA) i.e., the respondent herein to the Kolkata Municipal
Corporation (KMC). The said order reads as under: -
“Government of West Bengal
Urban Development and Municipal Affairs Department
NAGARYAN, DF-8, Sector-I
Salt Lake, Kolkata - 700 064
Memo No. 5783 – UDMA-22012(14)/11/2022
Date : 01.12.2022
ORDER
KMDA was the custodian for the maintenance of the E.M Bypass
connecting the northern and southern part of the city and starts from
northern hub Ultadanga to Garia in the South. The road length is 15.6 Km
which runs along the eastern ring of the city. After careful consideration it
has been decided that the maintenance of the road alongwith the drainage
be handed over from KMDA to KMC with the following scope of activities.
Civil Appeal No. 6741 of 2024 Page 5 of 83
(1) The defects in carriageway would be maintained and restored by KMC
henceforth.
(2) The existing carriageway alongwith the surface and underground
drainage would be maintained by KMC. The conservancy in and
around the Eastern Bypass would also be maintained by KMC.
(3) Subject to clearance from KMDA, KMC would issue NOC to all utility
and service providers. The cost of road restoration from the charges to
be levied is to be paid to KMC by all utility and service providers.
(4) The right of collecting revenues from the advertisement displays will
remain with KMDA.
(5) All the structures, as the new or old Bridges, Culverts, FoBs etc. will
be under the custody of KMDA.
(6) All development activities along the road except for the Bridges,
Culverts, FoBs etc. will be taken up by KMC.
(7) KMC would remain custodian for illumination of the Bypass.
(8) The green verge along the E.M. Bypass to be maintained by KMC.
The order is issued in the interest of public service.
Sd/-
Principal Secretary
to the Govt. of West Bengal”
9. As per the aforesaid Order dated 01.12.2022, the maintenance and restoration
of carriageway, structures, underground drainage and development activities
of the E.M. Bypass Area was taken over by the KMC. However, the Order
specifically, clarified that the right of collecting revenue from advertisements
displayed would continue to remain with the KMDA.
10. Thereafter, in light of the aforesaid order, the Executive Engineer, KMDA
under instructions issued by the competent authorities sent a notice dated
24.01.2023 to the appellant herein asking him to stop all work in respect of
the maintenance of the two underpasses with immediate effect in view of the
handing over of the maintenance of the E.M. Bypass to the KMC.
Civil Appeal No. 6741 of 2024 Page 6 of 83
11. In response to the above, the appellant sent a letter dated 25.01.2023 inter-alia
pointing out that as per the Urban Development and Municipal Affairs
Department’s Order dated 01.12.2022, the custody and rights of revenue of all
structures, bridges, culverts etc. including the concerned underpasses,
continued to remain with the respondent, and requested to recall the notice
dated 24.01.2023 asking him to stop the work.
12. However, on 07.02.2023, the respondent issued one another notice to the
appellant stating that the tender for work of maintenance has been cancelled
on account of a technical fault in the tender. It was stated therein that the tender
was found to be ‘non-specific’ & ‘not well defined’ and that had created
ambiguity resulting in financial losses to the respondent. The said Notice of
Cancellation reads as under: -
“Date: 07.02.2023
To,
V.S. Advertising,
65/268, M.N. Sarkar Road,
Siliguri, West Bengal 7340001
Sub: Cancellation of Work/Tender
Sir,
The cited tender is hereby cancelled by the Authority in KMDA. We
would state with regret that the tender has been found having technical
fault, non-specific and not well defined thus creating ambiguity for obvious
reasons. By this, the Authority is incurring financial loss as well.
We regret for the inconvenience caused to you and are ready to
reimburse the cost you have so far incurred in the work. This has been
decided that the license fee deposited by you and the cost incurred for
construction activity and maintenance work would be refunded as per
Civil Appeal No. 6741 of 2024 Page 7 of 83
actual assessment by the divisional engineers based upon the approved
drawing and execution.
This is for your information with kind compliance please.
Sd/-
Chief Engineer-II (Bridge)
Roads & Bridges Sector, KMDA”
13. It is pertinent to note from the aforesaid that, no reference was made as regards
handing over of the maintenance to KMC which was previously alluded to,
for stopping all work pertaining to the tender.
B. IMPUGNED ORDER
14. Aggrieved by the aforesaid, the appellant preferred a writ petition being WPA
No. 3381 of 2023 before the High Court of Calcutta assailing the respondent’s
Notice dated 07.02.2023 cancelling the tender for work of maintenance of the
two underpasses.
15. The aforesaid writ petition referred to above came to be rejected by the High
Court vide its order dated 24.04.2023, wherein the Ld. Single Judge held that
the decision to cancel the tender had to be taken on account of the
administrative exigencies and also due to the ‘change in policy’. It was further
held that the decision to cancel the tender was not borne out of any ulterior
motives on the part of the respondent. The decision of the learned Single Judge
is based on two grounds: -
(i) First, the High Court took the view that the decision to cancel the tender
cannot be termed as an arbitrary action on the part of the respondent.
Civil Appeal No. 6741 of 2024 Page 8 of 83
The appellant was put to prior notice as regards the change of hands of
the management of the concerned underpasses, much before the
ultimate cancellation notice was issued. It further observed that, since
the notice of cancellation dated 07.02.2023 specifically provided the
reasons for cancelling the tender i.e., the technical faults found in the
tender that was floated, there was no element of arbitrariness in the said
action. The relevant observations read as under: -
“11. [...] The effect of the administrative decision was reiterated
in the stop-work request of 24.01.2023 where the reason given
for the stop-work was also the “changed scenario” of handover
of the maintenance work of E.M. Bypass to KMC from KMDA.
Hence, the reason for the stop-work and the impugned
cancellation is a change of policy for administrative
convenience simpliciter.
xxx xxx xxx
18. In the present case, the impugned cancellation of 07.02.2023
cannot be described as a bolt from the blue since the petitioner
was put on notice of the impending change in circumstance on
24.01.2023 where the reason for the change was also conveyed
to the petitioner. The order dated 01.12.2022 of the Urban
Development and Municipal Affairs Department stating that the
maintenance of the E.M. Bypass would be handed over from the
KMDA to KMC provides the rationale for the impugned
cancellation. Seen in this backdrop, it cannot be said that the
impugned letter of cancellation of the tender /work was issued
with an ulterior motive or for extraneous considerations. In fact,
the letter of cancellation provides further reasons, namely, that
the tender has been found to be non-specific and having
technical faults. This would also be borne out from clauses 10
and 14 of the Special Terms and Conditions of the tender
document which give rise to conflicting interpretations on the
placement of the signboards. Hence, besides the administrative
decision to hand over the maintenance of E.M. Bypass from
KMDA to KMC, the respondent KMDA as the tendering
authority, has a right to rectify the ambiguities in the bid
document by cancelling the same.”
(Emphasis supplied)
Civil Appeal No. 6741 of 2024 Page 9 of 83
(ii) Secondly, the appellant could not have redressed his grievances by
invoking the writ jurisdiction of the High Court under Article 226 of the
Constitution, as there was no failure of any statutory duty or public law
element involved. Moreover, since the relief sought was essentially in
the nature of specific performance, it could have been prayed for only
under ordinary civil law and not by way of a writ petition. The relevant
observations read as under: -
“20. It is well settled that a contractual dispute with a public
law element would be amenable to writ jurisdiction. The present
dispute however arises out of a private contract for maintenance
of underpasses in the E.M. Bypass and advertisement rights over
certain spaces within the contracted area. The rights following
out of the contract are purely private in nature and there is
nothing to show that the performance of the contract or the
consequence therefrom would affect the public at large or even
a sizeable section of the public. A public law element is generally
understood to mean the reach of an obligation to a large section
of the public or the obligation affecting the lives and livelihood
of the general public by its very nature. M.P. Power sounded a
cautionary note in such cases where the State cites monetary
gains or losses as reason for termination of a contract. This is
also not' the case at hand since the reasons given for
cancellation were on a wholly different plane.”
21. The above reasons persuade this Court to hold that the
remedy available to the petitioner is in the realm of private law
and not under Article· 226 of the Constitution which
contemplates certain tests including that the dispute must have
a public law element. The complaint of the petitioner is
essentially for the specific performance of the contractual
obligation of the respondent KMDA. Doubtless, the petitioner
can avail of appropriate civil remedies for redress which would
include damages for breach of the contractual terms.
(Emphasis supplied)
Civil Appeal No. 6741 of 2024 Page 10 of 83
16. Aggrieved with the aforesaid, the appellant went in appeal before a Division
Bench of the High Court by way of M.A.T. No. 744 of 2023, wherein the
appeal court finding no fault in the decision of the learned Single Judge,
dismissed the appeal and thereby affirmed the judgment of the learned Single
Judge referred to above.
17. In view of the aforesaid, the appellant is here before this Court with the present
appeal.
C. DEVELOPMENTS THAT OCCURRED DURING THE PENDENCY
OF THE PRESENT APPEAL .
18. During the pendency of the present appeal, the appellant herein preferred a
RTI seeking further information on the respondent’s internal note-file
pertaining to the cancellation of the subject tender.
19. The Public Information Officer, KMDA vide its reply dated 18.08.2023
provided the internal file-notings of the respondent on the aforesaid tender. In
the internal file-notings of the respondent, the following entries / notes are
relevant: -
a) As per Note #91 dated 30.12.2022, the respondent in view of the
maintenance of the concerned underpasses being handed over to KMC,
was contemplating the possibility of cancelling the tender for work. The
relevant noting reads as under: -
Civil Appeal No. 6741 of 2024 Page 11 of 83
“Note # 91
Recently maintenance of EM Bye pass has been handed over to
KMC. Thus, in this changed scenario we may cancel the work
order.
03/01/2023 11:51 AM FIRHAD HAKIM
CHRMN (KMDA)”
b) As per Note #95 dated 10.01.2023, the respondent instructed that the
tender be cancelled in view of the maintenance of the concerned
underpasses being handed over to KMC. However, since the respondent
was in doubt as regards the legality & validity of such decision, it
opined that the opinion of the Legal Department may be sought first
before any action of cancellation is taken. However, as an interim
measure, it decided to issue a notice to stop all work in respect of the
tender. The relevant noting reads as under: -
“Note # 95
[...] Now, as instructed by the competent authority of KMDA
keeping in view of the recent changed scenario of handing over
of maintenance of E.M. Bypass from KMDA to KMC, cancelling
the work order as instructed may require judicious action
towards implementing the same and to make it lawful, legal
advice from Law-Cell, KMDA may be required so that, KMDA
doesn't fall in any legal obligation. However, for immediate
compliance of the order, a notice to stop the works in all respect
with regards to the two above-mentioned tenders may be served
to the agency for immediately stopping his all activities at site
till further notice. As instructed, a draft Letter is attached
herewith for his kind perusal and direction in this regard. [...]
10/01/2023 02:55 PM PARTHA PROTIM GHOSH
EE (RBBRDG) (KMDA)”
c) Again, in Note #96, it was noted that since the competent authority of
the respondent was desirous to cancel the tender, the respondent was of
the view that the opinion of its legal cell be obtained first before such
action is taken. The relevant noting reads as under: -
Civil Appeal No. 6741 of 2024 Page 12 of 83
“Note # 96
[...]
As per Note#91¸Competent Authority desires to cancel the
Work Order.
In Note#95¸a draft letter has been attached for approval
towards issuance to the agency to stop any type of work
related to this project.
Considering the Chronological development and acceptance by
Authority, the matter may kindly be viewed lawfully, so that, if it
is cancelled by this end, no legal action is taken by the Agency.
Submitted for necessary action.
13/01/2023 02:13 PM SANTANU PATRA
SE (RBBRDG) (KMDA)”
d) In Note #97 dated 16.01.2023, the respondent has noted that since the
competent authority had decided to cancel the work tender there was no
option but to cancel it. However, the respondent once again insisted that
a legal opinion may be sought first, in order to avoid further litigations.
The relevant noting reads as under: -
“Note # 97
Sub: Cancellation of Work Order of Maintenance of two
Underpasses
A concurrence of Law Cell, KMDA may kindly be obtained
before cancelling the Work Order of the existing agency. There
is no different opinion than to get this cancelled, once this has
been decided by the Authority but a legal opinion may be sought
for avoiding further litigations. [...]
16/01/2023 04:38 PM SUBHANKAR BHATTACHARYA
CE (RBBRDG) (KMDA)”
e) Thereafter, it could be seen from Note #101 dated 19.01.2023, that the
other officials of the authority also concurred with the respondent’s
opinion to first seek advice of its legal cell on the possible consequences
in the event the tender for work is cancelled. The relevant observations
read as under: -
Civil Appeal No. 6741 of 2024 Page 13 of 83
“Note # 101
As concurred by the Authority the legal aspects and the possible
consequences may be reviewed and opined back prior to
cancelling the Work Order. The draft of order for stopping work
further is enclosed, which may kindly be seen and commented.
For kind concern of Law Cell with request to revert back with
further advice and opinion on above please.
19/01/2023 02:28 PM SUBHANKAR BHATTACHARYA
CE (RBBRDG) (KMDA)”
f) However, before the legal cell of the respondent could give any definite
opinion on the legal implications of cancelling the tender, it appears
from the records, more particularly Note #108 dated 24.01.2023 that the
concerned minister during his visit instructed the officials of the
respondent on his own to cancel the tender, upon which the respondent
undertook the steps to duly comply with such instructions. The relevant
noting reads as under: -
“Note # 108
For immediate compliance of HMIC’s instruction. This is as per
the instruction given during his visit to Unnanyan Bhavn today
in presence of KMDA Officials.
24/01/2023 05:16 PM SUBHANKAR BHATTACHARYA
CE (RBBRDG) (KMDA)”
g) Pursuant to the above, as per Note #109 dated 02.02.2023, the Tender
Committee of the respondent convened a meeting wherein the proposal
for cancellation of the aforesaid tender was finalized and placed for
approval. The relevant noting reads as under: -
“Note # 109
As per the discussion held in the 5
th
meeting of Tender
Committee, KMDA, proposal for cancellation of this tender, as
per the Note #91 for this changed scenario vide memo : 5783-
UDMA-22012(14)/11/2022 Dt. 01-12-2022 maintenance of
Civil Appeal No. 6741 of 2024 Page 14 of 83
E.M. Bypass has been handed over to KMC from KMDA, is
placed herewith for approval please. [...]
