A.F.R.

Court No. - 1

Case :- WRIT - C No. - 25389 of 2019

Petitioner :- Sudhir Kumar Singh

Respondent :- State Of U.P. And 4 Others

Counsel for Petitioner :- Imran Syed,Mr. Ravikant (Sr.Adv.)

Counsel for Respondent :- C.S.C.,Rajendra Singh

Chauhan,Sushil Kumar Rao

Hon'ble Ramesh Sinha,J.

Hon'ble Ajit Kumar,J.

(Per Sinha 'J' for the Bench)

Heard Sri Imran Syed, learned counsel for the petitioner and

Sri Kunal Shah, learned counsel for the respondents. Perused the

record.

In this petition invoking our extra-ordinary jurisdiction

under Article 226 of the Constitution of India the petitioners have

sought relief in the nature of a writ of certiorari for quashing the

order dated 26.07.2019 whereby the petitioner's agreement

pursuant to a notice invoking tender dated 26.5.2018 has come to

be canceled.

Briefly stated facts of the case are that petitioner who is a

registered contractor with the respondents-Ware Housing

Corporation applied against a notice invoking tender dated

1.6.2018 for the work to be carried out for Mirzapur, Bhawanipur-

1, Bhawanipur-2 and tendu centres with respect to food grains of

Food Corporation of India. The petitioner having offered the

lowest rate to undertake the work to be assigned pursuant to the

tender notice was selected in the L-1 category and after approval

of the higher authorities the agreement came to be executed

between the Corporation and the petitioner on 13.7.2018 for work

at Bhawanipur-1, Mirzapur region. No sooner did the parties sign

the agreement the petitioner started working as per the terms of the

agreement. It appears that while others were also selected for

2

different region for different work some complaint got lodged

by one Pramod Kumar Singh with the Special Secretary,

Department of Co-operatives, Government of U.P., Lucknow,

Uttar Pradesh. The Special Secretary wrote a letter to the

Managing Director of the Ware Housing Corporation on

30.5.2019 to hold an enquiry on two points: one related to a

firm namely, Iqbal Ahmad Ansari qua its registration and

renewal and it being black-listed already; the other point was

with regard to the cancellation of tender notice dated 16.4.2018

and 5.5.2018 without assigning any reason and then floating a

new tender notice dated 16.6.2018 and accepting higher prices

for the distribution of work. While this letter was written by the

Special Secretary to the Managing Director, it appears that the

Special Secretary also wrote a letter directly to the

Commissioner of the division to hold administrative enquiry of

the complaint made in the matter. The Commissioner of the

Vindhyachal division obtained some report from the Ware

Housing Corporation, Lucknow dated 13.7.2018 and proceeded

to record a finding to the effect that the notice inviting tender

was a sheer formality with some ulterior motive and the

officers of the Ware Housing Corporation in a very hurried

manner approved the tender application, inviting application

only from the contractor registered with U.P. State Ware

Housing Corporation, Vindhyachal; and the officers who were

involved in the tender process forming a Committee were

wrongly appointed in the sense that a contract employee was

part of the tender committee. So basically complaint was that in

the e-tender process only registered contractors were invited

which was objectionable because had there been invitation

from the open market there would have been more competition

and the tender applicants would have offered an accurate price

3

and that the work has been allotted in the contract at a very

higher cost to say to much more that 100 % of the earlier one.