02/02/2024 02:31 PM SANTANU PATRA
SE (RBBRDG) (KMDA)”
h) Thereafter, as per the last entry in the internal notings – Note #110 dated
03.02.2023, the respondent floated one another proposal seeking
approval to cancel the tender, which culminated into the final notice of
cancellation dated 07.02.2023 which is the subject matter of challenge
in the present litigation.
20. During the course of hearing of this appeal, it was brought to the notice of this
Court that after the work order issued in favour of the appellant was cancelled,
the respondent floated a fresh tender dated 15.05.2023 for the work of
maintenance of the very same underpasses, the selection process for which
stood completed and that the tender had been awarded along with the work
order(s) to one another third-party agency.
21. This Court was further apprised of the order dated 16.09.2023 passed by the
Urban Development and Municipal Affairs Department, Government of West
Bengal, modifying its earlier order dated 01.12.2022 to the extent that both
i) the operation & maintenance of 37 bridges, flyovers, underpasses, etc.
including the concerned two underpasses along with ii) the right to collect
revenue towards the advertisement rights for the said structures, shall be taken
over by KMC from KMDA. The said letter reads as under: -
Civil Appeal No. 6741 of 2024 Page 15 of 83
“Government of West Bengal
Urban Development and Municipal Affairs Department
NAGARYAN, DF-8, Sector-I
Salt Lake, Kolkata - 700 064
Memo No. 5271 – UDMA-22012(14)/11/2022
Date : 16.09.2023
ORDER
In continuation with the order issued vide no. 5783-UDMA-
22012(14)/11/2022 dated 01.12.2022, it has been further decided that
the operation and maintenance of the 37 bridges, flyovers, foot over
bridges, under pass & culverts attached herewith to be taken over by
KMC from KMDA. In that case the revenues earned from
advertisements and displays erected on these assets (including the piers
of the bridges) to be accrued to KMC.
This order shall take immediate effect.
Sd/-
Principal Secretary
to the Govt. of West Bengal”
22. In view of the fact that a fresh tender had already been awarded to a third-
party, coupled with the fact that the right to collect revenue from the
advertisements for the concerned underpasses had been handed over to KMC,
the counsel for the respondent submitted that the matter had since become
infructuous.
D. SUBMISSIONS ON BEHALF OF TH E APPELLANT
23. Mr. Shyam Divan, the learned Senior Counsel appearing for the appellant
submitted that the impugned notice of cancellation dated 07.02.2023 is
manifestly arbitrary and tainted with extraneous considerations. He submitted
that though the impugned notice purports to cancel the tender on the ground
Civil Appeal No. 6741 of 2024 Page 16 of 83
of being ambiguous and non-specific, but in reality the said action was at the
behest of the concerned Minister-In-Charge who directed such cancellation
without any justifiable cause. In this regard he placed strong reliance on the
internal-file notings of the respondent.
24. He submitted that the reasons assigned for cancelling the tender in the
impugned notice are not to be found in the entire file of notings maintained by
the respondent. He further pointed out that the file of the internal notings
indicate that, before the respondent could take a judicious call the concerned
minister issued a specific direction on the basis of which the cancellation was
undertaken & that to without any application of mind.
25. Mr. Divan also submitted that no orders to stop the work could have been
issued by the respondent on account of handing over of the maintenance to
another authority, because even after the handover, the respondent continued
to operate & maintain the underpasses including the licensing rights for
advertisements.
26. He further submitted that, although the terms of the contract provided for
assigning cogent grounds for termination, yet the same was not followed and
instead the respondent arbitrarily proceeded to cancel the tender.
27. In the last, Mr Divan submitted that the contention as regards the financial
losses being suffered is erroneous, as the respondent voluntarily accepted the
Civil Appeal No. 6741 of 2024 Page 17 of 83
bid that was submitted by the appellant, and even as per the notings in the file
the tender was generating more revenue than earlier.
E. SUBMISSIONS ON BEHALF OF THE RESPONDENT
28. Mr. Rakesh Dwivedi, the learned Senior Counsel appearing for the respondent
submitted that the present matter being purely a contractual dispute was rightly
not entertained by the High Court in exercise of its writ jurisdiction under
Article 226 of the Constitution of India.
29. He further submitted, that the decision to cancel the tender was bona fide and
had to be taken considering the technical faults in the same. He submitted, that
there was ambiguity in the tender as regards whether it was lawful to put up
advertisements at the places outside the underpasses, due to which, many
interested bidders might not have participated in the tender. The respondent
was of the view that a higher license fee could be fetched by rectifying such
ambiguity.
30. Mr. Dwivedi also submitted that the decision to cancel the tender had to be
taken to enable the respondent to float separate tenders, one for the
maintenance of the underpasses and the other for the licensing advertisement
rights. Thus, the decision was taken in public interest. He submitted that the
decision to cancel the tender was on the basis of a change in the policy, and
thus cannot be said to be arbitrary.
Civil Appeal No. 6741 of 2024 Page 18 of 83
31. He further submitted that no reliance could have been placed on the notings in
the file maintained by the respondent, as the file notings are only internal
deliberations. Such notings cannot be construed as decisions of the respondent
and thus, creates no right in favour of the appellant.
32. In the last, Mr Dwivedi submitted that since during the pendency of the present
appeal, the operation, maintenance and the licensing rights for the
advertisements have been taken over by a third party, the present appeal has
been rendered infructuous.
F. POINTS FOR DETERMINATION
33. Having heard the learned counsel appearing for the parties and having gone
through the materials on record, the two pivotal questions that fall for our
consideration are as under: -
I) What is the scope of judicial review of the actions of the State in the
matters relating to contract / tender disputes under writ jurisdiction?
II) 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?
Civil Appeal No. 6741 of 2024 Page 19 of 83
G. ANALYSIS
i. 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.
34. Over the years, the scope of judicial review and the extent to which a Court
can interfere in disputes arising out of contracts or tenders has seen a
significant development, marked by a nuanced understanding of the critical
role of administrative discretion. The judicial quest in administrative matters
has always been to find a right balance between i) allowing leeway to the
States in deciding the exercise of their administrative discretion in matters
pertaining to policy and ii) the need to ensure fairness and propriety in such
administrative actions.
35. Earlier, the position of law was that any dispute arising out of a contract
entered into with the State or its instrumentalities could not be adjudicated by
the court under its writ jurisdiction, as in all such cases, it could be said that
the ‘real grievance’ was essentially only one being that of breach of a contract
for which the appropriate remedy would be an ordinary suit and not a writ
petition. One of the earliest judicial pronouncements in this regard is the
decision of this Court in Radhakrishna Agarwal & Ors. v. State of Bihar &
Civil Appeal No. 6741 of 2024 Page 20 of 83
Ors. reported in (1977) 3 SCC 457 wherein the following relevant
observations were made: -
“19. [...] None of these cases lays down that, when the State or its
officers purport to operate within the contractual field and the only
grievance of the citizen could be that the contract between the parties
is broken by the action complained of, the appropriate remedy is by
way of a petition under Article 226 of the Constitution and not an
ordinary suit. There is a formidable array of authority against any such
a proposition. [...]”
(Emphasis supplied)
36. It was further explained by this Court in Radhakrishna Agarwal (supra) that
once the State or its instrumentalities enter into a contract, any dispute arising
out of that contract cannot be decided in writ jurisdiction as their relations no
longer remain governed by the constitutional provisions, and it is only the
contract which thereafter determines the rights and obligations of the parties.
Any claim to a right flowing from a contract cannot be redressed through the
writ jurisdiction except where some statute steps in and confers some special
statutory power or obligation on the State in the contractual field or if the
agreement is in the nature of a statutory contract. The relevant observations
read as under: -
“10. [...] But, after the State or its agents have entered into the field of
ordinary contract, the relations are no longer governed by the
constitutional provisions but by the legally valid contract which
determines rights and obligations of the parties inter se. No question
arises of violation of Article 14 or of any other constitutional provision
when the State or its agents, purporting to act within this field, perform
any act. In this sphere, they can only claim rights conferred upon them
by contract and are bound by the terms of the contract only unless some
statute steps in and confers some special statutory power or obligation
on the State in the contractual field which is apart from contract.
Civil Appeal No. 6741 of 2024 Page 21 of 83
11. In the cases before us the contracts do not contain any statutory
terms or obligations and no statutory power or obligation which could
attract the application of Article 14 of the Constitution is involved here.
Even in cases where the question is of choice or consideration of
competing claims before an entry into the field of contract facts have to
be investigated and found before the question of a violation of Article
14 could arise. If those facts are disputed and require assessment of
evidence the correctness of which can only be tested satisfactorily by
talking detailed evidence, involving examination and cross-
examination of witnesses, the case could not be conveniently or
satisfactorily decided in proceedings under Article 226 of the
Constitution. Such proceedings are summary proceedings reserved for
extraordinary cases where the exceptional and what are described as,
perhaps not quite accurately, “prerogative” powers of the Court are
invoked. We are certain that the cases before us are not such in which
powers under Article 226 of the Constitution could be invoked.”
(Emphasis supplied)
37. Similar view as above, was reiterated by this Court in Premji Bhai Parmar &
Ors. v. Delhi Development & Ors. reported in (1980) 2 SCC 129 at para 8
and in Divisional Forest Officer v. Bishwanath Tea Co. Ltd. reported in
(1981) 3 SCC 238 wherein it was held that any right to relief flowing from a
breach of contract cannot be entertained under the extraordinary writ
jurisdiction of the court, even if the action of the State or its instrumentality
was unauthorized in law. The relevant observations read as under: -
“9. Ordinarily, where a breach of contract is complained of, a party
complaining of such breach may sue for specific performance of the
contract, if contract is capable of being specifically performed, or the
party may sue for damages. Such a suit would ordinarily be cognizable
by the civil court. The High Court in its extraordinary jurisdiction
would not entertain a petition either for specific performance of
contract or for recovering damages. A right to relief flowing from a
contract has to be claimed in a civil court where a suit for specific
performance of contract or for damages could be filed. This is so well-
settled that no authority is needed.
Civil Appeal No. 6741 of 2024 Page 22 of 83
10. In substance, this was a suit for refund of a royalty alleged to be
unauthorisedly recovered and that could hardly be entertained in
exercise of the writ jurisdiction of the High Court.”
(Emphasis supplied)
38. We do not propose to dwell any further, on the position of law that existed
earlier, and leave it at rest with one last reference to the decision of this Court
in Bareilly Development Authority & Anr. v. Ajai Pal Singh & Ors. reported
in (1989) 2 SCC 116, wherein this Court once again reiterated that no writ can
be issued in contractual disputes between the State and an aggrieved party
where the rights or claims arise or stem only from the terms of the contract.
The relevant observations read as under: -
“22. There is a line of decisions where the contract entered into
between the State and the persons aggrieved is non-statutory and
purely contractual and the rights are governed only by the terms of the
contract, no writ or order can be issued under Article 226 of the
Constitution of India so as to compel the authorities to remedy a breach
of contract pure and simple [...]”
(Emphasis supplied)
39. Thus, for a period of time the courts recognized that there was a clear
brightline distinction between when a State or its instrumentalities could be
said to be acting in its executive capacity and when it could be said to be acting
in its private capacity, with the existence of a ‘contractual relation’ inter-se
the parties being the determinative factor. Wherever, there was a contract, the
State’s relations and all its actions were said to be within the field of a contract
i.e., within the realm of private law, and the courts would resile from
Civil Appeal No. 6741 of 2024 Page 23 of 83
interfering with the same under their writ jurisdiction or embarking upon a
judicial review of such actions.
40. Such reluctance on the part of the courts stemmed from its understanding that
State or any of its instrumentalities must have the flexibility or the discretion
to take decisions that are in the best interest of the public and efficient
governance. Government being the decision-maker of the State is said to be
the best judge of when a contract or an agreement is in its interest and by its
extension in the interest of the public, and as such the courts should not
interfere in the State’s discretion to award or terminate contracts. One another
reason why contractual disputes were precluded from being espoused under
the writ jurisdiction of the courts was due to the summary nature of such
proceedings, which do not allow for an exhaustive review unlike civil suits.
[See: Radhakrishna Agarwal (supra) at para 11]
41. This simplistic approach of the courts in deeming every act and action of the
State which was complained of as nothing more than a ‘contractual dispute’
or a case of ‘breach of contract’ often led to the State abusing its position and
acting unfairly under the misconceived notion, that all its actions such as
award of contracts or tenders were nothing but a ‘largess’ – a generosity
bestowed upon its citizens, which it can at its own whims choose to deny, alter,
modify, or take away without any consequences. This often led to a conflation
Civil Appeal No. 6741 of 2024 Page 24 of 83
of power with duty, and resulted in every arbitrary exercise of power by the
State under the guise of a ‘contractual dispute’ to remain unchecked and
undisputable before the courts and out of the reach of judicial review,
undermining the rights of the citizen to have their interests safeguarded and
protected. We may in this regard refer to M/s Indian Medicines
Pharmaceuticals Corp Ltd. v. Kerala Ayurvedic Co-operative Society Ltd.
reported in (2023) SCC OnLine SC 5 wherein this Court speaking eruditely
through one of us, Dr. D.Y. Chandrachud, CJI made the following pertinent
observations: -
“11 The welfare State plays a crucial role in aiding the realisation of
the socioeconomic rights which are recognised by the Constitution.
Social welfare benefits provided by the State under the rubric of its
constitutional obligations are commonly understood in the language of
‘largesse’, a term used to describe a generous donation. Terming all
actions of government, ranging from social security benefits, jobs,
occupational licenses, contracts and use of public resources – as
government largesse results in doctrinal misconceptions. The reason is
that this conflates the State’s power with duty. The Constitution
recognises the pursuit of the well-being of citizens as a desirable goal.
In doing this the Constitution entrusts the State with a duty to ensure
the well-being of citizens. Government actions aimed at ensuring the
well-being of citizens cannot be perceived through the lens of a
‘largess’. The use of such terminology belittles the sanctity of the social
contract that the ‘people of India’ entered into with the State to protect
and safeguard their interests.
xxx xxx xxx
13. In the early 1950s’, judicial review of the process of concluding
contracts by government was limited. The courts allowed the State due
deference on the ground of governmental policy. In C.K Achuthan v.
State of Kerala, AIR 1959 SC 490 a Constitution Bench of this Court
held that it is open to the Government ‘to choose a person to their
liking, to fulfil contracts which they wish to be performed.’ The Court
observed that when one party is chosen over another, the aggrieved
Civil Appeal No. 6741 of 2024 Page 25 of 83
party cannot claim the protection of Article 14 since the government
has the discretion to choose with whom it will contract.”
(Emphasis supplied)
42. Before proceeding further to discuss how the scope of judicial review came to
be evolved, we would like to refer to the observations made by this Court in
M.C. Mehta v. Union of India reported in (1987) 1 SCC 395 which are
significant, and read as under: -
“31. [...] Law has to grow in order to satisfy the needs of the fast
changing society and keep abreast with the economic developments
taking place in the country. As new situations arise the law has to be
evolved in order to meet the challenge of such new situations. Law
cannot afford to remain static. We have to evolve new principles and
lay down new norms which would adequately deal with the new
problems which arise in a highly industrialised economy. [...]”
(Emphasis supplied)
b. Concept of ‘Public Law’ Element: Scope of Judicial Review in
Contractual Matters.
43. Over a period of time the courts recognized the crucial role of judicial
oversight in preventing the abuse of power and maintaining public confidence
in the administrative process. Courts developed various doctrines and
principles to guide their review, such as the principles of natural justice,
reasonableness and proportionality. These principles ensured that the
administrative actions are not arbitrary, discriminatory or capricious. By
enforcing such standards, the courts also ensured that the rule of law was
maintained and the individual rights were protected.
Civil Appeal No. 6741 of 2024 Page 26 of 83
44. The interplay between judicial review and administrative discretion has been
a dynamic process. As new challenges and complexities kept on arising before
the courts as regards the State’s actions and governance, it continued to refine
its approach. This ongoing dialogue between the courts and the executive
branch contributed to the development of a more accountable and transparent
administrative framework, paving the way for the exercise of judicial review
even in the realm of contractual disputes to achieve a fine balance between
efficiency and fairness in policy decisions on the one hand and the rights of
individuals and overall public interest on the other.
45. In Mahabir Auto Stores & Ors. v. Indian Oil Corporation reported in (1990)
3 SCC 752, this Court expressed doubts over the correctness of the earlier
position of law, that actions of the State in the private contractual field cannot
be questioned in writ jurisdiction. This Court further held that even if the inter-
se relation of parties with the State is governed purely by a contract, the
method, motive and decision of the State would be subject to judicial review
on the grounds of relevance and reasonableness, fair play, natural justice,
equality and non-discrimination. The relevant observations read as under: -
“12. [...] It appears to us that rule of reason and rule against
arbitrariness and discrimination, rules of fair play and natural justice
are part of the rule of law applicable in situation or action by State
instrumentality in dealing with citizens in a situation like the present
one. Even though the rights of the citizens are in the nature of
contractual rights, the manner, the method and motive of a decision of
entering or not entering into a contract, are subject to judicial review
on the touchstone of relevance and reasonableness, fair play, natural
Civil Appeal No. 6741 of 2024 Page 27 of 83
justice, equality and non-discrimination in the type of the transactions
and nature of the dealing as in the present case.
13. The existence of the power of judicial review however depends upon
the nature and right involved in the facts and circumstances of the
particular case. It is well settled that there can be “malice in law”.
Existence of such “malice in law” is part of the critical apparatus of a
particular action in administrative law. Indeed “malice in law” is part
of the dimension of the rule of relevance and reason as well as the rule
of fair play in action.
xxx xxx xxx
20. [...] we are of the opinion that it would be appropriate to state that
in cases where the instrumentality of the state enters the contractual
field, it should be governed by the incidence of the contract. It is true
that it may not be necessary to give reasons but, in our opinion, in the
field of this nature fairness must be there to the parties concerned, and
having regard to the large number or the long period and the nature of
the dealings between the parties, the appellant should have been taken
into confidence. Equality and fairness at least demands this much from
an instrumentality of the State dealing with a right of the State not to
treat the contract as subsisting. We must, however, evolve such process
which will work.”
(Emphasis supplied)
[See also: Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of
Bombay : (1989) 3 SCC 293 at para 27.]
46. In LIC v. Consumer Education & Research Centre reported in (1995) 5 SCC
482, the Court held that the law as it stood earlier that a State or its
instrumentality whose action is hedged with public element cannot be called
into question because such action was in the field of private law is no longer
a good law. The relevant observations read as under: -
“23. Every action of the public authority or the person acting in public
interest or any act that gives rise to public element, should be guided
by public interest. It is the exercise of the public power or action hedged
Civil Appeal No. 6741 of 2024 Page 28 of 83
with public element (sic that) becomes open to challenge. If it is shown
that the exercise of the power is arbitrary, unjust and unfair, it should
be no answer for the State, its instrumentality, public authority or
person whose acts have the insignia of public element to say that their
actions are in the field of private law and they are free to prescribe any
conditions or limitations in their actions as private citizens, simpliciter
do in the field of private law. Its actions must be based on some rational
and relevant principles. It must not be guided by irrational or irrelevant
considerations. Every administrative decision must be hedged by
reasons. [...]
xxx xxx xxx
26. This Court has rejected the contention of an instrumentality or the
State that its action is in the private law field and would be immuned
from satisfying the tests laid under Article 14. The dichotomy between
public law and private law rights and remedies, though may not be
obliterated by any strait-jacket formula, it would depend upon the
factual matrix. The adjudication of the dispute arising out of a contract
would, therefore, depend upon facts and circumstances in a given case.
The distinction between public law remedy and private law field cannot
be demarcated with precision. Each case will be examined on its facts
and circumstances to find out the nature of the activity, scope and
nature of the controversy. The distinction between public law and
private law remedy has now become too thin and practicably
obliterated.”
(Emphasis supplied)
47. This Court in Consumer Education & Research Centre (supra) further held
that the writ jurisdiction of the courts cannot be shackled by technicalities and
that any action of the State which has a public law element or a public
character, such actions by their nature are required to be just, fair, reasonable
& in the interest of public, and as such they would be amenable to judicial
review. As to what is meant by actions bearing insignia of public law element,
this Court held that wherever the action of a State or its instrumentality in the
sphere of contractual relations is enjoined with a duty or an obligation to the
Civil Appeal No. 6741 of 2024 Page 29 of 83
public, such actions could be said to bear the insignia of a public element. The
relevant observation reads as under: -
“27. In the sphere of contractual relations the State, its instrumentality,
public authorities or those whose acts bear insignia of public element,
action to public duty or obligation are enjoined to act in a manner i.e.
fair, just and equitable, after taking objectively all the relevant options
into consideration and in a manner that is reasonable, relevant and
germane to effectuate the purpose for public good and in general public
interest and it must not take any irrelevant or irrational factors into
consideration or appear arbitrary in its decision. Duty to act fairly is
part of fair procedure envisaged under Articles 14 and 21. Every
activity of the public authority or those under public duty or obligation
must be informed by reason and guided by the public interest.
xxx xxx xxx
29. [...] The arms of the High Court are not shackled with technical
rules or procedure. The actions of the State, its instrumentality, any
public authority or person whose actions bear insignia of public law
element or public character are amenable to judicial review and the
validity of such an action would be tested on the anvil of Article 14.
While exercising the power under Article 226 the Court would be
circumspect to adjudicate the disputes arising out of the contract
depending on the facts and circumstances in a given case. The
distinction between the public law remedy and private law field cannot
be demarcated with precision. Each case has to be examined on its own
facts and circumstances to find out the nature of the activity or scope
and nature of the controversy. The distinction between public law and
private law remedy is now narrowed down. [...]”
(Emphasis supplied)
48. In another decision of this Court in Shrilekha Vidyarthi (Kumari) v. State of
U.P. reported in (1991) 1 SCC 212 it was held that every action of the State
that has some degree of impact on the public interest, can be challenged under
writ jurisdiction to the extent that they are arbitrary, unfair or unreasonable,
irrespective of the fact that the dispute falls within the domain of contractual
obligations. It was further held, that it is the nature of a government body’s
Civil Appeal No. 6741 of 2024 Page 30 of 83
personality which characterizes the action as having a public law element, and
not the field of law where such action is taken. The relevant observation reads
as under: -
“22. There is an obvious difference in the contracts between private
parties and contracts to which the State is a party. Private parties are
concerned only with their personal interest whereas the State while
exercising its powers and discharging its functions, acts indubitably, as
is expected of it, for public good and in public interest. The impact of
every State action is also on public interest. This factor alone is
sufficient to import at least the minimal requirements of public law
obligations and impress with this character the contracts made by the
State or its instrumentality. It is a different matter that the scope of
judicial review in respect of disputes falling within the domain of
contractual obligations may be more limited and in doubtful cases the
parties may be relegated to adjudication of their rights by resort to
remedies provided for adjudication of purely contractual disputes.
However, to the extent, challenge is made on the ground of violation of
Article 14 by alleging that the impugned act is arbitrary, unfair or
unreasonable, the fact that the dispute also falls within the domain of
contractual obligations would not relieve the State of its obligation to
comply with the basic requirements of Article 14. To this extent, the
obligation is of a public character invariably in every case irrespective
of there being any other right or obligation in addition thereto. An
additional contractual obligation cannot divest the claimant of the
guarantee under Article 14 of non-arbitrariness at the hands of the State
in any of its actions.
xxx xxx xxx
24. The State cannot be attributed the split personality of Dr Jekyll and
Mr Hyde in the contractual field so as to impress on it all the
characteristics of the State at the threshold while making a contract
requiring it to fulfil the obligation of Article 14 of the Constitution and
thereafter permitting it to cast off its garb of State to adorn the new robe
of a private body during the subsistence of the contract enabling it to
act arbitrarily subject only to the contractual obligations and remedies
flowing from it. It is really the nature of its personality as State which is
significant and must characterize all its actions, in whatever field, and
not the nature of function, contractual or otherwise, which is decisive of
the nature of scrutiny permitted for examining the validity of its act. The
requirement of Article 14 being the duty to act fairly, justly and
reasonably, there is nothing which militates against the concept of
requiring the State always to so act, even in contractual matters. There
Civil Appeal No. 6741 of 2024 Page 31 of 83
is a basic difference between the acts of the State which must invariably
be in pubic interest and those of a private individual, engaged in similar
activities, being primarily for personal gain, which may or may not
promote public interest. Viewed in this manner, in which we find no
conceptual difficulty or anachronism, we find no reason why the
requirement of Article 14 should not extend even in the sphere of
contractual matters for regulating the conduct of the State activity.
xxx xxx xxx
28. Even assuming that it is necessary to import the concept of presence
of some public element in a State action to attract Article 14 and permit
judicial review, we have no hesitation in saying that the ultimate impact
of all actions of the State or a public body being undoubtedly on public
interest, the requisite public element for this purpose is present also in
contractual matters. We, therefore, find it difficult and unrealistic to
exclude the State actions in contractual matters, after the contract has
been made, from the purview of judicial review to test its validity on the
anvil of Article 14.”
(Emphasis supplied)
49. In Verigamto Naveen v. Govt. of A.P. & Ors. reported in (2001) 8 SCC 344
this Court held that where a breach of contract involves the decision-making
authority exceeding its power or violating the principles of nature justice or
its decision being borne out of perversity, then such cancellation of contract
can certainly be scrutinized under the writ jurisdiction. This is because such
an exercise of power by the authority is apart from the contract. The relevant
observation reads as under: -
“21. [...] Though there is one set of cases rendered by this Court of the
type arising in Radhakrishna Agarwal case [(1977) 3 SCC 457 : AIR
1977 SC 1496] much water has flown in the stream of judicial review in
contractual field. In cases where the decision-making authority
exceeded its statutory power or committed breach of rules or principles
of natural justice in exercise of such power or its decision is perverse or
passed an irrational order, this Court has interceded even after the
contract was entered into between the parties and the Government and
its agencies. [...] Where the breach of contract involves breach of
statutory obligation when the order complained of was made in exercise
Civil Appeal No. 6741 of 2024 Page 32 of 83
of statutory power by a statutory authority, though cause of action
arises out of or pertains to contract, brings it within the sphere of
public law because the power exercised is apart from contract. The
freedom of the Government to enter into business with anybody it likes
is subject to the condition of reasonableness and fair play as well as
public interest. After entering into a contract, in cancelling the contract
which is subject to terms of the statutory provisions, as in the present
case, it cannot be said that the matter falls purely in a contractual field.
Therefore, we do not think it would be appropriate to suggest that the
case on hand is a matter arising purely out of a contract and, therefore,
interference under Article 226 of the Constitution is not called for. This
contention also stands rejected.”
(Emphasis supplied)
50. Similarly in Binny Ltd. & Anr. v. Sadasivan & Ors. reported in (2005) 6 SCC
657 this Court in view of the increasing trend of the State and its
instrumentalities to use contracts as a means for dispensing their regulatory
functions, held that whenever a contract is used for a public purpose, it will be
amenable to judicial review. The relevant observations read as under: -
“30. A contract would not become statutory simply because it is for
construction of a public utility and it has been awarded by a statutory
body. But nevertheless, it may be noticed that the Government or
government authorities at all levels are increasingly employing
contractual techniques to achieve their regulatory aims. It cannot be
said that the exercise of those powers are free from the zone of judicial
review and that there would be no limits to the exercise of such powers,
but in normal circumstances, judicial review principles cannot be used
to enforce contractual obligations. When that contractual power is
being used for public purpose, it is certainly amenable to judicial
review. The power must be used for lawful purposes and not
unreasonably.”