In its concluding part the report contained a finding to the

effect that no survey was conducted for the assessment of the

cost and that the recommendation was made by the officers

concerned in a very hasty manner and that the Chief Regional

Manager did not act very fairly in the matter. After the said

report was submitted it appears that the Managing Director of

the State Ware Housing Corporation himself conducted an

enquiry in compliance of the order of the Special Secretary

dated 30.5.2019 and submitted a report to the Chief Secretary

on 14.6.2019. The report has been placed before this Court by

learned counsel for the petitioner which is taken on record and

the learned counsel appearing for the respondent-Corporation

does not dispute the same. In the report in the ultimate

conclusion the Managing Director has led a finding to the

effect that the earlier notice inviting tender dated 1.4.2018 was

canceled on the ground that the lowest cost was not feasible

and accordingly was not accepted and thereafter a Committee

was constituted and that because of some incorrect application

moved by one Uday Construction pursuant to the notice

inviting tender dated 1.4.2018 and for that reason it was

canceled being a result of concealment of forfeiture of the

security amount and that was not proper to cancel the notice

inviting tender for the other region on same ground. It is on the

basis of this enquiry report which the Managing Director

himself got prepared and is addressed to the Chief Secretary,

Government of U.P., Lucknow that the impugned order has

come to be passed on 26.7.2019 canceling the entire tender

process which had already been undertaken and also the

consequential contract entered between the petitioner and the

4

respondent-corporation. With the cancellation of the agreement

under the order impugned dated 26.7.2019 the respondents

have proceeded to float new tender notice for the same work

which the petitioner was carrying out at the time of passing of

the impugned order.

Assailing the order impugned, learned counsel for the

petitioner has argued following points:

a) The respondents were not justified in unilaterally

canceling the written agreement with the petitioner after it had

been executed duly with the approval of the higher authorities

on 13.7.2019 and the stakes of the petitioner were involved it

having invested huge money and incurred cost for carrying out

the work under the contract;

b) Neither the enquiry report submitted by the Divisional

Commissioner dated 29.6.2019 nor, that of the Managing

Director dated 14.6.2019 was ever supplied to the petitioner at

any point of time asking for his explanation in respect of the

proposed action;

c) None of the enquiry reports indict the petitioner in any

manner for any foul play in getting its tender application

accepted and approved by the officers of the Ware House

Corporation and ultimately the agreement with the petitioner.

The petitioner being not guilty of any charge of malafides,

conspiracy or otherwise also not guilty of violation of any

terms and conditions of the agreement, whether the respondents

were justified in canceling the agreement.

d) The respondent-Authority did not apply its

independent mind to the enquiry report and moreover, the

Managing Director having himself submitted the report of

5

enquiry was not justified in taking the decision as an element of

bias would vitiate the entire action. The Authority has to apply

its independent mind and on the plea that no one can be judge

in his own case, the respondent-Managing Director being

himself the Inquiry Authority, was not justified in taking action

on the basis of the report submitted by him, and

e) The Ware Housing Corporation being an autonomous

body, it is none of the business of the Secretaries of the

Government to dictate terms for the working of the Corporation

and its officials nor the respondent-Managing Director is

justified in taking action on the dictates of the Special Secretary

and hence, he submits that the order is vitiated in law and is

liable to be quashed.

Per contra, the argument of learned counsel for the

respondent Corporation is that the decision taken by the

Managing Director in rescinding the contract, cannot be faulted

with as it is based on a clear finding of facts with regard to the

wrongful action in canceling the earlier notice inviting tender

on the ground that the prices offered were not justified and yet

all of a sudden tenders were accepted at a very exorbitant

prices, inasmuch as, no survey having been conducted, the

fixation of cost/price of the work was not proper. It is argued

that Regional Manager of the Warehousing Corporation was

found prima facie guilty of entire affair and the departmental

inquiry has been initiated against him to fix the liability. It is

argued that it is a case where huge public money is at stake and

the error has got arrested, may be, after the execution of the

agreement in the public interest, it should be taken to be a

solemn act of the State owned Corporation and for technical

reasons like non issuance of notice, show cause or for non

6

compliance of principles of natural justice the order should not

be set aside. He submits that whenever public money is

involved and it is a matter of inviting applications for work

from the open market through E-tendering process,

transparency and fairness are the most important factors that

are to be taken care of and if anything found to be vitiated for

malafides on the part of those who are in helm of affairs, such

action as has been taken in the present case is quite imperative.

He has argued that the principles of natural justice could not be

put in a straight jacket formula to apply in every case

automatically. It is submitted that in matters of contract, the

principles that are attracted in testing the administrative

decision making, will not be applicable. He argues that the

authority has neither exercised any quasi judicial function in

passing the order nor, can be said to have acted in a malafide

manner. He submits that the findings have come to be recorded

in both the inquiry reports and the Managing Director having

rendered his due application of mind in the matter, the order

cannot be said to be vitiated in law. He has relied upon several

judgments of Apex Court like in Rajasthan Housing Board

(2007) 1 SCC 477; ECISPIC MCM (JV v. Central Organization

2018 (5) AWC 4772; Employees State Insurance Corporation

and Anr v. Jadain (2006) 6 SCC 581, M/s. Ambe Couriers v.