(Emphasis supplied)
51. The decision of this Court in ABL International Ltd. v. Export Credit
Guarantee Corporation of India Ltd. reported in (2004) 3 SCC 553 is
significant and was the turning point in the scope of judicial review in
Civil Appeal No. 6741 of 2024 Page 33 of 83
contractual matters. In this landmark ruling, this Court decisively laid down
and approved that a relief against a State or its instrumentalities in matters
related to contractual obligations can be sought under the writ jurisdiction.
The relevant observations read as under: -
“23. It is clear from the above observations of this Court, once the State
or an instrumentality of the State is a party of the contract, it has an
obligation in law to act fairly, justly and reasonably which is the
requirement of Article 14 of the Constitution of India. Therefore, if by
the impugned repudiation of the claim of the appellants the first
respondent as an instrumentality of the State has acted in contravention
of the abovesaid requirement of Article 14, then we have no hesitation
in holding that a writ court can issue suitable directions to set right the
arbitrary actions of the first respondent.
xxx xxx xxx
27. From the above discussion of ours, the following legal principles
emerge as to the maintainability of a writ petition:
(a) In an appropriate case, a writ petition as against a State or an
instrumentality of a State arising out of a contractual obligation is
maintainable.
(b) Merely because some disputed questions of fact arise for
consideration, same cannot be a ground to refuse to entertain a writ
petition in all cases as a matter of rule.
(c) A writ petition involving a consequential relief of monetary claim is
also maintainable.”
(Emphasis supplied)
52. At the same time, this Court in ABL (supra) cautioned that the power to issue
writs under Article 226 being discretionary and plenary, the same should only
be exercised to set right the arbitrary actions of the State or its instrumentality
in matters related to contractual obligations. The relevant observations read as
under: -
“28. However, while entertaining an objection as to the maintainability
of a writ petition under Article 226 of the Constitution of India, the court
Civil Appeal No. 6741 of 2024 Page 34 of 83
should bear in mind the fact that the power to issue prerogative writs
under Article 226 of the Constitution is plenary in nature and is not
limited by any other provisions of the Constitution. The High Court
having regard to the facts of the case, has a discretion to entertain or
not to entertain a writ petition. The Court has imposed upon itself
certain restrictions in the exercise of this power. (See Whirlpool Corpn.
v. Registrar of Trade Marks) And this plenary right of the High Court
to issue a prerogative writ will not normally be exercised by the Court
to the exclusion of other available remedies unless such action of the
State or its instrumentality is arbitrary and unreasonable so as to violate
the constitutional mandate of Article 14 or for other valid and legitimate
reasons, for which the Court thinks it necessary to exercise the said
jurisdiction.”
(Emphasis supplied)
53. In Noble Resources Ltd. v. State of Orissa reported in (2006) 10 SCC 236
this Court for the purposes of judicial review of contractual disputes
recognized a distinction between a matter where the contract is at the threshold
and at the stage of breach. It held that at the threshold, the court’s scrutiny is
more intrusive & expansive while at the stage of breach it is discretionary
except where the action is found to be arbitrary or unreasonable. The relevant
observations read as under: -
“15. It is trite that if an action on the part of the State is violative of the
equality clause contained in Article 14 of the Constitution of India, a
writ petition would be maintainable even in the contractual field. A
distinction indisputably must be made between a matter which is at the
threshold of a contract and a breach of contract; whereas in the former
the court's scrutiny would be more intrusive, in the latter the court may
not ordinarily exercise its discretionary jurisdiction of judicial review,
unless it is found to be violative of Article 14 of the Constitution. While
exercising contractual powers also, the government bodies may be
subjected to judicial review in order to prevent arbitrariness or
favouritism on their part. Indisputably, inherent limitations exist, but it
would not be correct to opine that under no circumstances a writ will
lie only because it involves a contractual matter.”
(Emphasis supplied)
Civil Appeal No. 6741 of 2024 Page 35 of 83
54. The law on the subject with which we are dealing was laid down exhaustively
by this Court in its decision in Joshi Technologies International Inc. v.
Union of India & Ors. reported in (2015) 7 SCC 728, and the position was
summarised as under: -
“69. The position thus summarised in the aforesaid principles has to be
understood in the context of discussion that preceded which we have
pointed out above. As per this, no doubt, there is no absolute bar to the
maintainability of the writ petition even in contractual matters or where
there are disputed questions of fact or even when monetary claim is
raised. At the same time, discretion lies with the High Court which
under certain circumstances, it can refuse to exercise. It also follows
that under the following circumstances, “normally”, the Court would
not exercise such a discretion:
69.1. The Court may not examine the issue unless the action has some
public law character attached to it.
69.2. Whenever a particular mode of settlement of dispute is provided
in the contract, the High Court would refuse to exercise its discretion
under Article 226 of the Constitution and relegate the party to the said
mode of settlement, particularly when settlement of disputes is to be
resorted to through the means of arbitration.
69.3. If there are very serious disputed questions of fact which are of
complex nature and require oral evidence for their determination.
69.4. Money claims per se particularly arising out of contractual
obligations are normally not to be entertained except in exceptional
circumstances.
70. Further, the legal position which emerges from various judgments
of this Court dealing with different situations/aspects relating to
contracts entered into by the State/public authority with private parties,
can be summarised as under:
70.1. At the stage of entering into a contract, the State acts purely in its
executive capacity and is bound by the obligations of fairness.
70.2. State in its executive capacity, even in the contractual field, is
under obligation to act fairly and cannot practise some discriminations.
Civil Appeal No. 6741 of 2024 Page 36 of 83
70.3. Even in cases where question is of choice or consideration of
competing claims before entering into the field of contract, facts have to
be investigated and found before the question of a violation of Article
14 of the Constitution could arise. If those facts are disputed and require
assessment of evidence the correctness of which can only be tested
satisfactorily by taking detailed evidence, involving examination and
cross-examination of witnesses, the case could not be conveniently or
satisfactorily decided in proceedings under Article 226 of the
Constitution. In such cases the Court can direct the aggrieved party to
resort to alternate remedy of civil suit, etc.
70.4. Writ jurisdiction of the High Court under Article 226 of the
Constitution was not intended to facilitate avoidance of obligation
voluntarily incurred.
70.5. Writ petition was not maintainable to avoid contractual
obligation. Occurrence of commercial difficulty, inconvenience or
hardship in performance of the conditions agreed to in the contract can
provide no justification in not complying with the terms of contract
which the parties had accepted with open eyes. It cannot ever be that a
licensee can work out the licence if he finds it profitable to do so: and
he can challenge the conditions under which he agreed to take the
licence, if he finds it commercially inexpedient to conduct his business.
70.6. Ordinarily, where a breach of contract is complained of, the party
complaining of such breach may sue for specific performance of the
contract, if contract is capable of being specifically performed.
Otherwise, the party may sue for damages.
70.7. Writ can be issued where there is executive action unsupported by
law or even in respect of a corporation there is denial of equality before
law or equal protection of law or if it can be shown that action of the
public authorities was without giving any hearing and violation of
principles of natural justice after holding that action could not have
been taken without observing principles of natural justice.
70.8. If the contract between private party and the State/instrumentality
and/or agency of the State is under the realm of a private law and there
is no element of public law, the normal course for the aggrieved party,
is to invoke the remedies provided under ordinary civil law rather than
approaching the High Court under Article 226 of the Constitution of
India and invoking its extraordinary jurisdiction.
70.9. The distinction between public law and private law element in the
contract with the State is getting blurred. However, it has not been
totally obliterated and where the matter falls purely in private field of
contract, this Court has maintained the position that writ petition is not
Civil Appeal No. 6741 of 2024 Page 37 of 83
maintainable. The dichotomy between public law and private law rights
and remedies would depend on the factual matrix of each case and the
distinction between the public law remedies and private law field,
cannot be demarcated with precision. In fact, each case has to be
examined, on its facts whether the contractual relations between the
parties bear insignia of public element. Once on the facts of a particular
case it is found that nature of the activity or controversy involves public
law element, then the matter can be examined by the High Court in writ
petitions under Article 226 of the Constitution of India to see whether
action of the State and/or instrumentality or agency of the State is fair,
just and equitable or that relevant factors are taken into consideration
and irrelevant factors have not gone into the decision making process
or that the decision is not arbitrary.
70.10. Mere reasonable or legitimate expectation of a citizen, in such a
situation, may not by itself be a distinct enforceable right, but failure to
consider and give due weight to it may render the decision arbitrary,
and this is how the requirements of due consideration of a legitimate
expectation forms part of the principle of non-arbitrariness.
70.11. The scope of judicial review in respect of disputes falling within
the domain of contractual obligations may be more limited and in
doubtful cases the parties may be relegated to adjudication of their
rights by resort to remedies provided for adjudication of purely
contractual disputes.”
(Emphasis supplied)
55. Thereafter, this Court in its decision in M.P. Power Management Co. Ltd.,
Jabalpur v. Sky Power Southeast Solar India Pvt. Ltd. & Ors. reported in
(2023) 2 SCC 703 exhaustively delineated the scope of judicial review of the
courts in contractual disputes concerning public authorities. The aforesaid
decision is in the following parts: -
(i) Scope of Judicial Review in matters pertaining to Contractual
Disputes: -
This Court held that the earlier position of law that all rights against any
action of the State in a non-statutory contract would be governed by the
contract alone and thus not amenable to the writ jurisdiction of the
Civil Appeal No. 6741 of 2024 Page 38 of 83
courts is no longer a good law in view of the subsequent rulings.
Although writ jurisdiction is a public law remedy, yet a relief would
still lie under it if it is sought against an arbitrary action or inaction of
the State, even if they arise from a non-statutory contract. The relevant
observations read as under: -
“53. [...] when the offending party is the State. In other words,
the contention is that the law in this field has witnessed an
evolution and, what is more, a revolution of sorts and a
transformatory change with a growing realisation of the true
ambit of Article 14 of the Constitution of India. The State, he
points out, cannot play the Dr. Jekyll and Hyde game anymore.
Its nature is cast in stone. Its character is inflexible. This is
irrespective of the activity it indulges in. It will continue to be
haunted by the mandate of Article 14 to act fairly. There has
been a stunning expansion of the frontiers of the Court’s
jurisdiction to strike at State action in matters arising out of
contract, based, undoubtedly, on the facts of each case. It
remains open to the Court to refuse to reject a case, involving
State action, on the basis that the action is, per se, arbitrary.
i. It is, undoubtedly, true that the writ jurisdiction is a
public law remedy. A matter, which lies entirely within a
private realm of affairs of public body, may not lend itself
for being dealt with under the writ jurisdiction of the
Court.
ii. The principle laid down in Bareilly Development
Authority (supra) that in the case of a non statutory
contract the rights are governed only by the terms of the
contract and the decisions, which are purported to be
followed, including Radhakrishna Agarwal (supra), may
not continue to hold good, in the light of what has been
laid down in ABL (supra) and as followed in the recent
judgment in Sudhir Kumar Singh (supra).
iii. The mere fact that relief is sought under a contract which
is not statutory, will not entitle the respondent-State in a
case by itself to ward-off scrutiny of its action or inaction
under the contract, if the complaining party is able to
establish that the action/ inaction is, per se, arbitrary.”
(Emphasis supplied)
[...]
Civil Appeal No. 6741 of 2024 Page 39 of 83
(ii) Exercise of Writ Jurisdiction in disputes at the stage prior to the
Award of Contract: -
An action under a writ will lie even at the stage prior to the award of a
contract by the State wherever such award of contract is imbued with
procedural impropriety, arbitrariness, favouritism or without any
application of mind. In doing so, the courts may set-aside the decision
which is found to be vitiated for the reasons stated above but cannot
substitute the same with its own decision. The relevant observations
read as under: -
iv. An action will lie, undoubtedly, when the State purports
to award any largesse and, undoubtedly, this relates to
the stage prior to the contract being entered into [See
R.D. Shetty (supra)]. This scrutiny, no doubt, would be
undertaken within the nature of the judicial review, which
has been declared in the decision in Tata Cellular vs.
Union of India.”
(Emphasis supplied)
(iii) Exercise of Writ Jurisdiction after the Contract comes into
Existence: -
This court held that even after the contract comes into existence an
action may lie by way of a writ to either (I) obviate an arbitrary or
unreasonable action on part of the State or (II) to call upon it to honour
its obligations unless there is a serious or genuine dispute as regards the
liability of the State from honouring such obligation. Existence of an
alternative remedy or a disputed question of fact may be a ground to not
entertain the parties in a writ as long as it is not being used as
“
Civil Appeal No. 6741 of 2024 Page 40 of 83
smokescreen to defeat genuine claims of public law remedy. The
relevant observations read as under: -
v. After the contract is entered into, there can be a variety
of circumstances, which may provide a cause of action to
a party to the contract with the State, to seek relief by
filing a Writ Petition.
vi. Without intending to be exhaustive, it may include the
relief of seeking payment of amounts due to the aggrieved
party from the State. The State can, indeed, be called
upon to honour its obligations of making payment, unless
it be that there is a serious and genuine dispute raised
relating to the liability of the State to make the payment.
Such dispute, ordinarily, would include the contention
that the aggrieved party has not fulfilled its obligations
and the Court finds that such a contention by the State is
not a mere ruse or a pretence.
vii. The existence of an alternate remedy, is, undoubtedly, a
matter to be borne in mind in declining relief in a Writ
Petition in a contractual matter. Again, the question as
to whether the Writ Petitioner must be told off the gates,
would depend upon the nature of the claim and relief
sought by the petitioner, the questions, which would have
to be decided, and, most importantly, whether there are
disputed questions of fact, resolution of which is
necessary, as an indispensable prelude to the grant of the
relief sought. Undoubtedly, while there is no prohibition,
in the Writ Court even deciding disputed particularly
when questions the dispute of fact, surrounds
demystifying of documents only, the Court may relegate
the party to the remedy by way of a civil suit.
viii. The existence of a provision for arbitration, which is a
forum intended to quicken the pace of dispute resolution,
is viewed as a near bar to the entertainment of a Writ
Petition (See in this regard, the view of this Court even in
ABL (supra) explaining how it distinguished the decision
of this Court in State of U.P. and others v. Bridge & Roof
Co., by its observations in paragraph-14 in ABL (supra)].
ix. The need to deal with disputed questions of fact, cannot
be made a smokescreen to guillotine a genuine claim
raised in a Writ Petition, when actually the resolution of
a disputed question of fact is unnecessary to grant relief
to a writ applicant.
x. The reach of Article 14 enables a Writ Court to deal with
arbitrary State action even after a contract is entered into
“
Civil Appeal No. 6741 of 2024 Page 41 of 83
by the State. A wide variety of circumstances can
generate causes of action for invoking Article 14. The
Court’s approach in dealing with the same, would be
guided by, undoubtedly, the overwhelming need to
obviate arbitrary State action, in cases where the Writ
remedy provides an effective and fair means of
preventing miscarriage of justice arising from palpably
unreasonable action by the State.”
(Emphasis supplied)
(iv) Exercise of Writ Jurisdiction after Termination or Breach of the
Contract: -
A relief by way of a writ under Article 226 of the Constitution will also
lie against a termination or a breach of a contract, wherever such action
is found to either be palpably unauthorized or arbitrary. Before turning
away the parties to the remedy of civil suit, the courts must be mindful
to see whether such termination or breach was within the contractual
domain or whether the State was merely purporting to exercise powers
under the contract for any ulterior motive. Any action of the State to
cancel or terminate a contract which is beyond the terms agreed
thereunder will be amenable to the writ jurisdiction to ascertain if such
decision is imbued with arbitrariness or influenced by any extraneous
considerations. The relevant observations read as under: -
xi. Termination of contract can again arise in a wide variety
of situations. If for instance, a contract is terminated, by
a person, who is demonstrated, without any need for any
argument, to be the person, who is completely
unauthorised to cancel the contract, there may not be any
necessity to drive the party to the unnecessary ordeal of
a prolix and avoidable round of litigation. The
intervention by the High Court, in such a case, where
there is no dispute to be resolved, would also be
“
Civil Appeal No. 6741 of 2024 Page 42 of 83
conducive in public interest, apart from ensuring the
Fundamental Right of the petitioner under Article 14 of
the Constitution of India. When it comes to a challenge
to the termination of a contract by the State, which is a
non-statutory body, which is acting in purported exercise
of the powers/rights under such a contract, it would be
over simplifying a complex issue to lay down any
inflexible Rule in favour of the Court turning away the
petitioner to alternate Fora. Ordinarily, the cases of
termination of contract by the State, acting within its
contractual domain, may not lend itself for appropriate
redress by the Writ Court. This is, undoubtedly, so if the
Court is duty-bound to arrive at findings, which involve
untying knots, which are presented by disputed questions
of facts. Undoubtedly, in view of ABL Limited (supra), if
resolving the dispute, in a case of repudiation of a
contract, involves only appreciating the true scope of
documentary material in the light of pleadings, the Court
may still grant relief to an applicant. We must enter a
caveat. The Courts are today reeling under the weight of
a docket explosion, which is truly alarming. If a case
involves a large body of documents and the Court is
called upon to enter upon findings of facts and involves
merely the construction of the document, it may not be an
unsound discretion to relegate the party to the alternate
remedy. This is not to deprive the Court of its
constitutional power as laid down in ABL (supra). It all
depends upon the facts of each case as to whether, having
regard to the scope of the dispute to be resolved, whether
the Court will still entertain the petition.
xii. In a case the State is a party to the contract and a breach
of a contract is alleged against the State, a civil action in
the appropriate Forum is, undoubtedly, maintainable.
But this is not the end of the matter. Having regard to the
position of the State and its duty to act fairly and to
eschew arbitrariness in all its actions, resort to the
constitutional remedy on the cause of action, that the
action is arbitrary, is permissible (See in this regard
Kumari Shrilekha Vidyarthi and others v. State of U.P.
and others). However, it must be made clear that every
case involving breach of contract by the State, cannot be
dressed up and disguised as a case of arbitrary State
action. While the concept of an arbitrary action or
inaction cannot be cribbed or confined to any immutable
mantra, and must be laid bare, with reference to the facts
of each case, it cannot be a mere allegation of breach of
Civil Appeal No. 6741 of 2024 Page 43 of 83
contract that would suffice. What must be involved in the
case must be action/inaction, which must be palpably
unreasonable or absolutely irrational and bereft of any
principle. An action, which is completely malafide, can
hardly be described as a fair action and may, depending
on the facts, amount to arbitrary action. The question
must be posed and answered by the Court and all we
intend to lay down is that there is a discretion available
to the Court to grant relief in appropriate cases.”
(Emphasis supplied)
(v) Other relevant considerations for Exercise of Writ Jurisdiction: -
Lastly, this Court held that the courts may entertain a contractual
dispute under its writ jurisdiction where (I) there is any violation of
natural justice or (II) where doing so would serve the public interest or
(III) where though the facts are convoluted or disputed, but the courts
have already undertaken an in-depth scrutiny of the same provided that
the it was pursuant to a sound exercise of its writ jurisdiction. The
relevant observations read as under: -
xiii. A lodestar, which may illumine the path of the Court,
would be the dimension of public interest subserved by
the Court interfering in the matter, rather than relegating
the matter to the alternate Forum.
xiv. Another relevant criteria is, if the Court has entertained
the matter, then, while it is not tabooed that the Court
should not relegate the party at a later stage, ordinarily,
it would be a germane consideration, which may
persuade the Court to complete what it had started,
provided it is otherwise a sound exercise of jurisdiction
to decide the matter on merits in the Writ Petition itself.
xv. Violation of natural justice has been recognised as a
ground signifying the presence of a public law element
and can found a cause of action premised on breach of
Article 14. [See Sudhir Kumar Singh and Others
(supra)].”
(Emphasis supplied)
“
Civil Appeal No. 6741 of 2024 Page 44 of 83
56. What can be discerned from the above is that there has been a considerable
shift in the scope of judicial review of the court when it comes to contractual
disputes where one of the parties is the State or its instrumentalities. In view
of the law laid down by this Court in ABL (supra), Joshi Technologies (supra)
and in M.P. Power (supra), it is difficult to accept the contention of the
respondent that the writ petition filed by the appellant before the High Court
was not maintainable and the relief prayed for was rightly declined by the High
Court in exercise of its Writ jurisdiction. Where State action is challenged on
the ground of being arbitrary, unfair or unreasonable, the State would be under
an obligation to comply with the basic requirements of Article 14 of the
Constitution and not act in an arbitrary, unfair and unreasonable manner. This
is the constitutional limit of their authority. There is a jural postulate of good
faith in business relations and undertakings which is given effect to by
preventing arbitrary exercise of powers by the public functionaries in
contractual matters with private individuals. With the rise of the Social Service
State more and more public-private partnerships continue to emerge, which
makes it all the more imperative for the courts to protect the sanctity of such
relations.
57. It is needless to state that in matters concerning specific modalities of the
contract — such as required work, execution methods, material quality,
timeframe, supervision standards, and other aspects impacting the tender's
Civil Appeal No. 6741 of 2024 Page 45 of 83
purpose — the court usually refrains from interference. State authorities, like
private individuals, have a consensual element in contract formation. The
stipulations or terms in the underlying contract purpose are part of the
consensual aspect, which need not be entertained by the courts in writ
jurisdiction and the parties may be relegated to ordinary private law remedy.
Judicial review does not extend to fixing contract stipulations but ensures that
the public authorities act within their authority to prevent arbitrariness.
58. Thus, the demarcation between a private law element and public law element
in the context of contractual disputes if any, may be assessed by ascertaining
whether the dispute or the controversy pertains to the consensual aspect of the
contract or tender in question or not. Judicial review is permissible to prevent
arbitrariness of public authorities and to ensure that they do not exceed or
abuse their powers in contractual transactions and requires overseeing the
administrative power of public authorities to award or cancel contracts or any
of its stipulations.
59. Therefore, what can be culled out from the above is that although disputes
arising purely out of contracts are not amenable to writ jurisdiction yet keeping
in mind the obligation of the State to act fairly and not arbitrarily or
capriciously, it is now well settled that when contractual power is being used
for public purpose, it is certainly amenable to judicial review.
Civil Appeal No. 6741 of 2024 Page 46 of 83
60. Now coming to the facts of the case at hand, the appellant has challenged the
cancellation of the tender at the instance of the respondent on the ground of
being manifestly arbitrary and influenced by extraneous considerations. It is
evident from the notice of cancellation dated 07.02.2023, that the tender was
not terminated pursuant to any terms of the contract subsisting between the
parties, rather, the respondent ‘cancelled’ the tender saying that there was
technical fault in the tender that was floated.
61. Thus, the respondent could be said to have exercised powers in its executive
capacity as the action to cancel the tender falls outside the purview of the terms
of the contract. Hence, it cannot be said that the present matter is purely a
contractual dispute. It is also not a breach of contract, as no such breach has
been imputed to the appellant in terms of the contract, but rather a plain and
simple exercise of the executive powers.
62. Thus, 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, we find that the writ petition filed by
Civil Appeal No. 6741 of 2024 Page 47 of 83
the respondent was maintainable and the relief prayed for could have been
considered by the High Court in exercise of its writ jurisdiction.
c. Meaning and True Import of Arbitrariness of State Actions in
Contractual Disputes.
63. In Ramana Dauaram Shetty v. The International Airport Authority of India
& Ors. reported in AIR 1979 SC 1628 this Court held that the actions of the
State in contractual matters must conform to some standard or norms which is
rational, non-discriminatory and not guided by extraneous considerations,
otherwise the same would be in violation of Article 14 of the Constitution.
The relevant observations read as under: -
“This rule also flows directly from the doctrine of equality embodied in
Article 14. It is now well settled as a result of the decisions of this Court
in E.P. Royappa v. State of Tamil Nadu, A.I.R. 1974 S.C. 555 and
Maneka Gandhi v. Union of India, A.I.R. 1978 S.C. 597 that Article 14
strikes at arbitrariness in State action and ensures fairness and equality
of treatment. It requires that State action must not be arbitrary but must
be based on some rational and relevant principle which is non
discriminatory; it must not be guided by any extraneous or irrelevant
consideration, because that would be denial of equality. The principle
of reasonableness and rationality which is legally as well as
philosophically an essential element of equality or non-arbitrariness is
projected by Article 14 and it must characterise every State action,
whether it be under authority of law or in exercise of executive power
without making of law. The State cannot, therefore, act arbitrarily in
entering into relationship, contractual or otherwise with a third party,
but its action must conform to some standard or norm which is rational
and non-discriminatory.”
(Emphasis supplied)
64. In Dwarkadas Marfatia & Sons (supra) this Court speaking through
Sabyasachi Mukherji, CJ. (as the learned Chief Justice then was) held that
Civil Appeal No. 6741 of 2024 Page 48 of 83
every action of the State or an instrumentality of the State must be informed
by reason......actions uninformed by reason may be questioned as arbitrary.
The relevant observations read as under: -
“22. [...] every action of the State or as instrumentality of the State, must
be informed by reason. Indubitably, the respondent is an organ of the
State under Article 12 of the Constitution. In appropriate cases, as was
observed in the last mentioned decision, actions uninformed by reason
may be questioned as arbitrary in proceedings under Article 226 or
Article 32 of the Constitution. But it has to be remembered that
Article 14 cannot be construed as a charter for judicial review of State
action, to call upon the State to account for its actions in its manifold
activities by stating reasons for such actions.”
(Emphasis supplied)
65. The meaning and true import of arbitrariness is more easily visualized than
precisely stated or defined. The question, whether an impugned action is
arbitrary or not, is ultimately to be answered on the facts and in the
circumstances of a given case. An obvious test to apply is to see whether there
is any discernible principle emerging from the impugned act and if so, does it
satisfy the test of reasonableness. Where a mode is prescribed for doing an act
and there is no impediment in following that procedure, the performance of
the act otherwise and in a manner which does not disclose any discernible
principle which is reasonable, may itself attract the vice of arbitrariness. Every
State action must be informed by reason and it follows that an act uninformed
by reason, is arbitrary. Rule of law contemplates governance by laws and not
by humour, whims or caprices of the men to whom the governance is entrusted
for the time being. It is trite that be you ever so high, the laws are above you.
Civil Appeal No. 6741 of 2024 Page 49 of 83
66. Control of administrative discretion is an important concern in the
development of Rule of Law. According to Wade and Forsyth, the Rule of
Law has four meanings, and one of them is that “government should be
conducted within a framework of recognized rules and principles which
restrict discretionary power”.
67. To enthuse efficiency in administration, a balance between accountability and
autonomy of action should be carefully maintained. Overemphasis on either
would impinge upon public efficiency. But undermining the accountability
would give immunity or carte blanche power to act as it pleases with the public
at whim or vagary. Whether the public authority acted bona fide would be
gauged from the impugned action and attending circumstances. The authority
should justify the action assailed on the touchstone of justness, fairness and
reasonableness. Test of reasonableness is more strict. The public authorities
should be duty conscious rather than power charged. Its actions and decisions
which touch the common man have to be tested on the touchstone of fairness
and justice. That which is not fair and just is unreasonable. And what is
unreasonable is arbitrary. An arbitrary action is ultra vires. It does not become
bona fide and in good faith merely because no personal gain or benefit to the
person exercising discretion has been established. An action is mala fide if it
is contrary to the purpose for which it was authorised to be exercised.