State of U.P. & 3 Ors (Writ-C No. 45762 of 2014, decided on

09.09.2014);,

Whereas, learned counsel for the petitioner has relied

upon various authorities in support of the arguments advanced

and to quote: U.P. State Warehousing Corporation vs. Sunil

2013 (3) ADJ 745; Sahara India (F) Lko v. Commissioner of

Income Tax & another (2008) 14 SCC 151; Securities and

7

Exchange Board of India v. Akshay Infrastructure Pvt. Ltd.

(2014) 11 SCC 112; Dharampal Satyapal Ltd. v. Deputy

Commissioner, Central Excise (2015) 8 SCC 519; United India

Assurance Co. Ltd. v. Manubhai Dharmshree Bhai and others

(2008) 10 SCC 404; Bharti Airtel v. Union of India (2015) 12

SCC 1.

Having heard learned counsels for the parties and their

arguments advanced across the bar and having perused the

records, we find that following basic questions arise for

consideration by us:

(a) Whether the two enquiry reports are procedurally

defective inasmuch as the findings returned thereunder based

upon no material and hence perverse;

(b) Whether the respondent Managing Director was

justified in canceling the written agreement with the petitioner

after a lapse of a year, without putting him to notice;

(c) Whether being an autonomous body, Corporation

could not have been directed to take action in particular manner

and Managing Director was not justified in cancelling the

agreement under an executive fiat of Special Secretary; and

(d) Whether the order passed by Managing Director is

vitiated for bias as he himself had been Inquiry Officer and

without inviting the petitioner to explain in his defense he

himself conducted the inquiry and then on the basis of report

prepared by him, he proceeded to cancel the agreement.

In so far as the first question is concerned, Mr. Kunal

Shah, learned counsel for the respondent Corporation has very

fairly admitted that there was no notice ever issued to the

8

petitioner prior to passing of the impugned order dated

26.07.2019. It is admitted to the Corporation that the agreement

was duly entered by the Corporation with approval of the

competent authority. The records relating to the earlier notices

inviting tender dated 06.01.2018 and 31.03.2018 were well

within the knowledge of the respondents. The reasons assigned

for the cancellation of the same, if at all any, were well within

the knowledge of the Corporation. Floating of a new tender

notice dated 01.06.2018 was never put to challenge by any

person at any point of time and those who had applied for the

tender had duly participated and it is the petitioner who was

selected for the Region Bhawanipur-I. Lowest price bid offered

by the petitioner came to be considered by the higher officials

and those who had been entrusted with the task to verify the

records, approved the same. There is a survey report also

available on record dated 19.04.2018 in respect of various

centres to have necessary prima facie opinion of the possible

rates so that the rates could be fixed after appropriate

assessment while evaluating the tender bid application insofar

as the present notice inviting tender is concerned.

We have noticed that a private complaint was lodged by

one Pramod Kumar Singh who was not the applicant against

the notice inviting tender but the same seemed to have been

entertained by the Special Secretary and instead of simply

forwarding the complaint to the Managing Director, he not only

directed the Managing Director under his letter dated

30.05.2019 to hold inquiry on two points but at the same time

by way of abundant precaution, for the reasons best known to

him, he also ordered the Divisional Commissioner of Mirzapur

Division to hold an administrative inquiry. The Managing

9

Director instead of applying his mind independently, seems to

have mechanically acted on the order of Special Secretary and

proceeded to hold inquiry himself instead of appointing any

inquiry officer, while on the other hand the Divisional

Commissioner also conducted an inquiry and and submitted a

separate report dated 29.06.2019. It is after the report dated

14.6.2019 was submitted by the Managing Director to the

Special Secretary, the Special Secretary issued an executive fiat

vide letter dated 16.07.2018 directing for cancellation of the

tenders already floated and also to initiate disciplinary

proceedings against the erring officials and also called for a

compliance report.