Dishonesty in discharge of duty vitiates the action without anything more. An
Civil Appeal No. 6741 of 2024 Page 50 of 83
action is bad even without proof of motive of dishonesty, if the authority is
found to have acted contrary to reason. [See: Mahesh Chandra v. Regional
Manager, U.P. Financial Corporation & Ors. : (1993) 2 SCC 279]
68. The dictum as laid in Tata Cellular v. UOI reported in (1994) 6 SCC 651 is
that the judicial power of review is exercised to rein in any unbridled
executive functioning. It was observed that the restraint has two contemporary
manifestations viz. one is the ambit of judicial intervention and the other
covers the scope of the court’s ability to quash an administrative decision on
its merits. These restraints bear the hallmarks of judicial control over
administrative action. It was held that the principle of judicial review is
concerned with reviewing not the merits of the decision in support of which
the application for judicial review is made, but the decision-making process
itself. It was held that the principle of judicial review would apply to the
exercise of contractual powers by the Government bodies in order to prevent
arbitrariness or favouritism. It was held that the duty of the court is to confine
itself to the question of legality and its concern should be whether a decision-
making authority exceeded its powers; whether it committed an error of law
or committed a breach of the rules of natural justice or reached a decision
which no reasonable tribunal would have reached or, abused its powers. The
grounds upon which an administrative action can be subjected to judicial
review are classified as illegality, irrationality and procedural impropriety. In
Civil Appeal No. 6741 of 2024 Page 51 of 83
that very decision, while deducing the principles from various cases referred,
it was held that the modern trend points to judicial restraint in administrative
action; that the Court does not sit as a court of appeal but merely reviews the
manner in which the decision was made; that the court does not have the
expertise to correct the administrative decision and if a review of the
administrative decision is permitted, it will be substituting its own decision,
without the necessary expertise which itself may be fallible; that the terms of
the invitation to tender cannot be open to judicial scrutiny because the
invitation to tender is in the realm of contract; and, that the government must
have freedom of contract, i.e. a free-play in the joints is a necessary
concomitant for an administrative body functioning in an administrative
sphere or quasi-administrative sphere. However, the decision must not only
be tested by the application of Wednesbury principle of reasonableness, but
must be free from arbitrariness not affected by bias or actuated by mala fides.
Moreover, quashing decisions may impose heavy administrative burden on
the administration and lead to increased and unbudgeted expenditure.
69. To ascertain whether an act is arbitrary or not, the court must carefully attend
to the facts and the circumstances of the case. It should find out whether the
impugned decision is based on any principle. If not, it may unerringly point to
arbitrariness. If the act betrays caprice or the mere exhibition of the whim of
the authority it would sufficiently bear the insignia of arbitrariness. In this
Civil Appeal No. 6741 of 2024 Page 52 of 83
regard supporting an order with a rationale which in the circumstances is
found to be reasonable will go a long way to repel a challenge to State action.
No doubt the reasons need not in every case be part of the order as such. If
there is absence of good faith and the action is actuated with an oblique
motive, it could be characterised as being arbitrary. A total non-application of
mind without due regard to the rights of the parties and public interest may be
a clear indicator of arbitrary action.
70. One another way, to assess whether an action complained of could be termed
as arbitrary is by way of scrutinizing the reasons that have been assigned to
such an action. It involves overseeing whether the reasons which have been
cited if at all genuinely formed part of the decision-making process or whether
they are merely a ruse. All decisions that are taken must earnestly be in lieu of
the reasons and considerations that have been assigned to it. The Court must
be mindful of the fact that it is not supposed to delve into every minute details
of the reasoning assigned, it need not to go into a detailed exercise of assessing
the pros and cons of the reasons itself, but should only see whether the reasons
were earnest, genuine and had a rationale with the ultimate decision. What is
under scrutiny in judicial review of an action is the decision-making process
and whether there is any element of arbitrariness or mala fide.
71. Thus, the question to be answered in such situations is whether the decision
was based on valid considerations. This is undertaken to ensure that the
Civil Appeal No. 6741 of 2024 Page 53 of 83
reasons assigned were the true motivations behind the action and it involves
checking for the presence of any ulterior motives or irrelevant considerations
that might have influenced the decision. The approach of the court must be to
respect the expertise and discretion of administrative authorities while still
protecting against arbitrary and capricious actions. Thus, now the only
question that remains to be considered is whether the action of the respondent
to cancel the tender could be termed as arbitrary?
ii. Whether the action of cancelling the tender is arbitrary or unfair and
in consequence of violation of Article 14 of the Constitution?
72. The principal contention of the appellant is that the notice of cancellation
dated 07.02.2023 that was issued by the respondent is manifestly arbitrary,
unreasonable and influenced by mala fide and extraneous considerations.
73. Before we proceed to determine whether the cancellation of tender could be
termed as arbitrary, it is necessary to understand the stance of the respondent
in the present litigation, as discernible from their pleadings, which has left us
quite perplexed. The argument of the respondent is two-fold: -
(i) First, that the tender had to be cancelled as there was a technical fault.
The tender was found to be ‘non-specific’ & ‘not well defined’ as a
result it created ambiguity resulting in financial losses to the
respondent.
Civil Appeal No. 6741 of 2024 Page 54 of 83
(ii) Secondly, the cancellation was also on account of a change in policy
whereby, the operation & maintenance of the concerned underpasses
had been handed over to another authority.
74. The primary thrust of the respondent’s contention is that the decision to cancel
the tender was taken in view of the technical faults in the same, more
particularly the ambiguity as to whether the advertisement boards could be put
up beyond the area of the concerned underpasses.
75. The learned Single Judge of the High Court in its order dated 24.04.2023
observed that there was an ambiguity in the Special Terms & Conditions of
the Memorandum of Tender more particularly clauses 10 and 14 respectively
which gave rise to a conflicting interpretation as to the placement of the
signboards. This in the opinion of the High Court was a technical fault, which
the respondent sought to rectify by way of cancelling the tender. The relevant
observations read as under: -
“18. [...] In fact, the letter of cancellation provides further reasons,
namely, that the tender has been found to be non-specific and having
technical faults. This would also be borne out from clauses 10 and 14
of the Special Terms and Conditions of the tender document which give
rise to conflicting interpretations on the placement of the signboards.
Hence, besides the administrative decision to hand over the
maintenance of E.M. Bypass from KMDA to KMC, the respondent
KMDA as the tendering authority, has a right to rectify the ambiguities
in the bid document by cancelling the same.”
(Emphasis supplied)
76. However, interestingly, the Notice of Cancellation dated 07.02.2023 that came
to be issued by the respondent makes no mention of any such lacuna. In fact,
Civil Appeal No. 6741 of 2024 Page 55 of 83
there is no reference to the aforementioned clauses or any conflict in their
interpretation. The aforesaid notice only states that the tender was found to be
‘non-specific’ and ‘not well defined’ which created ambiguity due to which
the respondent is incurring losses, and nothing is stated either about the
ambiguity in putting up the advertisement boards or for that matter which
aspect of the tender is non-specific.
77. It is also apposite to mention that just a month prior to cancelling the tender,
the respondent on 24.01.2023 issued a notice to the appellant, asking him to
stop all work in respect of the tender. Remarkably, in the said notice, there is
no whisper about there being any of the aforementioned technical faults in the
tender floated by the respondent. In fact, a close reading of the aforesaid notice
would reveal that the orders to stop the work had been issued for an altogether
different reason – i.e., handing over of the operation & maintenance of the
concerned underpasses to another authority i.e., KMC.
a. Scrutiny of Internal File-Notings and Deliberations of the State.
78. The appellant has in particular placed reliance on various notings made in the
internal file of the respondent in respect of the tender to contend that the
cancellation of the same was arbitrary and influenced by extraneous
considerations. The respondent on the other hand submitted that the internal
file-notings cannot be used or relied upon to impute any ill-motives to the
decision of cancelling the tender as they only reflect the opinion of a particular
Civil Appeal No. 6741 of 2024 Page 56 of 83
individual and cannot be construed or interpreted as the decision of the
respondent. In this regard, reliance has been placed on the following
decisions: -
i. Pimpri Chinchwad New Township Development Authority v.
Vishnudev Coop. Housing Society : (2018) 8 SCC 215.
ii. Shanti Sports Club v. Union of India : (2009) 15 SCC 705.
79. This Court in its decision in Bachhittar Singh v. State of Punjab & Anr.
reported in AIR 1963 SC 395 held that merely because something was written
in the internal files and notesheet does not amount to an order, it at best is an
expression of opinion which may be changed, and it only becomes an order
when such opinion is formally made into a decision. The relevant observations
read as under: -
“9. The question, therefore, is whether he did in fact make such an
order. Merely writing something on the file does not amount to an
order. Before something amounts to an order of the State Government
two things are necessary. The order has to be expressed in the name of
the Governor as required by clause (1) of Article 166 and then it has to
be communicated. As already indicated, no formal order modifying the
decision of the Revenue Secretary was ever made. Until such an order
is drawn up the State Government cannot, in our opinion, be regarded
as bound by what was stated in the file. [...]
10. The business of State is a complicated one and has necessarily to
be conducted through the agency of a large number of officials and
authorities. The Constitution, therefore, requires and so did the Rules
of Business framed by the Rajpramukh of PEPSU provide, that the
action must be taken by the authority concerned in the name of the
Rajpramukh. It is not till this formality is observed that the action can
be regarded as that of the State or here, by the Rajpramukh. [...]
Indeed, it is possible that after expressing one opinion about a
particular matter at a particular stage a Minister or the Council of
Civil Appeal No. 6741 of 2024 Page 57 of 83
Ministers may express quite a different opinion, one which may be
completely opposed to the earlier opinion. Which of them can be
regarded as the “order” of the State Government? Therefore, to make
the opinion amount to a decision of the Government it must be
communicated to the person concerned.”
(Emphasis supplied)
[See also: Delhi Development Authority v. Hello Home Education Society :
(2024) 3 SCC 148 at para 17 Mahadeo & Ors. v. Sovan Devi & Ors. : (2023)
10 SCC 807 at paras 15-17; Municipal Committee, Barwala v. Jai Narayan
and Co. & Anr. : (2022) SCC OnLine 376 at para 16]
80. In Sethi Auto Service Station v. DDA reported in (2009) 1 SCC 180 this Court
held that notings in a departmental file are nothing more than an opinion by
an officer for internal use and consideration of other officials for the final
decision making. The relevant observations read as under: -
“14. It is trite to state that notings in a departmental file do not have
the sanction of law to be an effective order. A noting by an officer is an
expression of his viewpoint on the subject. It is no more than an opinion
by an officer for internal use and consideration of the other officials of
the department and for the benefit of the final decision-making
authority. Needless to add that internal notings are not meant for
outside exposure. Notings in the file culminate into an executable
order, affecting the rights of the parties, only when it reaches the final
decision-making authority in the department, gets his approval and the
final order is communicated to the person concerned.”
(Emphasis supplied)
81. In Shanti Sports Club (supra) several representations were made by the
landowners requesting to release their land from acquisition. After considering
those representations, the concerned minister recorded in the note file that the
Civil Appeal No. 6741 of 2024 Page 58 of 83
land should be denotified on suitable terms and left the final decision to his
successor. The new minister, however, rejected the request for denotification.
Consequently, writ petitions were filed, seeking the release of the land based
on the note file. This Court held that the notings recorded in the official files
do not become decisions and confer no right unless the same are sanctified,
authenticated and communicated in the prescribed manner. It further held that
any recording in the note-file can always be reviewed, reversed or overruled.
The relevant observations read as under: -
“43. A noting recorded in the file is merely a noting simpliciter and
nothing more. It merely represents expression of opinion by the
particular individual. By no stretch of imagination, such noting can be
treated as a decision of the Government. Even if the competent
authority records its opinion in the file on the merits of the matter under
consideration, the same cannot be termed as a decision of the
Government unless it is sanctified and acted upon by issuing an order
in accordance with Articles 77(1) and (2) or Articles 166(1) and (2).
The noting in the file or even a decision gets culminated into an order
affecting right of the parties only when it is expressed in the name of
the President or the Governor, as the case may be, and authenticated
in the manner provided in Article 77(2) or Article 166(2). A noting or
even a decision recorded in the file can always be
reviewed/reversed/overruled or overturned and the court cannot take
cognizance of the earlier noting or decision for exercise of the power
of judicial review.
xxx xxx xxx
52. As a result of the above discussion, we hold that the notings
recorded in the official files by the officers of the Government at
different levels and even the Ministers do not become decisions of the
Government unless the same is sanctified and acted upon by issuing an
order in the name of the President or Governor, as the case may be,
authenticated in the manner provided in Articles 77(2) and 166(2) and
is communicated to the affected persons. The notings and/or decisions
recorded in the file do not confer any right or adversely affect the right
of any person and the same can neither be challenged in a court nor
made basis for seeking relief. Even if the competent authority records
Civil Appeal No. 6741 of 2024 Page 59 of 83
a noting in the file, which indicates that some decision has been taken
by the authority concerned, the same can always be reviewed by the
same authority or reversed or overturned or overruled by higher
functionary/authority in the Government.”
(Emphasis supplied)
[See also: State of Uttaranchal v. Sunil Kumar Vaish : (2011) 8 SCC 670 at
para 24]
82. In Pimpri Chinchwad (supra), a revenue minister passed an order for deletion
of the land of the respondent therein from acquisition proceeding, but the said
order was never communicated, however, the same was mentioned in the
internal note file. Sometime later, the government decided to reconsider all
uncommunicated orders. As a result the respondents therein filed a writ
seeking implementation of the order as mentioned in the internal note-file.
This Court held that the notings in official files of the government are an
internal matter and carry no legal sanctity unless they are approved and duly
communicated as per the prescribed procedure. It is only when such notings
are translated into formal decisions, they would create some right or claim in
favour of a person. The relevant observations read as under: -
“36. [...] first, a mere noting in the official files of the Government
while dealing with any matter pertaining to any person is essentially
an internal matter of the Government and carries with it no legal
sanctity; second, once the decision on such issue is taken and approved
by the competent authority empowered by the Government in that
behalf, it is required to be communicated to the person concerned by
the State Government. In other words, so long as the decision based on
such internal deliberation is not approved and communicated by the
competent authority as per the procedure prescribed in that behalf to
Civil Appeal No. 6741 of 2024 Page 60 of 83
the person concerned, such noting does not create any right in favour
of the person concerned nor it partake the nature of any legal order so
as to enable the person concerned to claim any benefit of any such
internal deliberation. Such noting(s) or/and deliberation(s) are always
capable of being changed or/and amended or/and withdrawn by the
competent authority.”