Perusal of two reports and the ultimate findings returned

by the two officers namely the Divisional Commissioner, the

following conclusion has been drawn:

^^mijksDr ls Li"V gS fd iwoZ esa djk;h bZ&Vs.Mfjax

ls izkIr jsV~l dkQh de Fks blfy, bl lUnHkZ esa

f'kdk;rdrkZ dh f'kdk;r izFke n`"V;k lgh gSA

mYys[kuh; gS fd iwoZ esa djk;h x;h foKkiu la0&

1-1001-23318 fnukad 01-04-18 }kjk djk;h x;h

bZ&VS.Mfjax izfØ;k dks fujLr bl vk/kkj ij fd;k tkuk

fd izkIr U;wure nj vO;ogkfjd gS fdlh Hkh n'kk esa

Lohdk;Z ;ksX; ugha gSA bl lUnHkZ es bZ&Vs.Mfjax dh izfØ;k

djk;s tkus gsrq e.My Lrj ij xfBr dh x;h desVh }kjk

ih0bZ0th0 rsUnw ¼lksuHknz½ dks gh vO;ogkfjd ekuk Fkk

tcfd iz/kku dk;kZy; }kjk bls leLr dsUnksa ds lEcU/k

esa ;Fkkor~ Lohdkj fd;kA tgkW rd mn; dUlVªD'ku }

kjk /kjksgj jkf'k tCr fd;s tkus lEcU/kh rF;ksa dks Nqikus

vFkok izLrqr fd;s tkus ds lUnHkZ esa izLrqr izR;kosnu dk

iz'u gS] rks bl lUnHkZ esa fofnr gks fd mn; dUlVªD'ku }

kjk foKkiu la0&1-1001-23318 fnukad 01-04-18 ds }kjk

ek= ih0bZ0th0 rsUnw ds fy, vkosnu fd;k x;k FkkA

blfy, bl vk/kkj ij vU; dsUnksa gsrq izkIr fufonkvksa dks

fujLr fd;k tkuk izFke n`"V;k vkSfpR;ijd ugha FkkA

vk[;k vkidh lsok es lknj izsf"krA**

If one goes through the conclusive findings returned by

10

the two inquiry officers, one inquiry officer namely Managing

Director records that since relating to the rates the controversy

had arisen earlier and the notice inviting tender was canceled

on 01.04.2018, the notice inviting tenders in respect of other

centers should not have been canceled. So the conclusion

drawn is that the earlier notice inviting tender dated 01.04.2018

was wrongly canceled. The finding returned therefore, is that

earlier notice inviting tender dated 01.04.2018 was wrongly

canceled. The natural corollary therefore, drawn is, as it

appears, that the subsequent notice inviting tender was liable to

go but no where there is any finding that there was any error

with the floating of new notice inviting tender nor, any error in

the new tender process pursuant to NIT dated 01.06.2019,

undertaken by the respondent Corporation. It is worth noticing

that there is no complaint regarding the cancellation of earlier

notice inviting tender. The complaint was in respect of tender

in question only.

In so far as the other inquiry report is concerned, the

conclusion drawn is to the effect only that no market survey

was carried out and therefore, the price fixation was wrong and

the concerned official of the Warehousing Corporation was

therefore, guilty of the entire exercise of tender undertaken and

acceptance thereof. It is also to be noticed at this stage that in

the inquiry report dated 29.06.2019 the Commissioner has

proceeded to consider the report of the Managing Director

dated 13.07.2018 which does not discuss anything wrong with

the new tender process. There is no discussion in the entire

inquiry report as to how and under what circumstances such a

finding has come to be returned, more so, the survey report

which was prepared by the official of the Corporation dated

11

19.04.2018 had not been taken into account.

Insofar as the second inquiry report is concerned, it also

does not reflect as to what were the materials before the

Managing Director, to record a finding in respect of the earlier

tender except the complaint. No independent inquiry has been

conducted by the Managing Director except the fact that he has

taken into account certain data which he claims to be the

foundation to hold that earlier notice inviting tender was

wrongly cancelled. The question is therefore, when the notice

inviting tender dated 01.06.2019 was in issue, a finding ought

to have been returned that the process undertaken pursuant to

the notice inviting tender dated 01.06.2019 was vitiated for

malafides, but no such finding has come to be returned.