(Emphasis supplied)
83. We are of the view that the reliance on the part of the respondent on the
decisions of this Court in Pimpri Chinchwad (supra) and Shanti Sports Club
(supra) to assert that no reference could be made to the internal-file notings
for the purposes of judicial review of its decision is completely misplaced. In
Shanti Sports Club (supra) the question before the Court was as to when an
internal noting can be used to confer or claim a right. Whereas in Pimpri
Chinchwad (supra) the issue for consideration before the Court was whether
any internal-note or deliberation once written in the files was capable of being
reconsidered, changed, modified or withdrawn.
84. None of the aforementioned decisions lay down that the courts are completely
precluded from appraising or scrutinizing the internal file notings and
deliberations for the purposes of judicial review of a decision. This Court in
Pimpri Chinchwad (supra) and Shanti Sports Club (supra) only went so far
as to say that as long as the deliberations in the internal file notings have not
been formalized into an official decision, the same cannot be relied upon to
claim any right.
Civil Appeal No. 6741 of 2024 Page 61 of 83
85. We are of the considered opinion 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.
86. In the aforesaid context, we may refer to the decision of this Court in State of
Bihar v. Kripalu Shankar reported in (1987) 3 SCC 34, wherein it was held
that the internal file notings reflect the views and line of thinking of a
particular officer. It further held that such views would amount to
disobedience or contempt of court only when they are translated into a formal
decision. The relevant observations read as under: -
“11. After this finding, the High Court held some of the officers of the
government guilty solely on the basis of the views expressed by them in
the files, which were not, in fact, accepted by the Government and
which were only at the stage of suggestions and views. Shri K.K.
Venugopal, the learned Counsel for the State contended that it would
be unsafe to initiate action in contempt merely on the strength or
notings by officials on the files, expressing their views and to do so
would imperil the working of various departments in a Government in
a democracy and would have far-reaching consequences. Sometimes a
view expressed by an officer may be incorrect. The view so expressed
passes through various hands and gets translated into action only at
the ultimate stage. The views so expressed are only for internal use.
Such views may indicate the line of thinking of a particular officer.
Until the views so expressed culminate into an executable order, the
question of disobedience of court's order does not arise. Though the
State Government have been found not guilty, the State has filed the
appeal to protect its officers from independent and fearless expression
of opinion and to see that the order under appeal does not affect the
proper functioning of the Government.”
(Emphasis supplied)
Civil Appeal No. 6741 of 2024 Page 62 of 83
87. The above observations of this Court fortify our view that 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.
88. One another reason why the respondent cannot claim that its internal file-
notings fall outside the purview of judicial review of the courts is in view of
the inviolable rule that came to be recognized by this Court in Ramana
Dayaram Shetty (supra) wherein it was held that an executive authority must
be rigorously held to the standard by which it professes its actions to be
judged. The relevant observations read as under: -
“10. [...] It is a well-settled rule of administrative law that an executive
authority must be rigorously held to the standards by which it professes
its actions to be judged and it must scrupulously observe those
standards on pain of invalidation of an act in violation of them. [...]”
(Emphasis supplied)
89. The aforesaid leaves no manner of doubt in our mind that if the purported
action of cancelling the tender is claimed to have been taken in view of certain
Civil Appeal No. 6741 of 2024 Page 63 of 83
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.
90. We have gone through the internal file-notings of the respondent on the
aforesaid tender wherein the entire internal deliberations of the KMDA
officials as to the tender for work have been recorded. In the entire records –
right from the time the Notice Inviting Tender was being formulated till the
issuance of the final Notice of Cancellation dated 07.02.2023, there is no
whisper of any particular clauses of the tender that was floated nor of any
conflict or technical fault in the same, as claimed by the respondent.
91. We are in seisin of the fact that although the internal-file notings mention
about the policy change in the operation and maintenance of the concerned
underpasses, yet a careful reading of the same reveals that the cancellation of
the tender for work was neither due to any technical fault nor due to the policy
change in the operation and maintenance of the concerned underpasses but
was for altogether a different reason.
92. As per Note #91 dated 30.12.2022 of the file-notings, when the Order dated
01.12.2022 of the Urban Development and Municipal Affairs Department
came to be passed whereby the maintenance was handed over to KMC, it was
the Minister-In-Charge as the Chairperson of the respondent authority – who
Civil Appeal No. 6741 of 2024 Page 64 of 83
suggested that in view of the change in scenario the tender be cancelled. In the
aforesaid note, the following has been recorded - “Recently maintenance of
EM Bye pass has been handed over to KMC. Thus, in this changed scenario
we may cancel the work order”.
93. The words “may cancel the work order” clearly indicate, that the respondent
at that stage by no means was of the opinion that the tender was required to be
cancelled, as no specific reasons had been assigned as to what effect the policy
change had impacted the feasibility or practicality of the tender. This is
especially because, none of the officials of the respondent suggested that the
tender be cancelled, rather it was the concerned minister who did so.
94. In Note #95 dated 10.01.2023 it has been clearly recorded by the officials of
the respondent that it was the competent authority of the KMDA that
instructed to cancel the tender in view of the aforesaid change in the policy.
However, since the officials of the respondent were in doubt regarding the
legality of such action, it insisted on first obtaining the advice or opinion from
its legal cell before proceeding further. Furthermore, the aforesaid note clearly
indicates that the work stop order had to be issued only with a view to comply
with the instructions of the competent authority while it decided upon the
aspect of cancellation of the tender.
Civil Appeal No. 6741 of 2024 Page 65 of 83
95. In Note #97, the respondent has recorded the following – “There is no different
opinion than to get this cancelled, once this has been decided by the Authority
but a legal opinion may be sought for avoiding further litigations”. This also
clearly indicates that as the competent authority had decided that the tender be
cancelled, the officials of the respondent had no other choice but to cancel the
tender. However, the respondent continued insisting on first obtaining the
opinion from its legal cell before cancelling the same.
96. However, thereafter, as per Note #108 dated 24.01.2023 it is apparent that the
concerned minister during his visit specifically instructed the officials of the
respondent to cancel the tender. Pursuant to which, the respondent as per Note
#109 dated 02.02.2023 immediately convened a meeting to undertake the
steps for cancellation even though the advice from the legal cell had yet to be
obtained. It thereafter prepared a proposal for cancellation, which culminated
into the ultimate notice of cancellation dated 07.02.2023.
97. From the above narrated sequence of events, it is evident that it was none other
but the concerned minister who suggested to cancel the tender. The respondent
was reluctant to immediately cancel the tender for work and continued to insist
on obtaining the opinion from its legal cell. Even though the opinion of the
legal cell was yet to be obtained, the respondent, despite its initial reluctance,
undertook immediate steps to cancel the tender after the concerned minister
personally instructed the officials to do so.
Civil Appeal No. 6741 of 2024 Page 66 of 83
98. Thus, 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.
99. The aforesaid aspect can be looked at from one another angle. The concerned
Minister-In-Charge had instructed to cancel the tender in view of the change
in policy whereby the operation & maintenance of the underpasses was vested
in another authority. To ascertain whether the decision of the concerned
minister to cancel the tender was arbitrary or not, we must first consider
whether the reason for such cancellation was genuinely on the basis of the
aforesaid change in policy or whether it was driven by some personal
discretion or motives. This can be discerned by first understanding the change
in policy that took place.
100. The Urban Development and Municipal Affairs Department by way of its
Order dated 01.12.2022 decided that the maintenance of the roads and
drainage of the E.M. Bypass shall be handed over by the respondent to the
KMC.
Civil Appeal No. 6741 of 2024 Page 67 of 83
101. As per the Note #91 dated 30.12.2022, the concerned minister for the first time
proposed cancellation of the tender in view of the aforesaid change in scenario
as a result of the maintenance of the E.M. Bypass being handed over from the
respondent to the KMC.
102. However, it is pertinent to note that in the aforesaid order of the Urban
Development and Municipal Affairs Department it has been specifically stated
that the right to collect revenue from the advertisements as-well as the control
of the E.M. Bypass shall continue to remain with the respondent herein.
103. Thus, the respondent at the relevant point of time was not only in control of
the two underpasses, but was also empowered to continue collecting revenue
from the advertisements displayed at the underpasses. As such the respondent
even after the change in policy, remained well within its rights to continue
charging license fee in lieu of the advertisement rights by way of the aforesaid
tender that was issued to the appellant.
104. When the respondent issued the work stop orders to the appellant on
24.01.2023 in view of the handing over of the maintenance of the E.M. Bypass
to the KMC, the appellant in response, pointed out that the work stop orders
were completely misconceived as the respondent continued to retain the
custody as-well as the advertisement rights of the concerned underpasses.
Civil Appeal No. 6741 of 2024 Page 68 of 83
105. It was only after the appellant highlighted why the work stop orders were
misconceived and uncalled for, that the respondent immediately flipped its
stance and in its notice of cancellation that was issued just 1-month later, it
attributed ‘technical faults’ in the tender floated.
106. At the relevant point of time, there could have been no occasion for the
respondent to cancel the tender on the basis of the Urban Development and
Municipal Affairs Department’s order dated 01.12.2022. We say so because:-
(i) First, as per the aforesaid order, it was explicitly clarified that the
respondent would continue to retain the operation & maintenance as-well
as the advertisement rights of the concerned underpasses.
(ii) Secondly, only the structural maintenance and restoration of the E.M.
Bypass’s carriageway, roads, underground drainage etc. were to be handed
over to the KMC. Indisputably, the tender that was issued in favour of the
appellant was distinct from the maintenance that was handed over to KMC
inasmuch as the scope of work of tender was limited to cleaning the roads,
walls, floors etc., maintaining the electric-fixtures and upkeep of the
gardens.
(iii) Thirdly, despite the stance of the respondent of “change in scenario” due
to the handing over of the maintenance, we find that after cancelling the
tender and during the pendency of the present appeal, it was the respondent
who floated fresh tender for the work of maintenance in respect of the
Civil Appeal No. 6741 of 2024 Page 69 of 83
same underpasses and not KMC, thus fortifying our view that the aforesaid
change in policy had no bearing on the cancellation of the tender.
107. It is only on 16.09.2023 i.e., much after the cancellation of the tender that the
Urban Development and Municipal Affairs Department, Government of West
Bengal modified its earlier order whereby both, the control along with the right
to revenue for the said structures were handed over to KMC from the
respondent. This leaves no manner of doubt in our mind that the concerned
minister’s decision to cancel the tender on account of purported ‘change in
policy’ was without any application of mind, capricious and influenced by
malice.
b. Concept of Public Interest in Administrative Decisions.
108. The reluctance on the part of the respondent to cancel the tender is also evident
from Note #97, wherein the authority expressed its concern over the potential
consequences of such cancellation. The respondent apprehended that in the
event the tender for work was being cancelled, the routine maintenance of the
underpasses would be disrupted. Due to this, the underpasses would have to
be closed until some other agency could take over the maintenance. The
relevant observations read as under: -
“Note # 97
[...] Besides, the underpasses are being maintained by the bidder. Once
the contract is cancel led, the routine maintenance would be an issue
till the work is awarded thru tender. The E&M Sector may be asked to
Civil Appeal No. 6741 of 2024 Page 70 of 83
do the maintenance by engaging one of the existing agency from their
set up. 0therwise, both the underpasses should be under the lock and
key or police custody.
16/01/2023 04:38 PM SUBHANKAR BHATTACHARYA
CE (REBBRDG) (KMDA)”
109. From the above it is evident that the cancellation of the tender was not in
public interest. It may also not be out of place to mention that as per the
internal file-notings the respondent had itself acknowledged that the revenue
model of the aforesaid tender for work was far more beneficial and was
fetching higher rates than the existing models of other agencies on the E.M.
Bypass. The relevant observations read as under: -
“Note # 88
[...] In this model KMDA is saving Rs. 90.00 Lacs per year mentioned
in Note#49 and earned Rs.62,67,110/- per year with 5% increment for
each year. [...]
So it appears that the rate of this current Revenue model tender are
receiving much higher rate than any hoarding installed on E.M.
Bypass. [...]
29/12/2022 02:52 PM SANTANU PATRA
SE (REBBRDG) (KMDA)
Note # 89
[...] The cost of revenue generation would be enhanced at a rate 5% at
the end of each year, whereas, the authority need not to bother about
the routine annual maintenance cost of appurtenances and labours,
security force etc. which would increase as well. By this way two
simultaneous benefits go in favour of the Authority. [...]
30/12/2022 05:54 PM SUBHANKAR BHATTACHARYA
CE (REBBRDG) (KMDA)”
110. Thus, the respondent’s reasoning in the Notice of Cancellation dated
07.02.2023 that it was incurring financial losses from the aforesaid tender does
Civil Appeal No. 6741 of 2024 Page 71 of 83
not hold well either. It has been contended by the respondent that due to the
ambiguity in tender as regards placement of advertisements, many interested
bidders might not have been able to submit their bids. Thus, the respondent
formed the view that if the ambiguity is corrected a higher license fee could
be fetched.
111. However, we are not impressed with the above submission. As discussed in
the preceding paragraphs of this judgment, nothing to this effect is even
remotely indicated from the internal file notings of the respondent or the
materials on record. There is nothing to suggest that there was a technical fault
in the tender resulting in financial losses or that there was a possibility of
fetching higher license fees. On the contrary, it can be seen that the respondent
itself was of the opinion that the tender for work was financially beneficial to
it. This further undermines the claims of technical faults or potential financial
losses, and suggests that the decision to cancel the tender was not based on
genuine financial concerns but rather on other, possibly extraneous factors.
112. Even assuming for a moment that there was a technical fault in the tender,
which if rectified had the possibility of generating more revenue, the same by
no stretch could be said to be a cogent reason for cancelling an already existing
tender. In this regard reference may be made to the decision of this Court in
Vice Chariman & Managing Director, City & Industrial Development
Civil Appeal No. 6741 of 2024 Page 72 of 83
Corporation of Maharashtra Ltd. & Anr. v. Shishir Realty Pvt. Ltd. & Ors.
reported in (2021) SCC OnLine SC 1141 wherein it was held that mere
possibility of more money in public coffers does not in itself serve ‘public
interest’. A blanket claim by the State claiming loss of public money cannot
be used to forgo contractual obligations, especially when it is not based on any
evidence or examination as the larger interest of upholding contracts is also in
the play. The relevant observations read as under: -
“58. When a contract is being evaluated, the mere possibility of more
money in the public coffers, does not in itself serve public interest. A
blanket claim by the State claiming loss of public money cannot be used
to forgo contractual obligations, especially when it is not based on any
evidence or examination. The larger public interest of upholding
contracts and the fairness of public authorities is also in play. Courts
need to have a broader understanding of public interest, while
reviewing such contracts.”
(Emphasis supplied)
113. In Vasantkumar Radhakisan Vora (Dead) by His LRs. v. Board of Trustees
of the Port of Bombay, reported in (1991) 1 SCC 761, this Court held that
wherever a public authority seeks to resile or relive itself from the enforcement
of a promise made or obligation undertaken in the name of public interest, it
is legally bound to first show the material or circumstances by which public
interest would be jeopardised if such enforcement is insisted. The relevant
observations read as under: -
“20. When it seeks to relieve itself from its application the government
or the public authority are bound to place before the court the material,
the circumstances or grounds on which it seeks to resile from the
Civil Appeal No. 6741 of 2024 Page 73 of 83
promise made or obligation undertaken by insistence of enforcing the
promise, how the public interest would be jeopardised as against the
private interest. It is well settled legal proposition that the private
interest would always yield place to the public interest. [...]”
(Emphasis supplied)
114. We may again refer to the decision of this Court in M.P. Power Management
Company Ltd. (supra) wherein this Court observed that merely because the
rates embodied in a contract with the passage of time have become less
appealing, the same cannot become a determinative criterion for either
terminating the contract or for the courts to decline interference in such
contractual disputes. The relevant observations read as under: -
“88. Therefore, on a conspectus of the case law, we find that the
concept of overwhelming public interest has essentially evolved in the
context of cases relating to the award of contract by the State. It
becomes an important consideration in the question as to whether then
the State with whatever free play it has in its joints decides to award a
contract, to hold up the matter or to interfere with the same should be
accompanied by a careful consideration of the harm to public interest.
We do not go on to say that consideration of public interest should not
at all enter the mind of the court when it deals with a case involving
repudiation of a claim under a contract or for that matter in the
termination of the contract. However, there is a qualitative State enters
into the contract, rights are created. If the case is brought to the
constitutional court and it is invited to interfere with State action on the
score that its action is palpably arbitrary, if the action is so found then
an appeal to public interest must be viewed depending on the facts of
each case. If the aspect of public interest flows entirely on the basis that
the rates embodied in the contract which is arbitrarily terminated has
with the passage of time become less appealing to the State or that
because of the free play of market forces or other developments, there
is a fall in the rate of price of the services or goods then this cannot
become determinative of the question as to whether court should
decline jurisdiction. In this case, it is noteworthy that the rates were in
fact settled on the basis of international competitive bidding and in
which as many as 182 bidders participated and the rate offered by the
first respondent was undoubtedly the lowest. The fact that power has
Civil Appeal No. 6741 of 2024 Page 74 of 83
become cheaper in the market subsequently by itself should not result
in non-suiting of the complaint of the first respondent, if it is found that
a case of clear arbitrariness has been established by the first
respondent.
89. In other words, public interest cannot also be conflated with an
evaluation of the monetary gain or loss alone.”
(Emphasis supplied)
115. What can be discerned from the above is that this Court has consistently
underscored that any decision to terminate a contract must be grounded in a
real and palpable public interest, duly supported by cogent materials and
circumstances in order to ensure that State actions are fair, transparent, and
accountable. Public interest cannot be used as a pretext to arbitrarily terminate
contracts and there must be a clear and demonstrable ramification or detriment
on the public interest to justify any such action.
116. 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.
Civil Appeal No. 6741 of 2024 Page 75 of 83
117. We may make a reference to the observations made by this Court in Har
Shankar & Ors. v. Dy. Excise and Taxation Commr. & Ors. reported in
(1975) 1 SCC 737, wherein this Court held that those who contract with open
eyes must accept the burdens of contract along with its benefit. It further held
that the enforcement of rights and obligations arising out of a contract cannot
depend on whether the contracting party finds it prudent to abide by it. The
relevant observations read as under: -
“16. [...] Those who contract with open eyes must accept the burdens
of the contract along with its benefits. The powers of the Financial
Commissioner to grant liquor licences by auction and to collect licence
fees through the medium of auctions cannot by writ petitions be
questioned by those who, had their venture succeeded, would have
relied upon those very powers to found a legal claim. Reciprocal rights
and obligations arising out of contract do not depend for their
enforceability upon whether a contracting party finds it prudent to
abide by the terms of the contract. By such a test no contract could ever
have a binding force.”
(Emphasis supplied)
118. Thus, we are of the view that the respondent’s stance of a mere possibility of
fetching higher license fees was no ground to cancel the tender issued to the
appellant for the purposes of rectifying it, especially when the respondent
completely failed to demonstrate as to how there was a technical fault in the
tender or how potential interested bidders did not participate due to it or how
fetching higher license fees was more than a mere possibility.
119. At this stage, we may also answer one another submission that was canvassed
on behalf of the respondent as regards the other aspect of public interest
Civil Appeal No. 6741 of 2024 Page 76 of 83
besides the monetary gain. It was submitted on behalf of the respondent that
the decision to cancel the tender was also keeping in mind the considerations
such as being able to engage experts for maintenance of critical public
infrastructure. It is the case of the respondent that the tender was cancelled in
order to float separate tenders, one for the maintenance work and another for
licensing advertisement rights to ensure expertise in each respective field.
120. We are not impressed by the above submission either. We need not refer to a
copious amount of documents in this regard, as just a bare perusal of the notice
inviting tender shows that the eligibility criterion for participating in the tender
process prescribed a comprehensive threshold of requirement of experience in
structural works and successful completion of similar natured projects, thus
ensuring that the bidders participating in the tender possess the necessary
expertise for the work of maintenance.
121. Even otherwise, if at all the respondent was very much concerned about the
maintenance of the underpasses due to lack of expertise of the appellant, it
was always open to the respondent to terminate the contract in terms of the
termination clause as envisaged in Clause 35 of the Special Terms &
Conditions of the Memorandum for the breach or non-compliance of any of
the obligations or terms of the tender. Mere apprehension of lack of expertise
was no ground for the respondent to cancel the tender by taking recourse to its
Civil Appeal No. 6741 of 2024 Page 77 of 83
executive powers in complete ignorance of the contractual terms that were
agreed upon by them.
122. From the above discussion, we are of the considered opinion that 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.
iii. Sanctity of Public-Private Partnership Tenders
123. Before we close this judgment, we must also address one very important
aspect as regards the importance of maintaining the sanctity of tenders in
public private procurement processes.
124. 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 which lays down that
all natural resources and public use amenities & structures are intended for the
benefit and enjoyment of the public. The State is not the absolute owner of
such resources and rather owns it in trust and as such it cannot utilize these
resources as it pleases. As a trustee of the public resources, the State owes
i) a duty to ensure that community resources are put to fair and proper use that
enures to the benefit of the public as-well as ii) an obligation to not indulge in
Civil Appeal No. 6741 of 2024 Page 78 of 83
any favouritism or discrimination with these resources. The State with
whatever free play it has in its joints decides to award a contract, to hold up
the matter or to interfere with the same should be accompanied by a careful
consideration of the harm to public interest.
125. Public tenders are designed to provide a level playing field for all potential
bidders, fostering an environment where competition thrives, and the best
value is obtained for public funds. The integrity of this process ensures that
public projects and services are delivered efficiently and effectively,
benefiting society at large. The principles of transparency and fairness
embedded in public tender processes also help to prevent corruption and
misuse of public resources. In this regard we may refer to the observations
made by this Court in Nagar Nigam v. Al. Farheem Meat Exporters Pvt. Ltd.
reported in (2006) 13 SCC 382, which reads as under: -
“16. The law is well settled that contracts by the State, its corporations,
instrumentalities and agencies must be normally granted through
public auction/public tender by inviting tenders from eligible persons
and the notification of the public auction or inviting tenders should be
advertised in well-known dailies having wide circulation in the locality
with all relevant details such as date, time and place of auction, subject-
matter of auction, technical specifications, estimated cost, earnest
money deposit, etc. The award of government contracts through public
auction/public tender is to ensure transparency in the public
procurement, to maximise economy and efficiency in government
procurement, to promote healthy competition among the tenderers, to
provide for fair and equitable treatment of all tenderers, and to
eliminate irregularities, interference and corrupt practices by the
authorities concerned. This is required by Article 14 of the
Constitution.”
(Emphasis supplied)
Civil Appeal No. 6741 of 2024 Page 79 of 83
126. The sanctity of public tenders lies in their role in upholding the principles of
equal opportunity and fairness. Once a contract has come into existence
through a valid tendering process, its termination must adhere strictly to the
terms of the contract, with the executive powers to be exercised only in
exceptional cases by the public authorities and that too in loathe. The courts
are duty bound to zealously protect the sanctity of any tender that has been
duly conducted and concluded by ensuring that the larger public interest of
upholding bindingness of contracts are not sidelined by a capricious or
arbitrary exercise of power by the State. It is the duty of the courts to interfere
in contractual matters that have fallen prey to an arbitrary action of the
authorities in the guise of technical faults, policy change or public interest etc.
127. The sanctity of contracts is a fundamental principle that underpins the stability
and predictability of legal and commercial relationships. When public
authorities enter into contracts, they create legitimate expectations that the
State will honour its obligations. Arbitrary or unreasonable terminations
undermine these expectations and erode the trust of private players from the
public procurement processes and tenders. Once a contract is entered, there is
a legitimate expectation, that the obligations arising from the contract will be
honoured and that the rights arising from it will not be arbitrarily divested
except for a breach or non-compliance of the terms agreed thereunder. In this
regard we may make a reference to the decision of this Court in Sivanandan
Civil Appeal No. 6741 of 2024 Page 80 of 83
C.T. v. High Court of Kerala reported in (2024) 3 SCC 799 wherein it was
held that a promise made by a public authority will give rise to a legitimate
expectation that it will adhere to its assurances. The relevant portion reads as
under: -
“18. The basis of the doctrine of legitimate expectation in public law is
founded on the principles of fairness and non-arbitrariness in
Government dealings with individuals. It recognises that a public
authority's promise or past conduct will give rise to a legitimate
expectation. The doctrine is premised on the notion that public
authorities, while performing their public duties, ought to honour their
promises or past practices. The legitimacy of an expectation can be
inferred if it is rooted in law, custom, or established procedure
xxx xxx xxx
45. The underlying basis for the application of the doctrine of
legitimate expectation has expanded and evolved to include the
principles of good administration. Since citizens repose their trust in
the State, the actions and policies of the State give rise to legitimate
expectations that the State will adhere to its assurance or past practice
by acting in a consistent, transparent, and predictable manner. The
principles of good administration require that the decisions of public
authorities must withstand the test of consistency, transparency, and
predictability to avoid being regarded as arbitrary and therefore
violative of Article 14.”
(Emphasis supplied)
128. Cancellation of a contract deprives a person of his very valuable rights and is
a very drastic step, often due to significant investments having already been
made by the parties involved during the subsistence of the contract. Failure on
the part of the courts to zealously protect the binding nature of a lawful and
valid tender, would erode public faith in contracts and tenders. Arbitrary
terminations of contract create uncertainty and unpredictability, thereby
discouraging public participation in the tendering process. When private
Civil Appeal No. 6741 of 2024 Page 81 of 83
parties perceive that their contractual rights can be easily trampled by the
State, they would be dissuaded from participating in public procurement
processes which may have a negative impact on such other public-private
partnership ventures and ultimately it is the public who would have to bear the
brunt thereby frustrating the very object of public interest.
129. We caution the public authorities to be circumspect in disturbing or wriggling
out of its contractual obligations through means beyond the terms of the
contract in exercise of their executive powers. We do not say for a moment
that the State has no power to alter or cancel a contract that it has entered into.
However, if the 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 the decision-making process
and also in the final decision itself. We say so because 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 the threshold.
H. FINAL CONCLUSION
130. We are of the considered opinion that 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
Civil Appeal No. 6741 of 2024 Page 82 of 83
the behest of none other than the concerned Minister-In-Charge and thereby
rendering the Notice of Cancellation dated 07.02.2023 illegal.
131. During the course of hearing, we were informed that the appellant herein
pursuant to the terms of the subject tender had erected multiple structures at
different sites on the concerned underpasses for displaying advertisements at
a huge personal cost. He has made significant investments pursuant to the
tender.
132. As, we have held the Notice of Cancellation dated 07.02.2023 to be non-est,
the issuance of a fresh tender to any third-party in respect of the same work
would not defeat the vested rights that accrued in favour of the appellant.
Similarly, the handing over of the operation and maintenance of the E.M.
Bypass to the KMC also would have no bearing whatsoever, on the rights that
stood vested in the appellant as on the date of cancellation of the tender. Such
vested rights would continue to operate notwithstanding any change in the
control and maintenance of the underpasses.
133. 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
Civil Appeal No. 6741 of 2024 Page 83 of 83
that accrued in favour of the appellant as such rights are independent of the
authority in control of operations and maintenance.
134. Thus, for all the foregoing reasons, the appeal succeeds and is hereby allowed.
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.
135. Pending application(s), if any, also stand disposed of.
...................................................... CJI.
(Dr. Dhananjaya Y. Chandrachud)
.......................................................... J.
(J.B. Pardiwala)
.......................................................... J.
(Manoj Misra)
New Delhi
9
th
July, 2024.
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