Now in the face of above factual background and the

findings returned by the two Inquiry Officers, if we look to the

letter written by the Special Secretary to the Managing

Director, Warehousing Corporation it reflects how executive

has dominated over the freedom of an autonomous corporation

commanding the Corporation to act in such a manner as official

wants. He issues not only direction to take an action but also to

report back to him. The letter dated 16.07.2018 of the Special

Secretary is reproduced hereunder:

^^ izs"kd]

eks0 tquhn]

fo'ks"k lfpo]

m0iz0 'kkluA

lsok esa]

izcU/k funs'kd]

m0iz0jkT; Hk.Mkj.k fuxe]

y[kuÅA

lgdkfjrk vuqHkkx&1 y[kuÅ% fnukad% 16 tqykbZ]

2018

fo"k;%& m0iz0 jkT; Hk.Mkj.k fuxe esa gS.Mfyax ,oa VªkaliksVZ Bsdks es

12

gqbZ vfu;ferrk ds n`f"Vxr fuxe dks gqbZ djksM+ks dh {kfr ds laca/k

esaA

egksn;]

mi;qZDr fo"k;d d`i;k vius dk;kZy; i=kad&2043@okf.kT;

@gS0Vªk0@fufonk@2019&20 fnukad 14-06-2019 dk lanHkZ xzg.k

djus dk d"V djsA

2&bl laca/k esa voxr djkuk gS fd vkids mDr i= fnukad 14-

06-2019 ,oa dk;kZy; vkns'k la0&4108@okf.kT;@gS0Vªk0@lkekU;

@2019&20 fnukad 15-06-2019 ls Li"V gS fd eS0 bdcky vgen

valkjh izkijkbVj f'ki QeZ ds :i esa fuxe esa iathd`r Fkh] Jh

bdcky vgen valkjh dh fnukad 03-12-2014 dks e`R;q ds

mijkUr&ikVZujf'ki ,DV 1932 ds lsD'ku 42 esa mfYyf[kr izkfo/kku

ds vuq:i Lor% lekIr ekuh tk;sxhA blds mijkUr Hkh mfYyf[kr

QeZ dks Vs.Mj fn;k tkuk ewy :i es fu;e fo:) gSA vr%

mfYyf[kr QeZ ds tks Vs.Mj fu;e fo:) fd;s x;s gS mUgsa fujLr

djrs gq;s lacaf/kr Hk.Mkjx`gksa ds ,p0 ,.M0 Vh0 dk;Z gsrq iqu%

bZ&Vs.Mfjax ds ek/;e ls Bsdsnkjksa dh fu;qfDr fd;k tkuk tufgr esa

gksxkA

vkids mDr i= fnukWd 14-06-2019 }kjk izsf"kr

tkWp vk[;k esa foU/;kapy e.My esa fnukWd 16-04-2018

dks Vs.Mj gksus ds QyLo:i izkIr Vs.Mj ¼fuEu nj½

fcuk dkj.k crkrs gq;s fujLr fd;s tkus rFkk iqu% nks

ekg ds vUrjky esa Vs.Mj djkrs gq;s cgqr vf/kd njksa

ij Vs.Mj Lohd`r djus dh f'kdk;r dh i`f"V gqbZ gSA

blesa {ks=h; Lrj ds vf/kdkjh ¼foU/;kapy e.My½ ,oa

Lohd`rdrkZ vf/kdkjh rFkk rRdkyhu izcU/k funs'kd vkSj

eq[;ky; ds lacaf/kr vf/kdkfj;ks dh Hkwfedk Hkh lafnX/k

izrhr gksrh gSA

3&vr% eq>s ;g dgus dk funs'k gqvk gS fd vki

vius Lrj ls izdj.k Nkuchu djds tks 'kkldh; /ku

dh foRrh; {kfr gqbZ gS] mldk vkadyu djrs lafyIr

/kujkf'k lacaf/kr Bsdsnkj rFkk lacaf/kr vf/kdkjhx.k ls

olwy djus dk;Zokgh dh tk;sA ftl vf/kdkfj;ksa@

deZpkfj;ksa ds fo:) foHkkxh; dk;Zokgh igys ls gh izpfyr gS] muds

laca/k es bu vkjksiks dks vfrfjDr vkjksi i= ds :i esa lfEefyr

djrs gq;s fuxZr djus dh dk;Zokgh dh tk;s rFkk izdj.k esa nks"kh ik;s

x;s ftu vf/kdkfj;ksa@ deZpkfj;ksa ds fo:) dk;Zokgh izpfyr ugha

gS] mudks fpfUgr djrs gq;s foHkkxh; dk;Zokgh dh tk;sA

mfYyf[kr QeksZ ds tks Vs.Mj fu;e fo:) fd;s

x;s gS mUgsa fujLr djrs gq;s lacaf/kr Hk.Mkj x`gksa ds

gS.Mfyax ,.M VªkUliksVZ dk;Z gsrq iqu% bZ&Vs.Mfjax

ek/;e ls Bsdsnkjksa dh fu;qfDr dh tk;sA

mDr dk;Zokgh 'kh?kzfr'kh?kz iw.kZ djkrs gq;s d`r dk;Zokgh ls

'kklu dks voxr Hkh djkus dk d"V djsaA

13

Hkonh;

g0 viBuh;

¼eks0 tquhn½

fo'ks"k lfpo**

Now, looking to the contents and language of this letter,

we need to examine the import of the letter written by the

Special Secretary to the Managing Director in connection with

the controversy in hand, dated 16.7.2018. The language in

which the concluding paragraph of the letter has been framed is

quite indicative of a Government order. Paragraph 3 and the

ultimate directions as contained in the letter have been

highlighted in the bold letters and following is the english

translation:

“Accordingly, I have been directed to ask you to

calculate the loss of public money and to undertake accordingly

the proceedings for recovery from the concerned contractor.

The departmental enquiry that is pending against the officials

and employees of the Corporation in this connection, the

charges that have been found to be proved in your letter dated

14.6.2019 should be added as an additional charge and against

those employees who have been found prima facie guilty of the

charges they should also be proceeded with after they are

identified.

The tender that have been accepted of the aforesaid firm

should be canceled and for the purpose of carrying out the

work under the contract, fresh notices inviting tender be issued.

The undersigned be informed about the actions to be

taken by you promptly, as directed here-in-above.”

We find from the perusal of the letter of the Managing

Director dated 14.6.2019 addressed to the Chief Secretary that

it is in the form of an enquiry, admittedly ex parte one, as far as

14

petitioner is concerned and it is on the basis of the findings

returned in the aforesaid administrative enquiry, that the

Special Secretary has proceeded to pass the order on 16.7.2018,

holding the tender process pursuant to the notice inviting tender

dated 1.6.2018, to be bad and unsustainable and so also the

consequential agreements reached between the Corporation and

the private contractor. As we have already discussed in the

earlier part of our order that even from the closest scrutiny of

the letter dated 14.6.2019 of the Managing Director we have

not been able to trace out any finding to the effect that there

was any error in the tender process undertaken pursuant to the

notice inviting tender dated 1.6.2018, we fail to understand as

to how the Special Secretary has come to record the finding to

the effect that the tender procedure followed was proved to be

bad and so also the consequential agreement. All that we notice

in the letter dated 16.7.2018 is that the Special Secretary has

expressed that the conduct of the officials of the Corporation in

the totality was doubtful. One must not forget that a doubt

remains a doubt unless it becomes a fact on the basis of proof

thereof through intrinsic evidence and cogent and convincing

finding to that effect based on such intrinsic material. This

aspect of the matter is quite lacking both in the enquiry of the

Managing Director dated 14.6.2019 and the letter dated

16.7.2018 issued by the Special Secretary. Since these two

documents are admitted to the parties and they have been

placed before the Court, we have taken judicial notice of these

two documents and in our considered opinion these documents

are unsustainable and so also we find that the finding returned

in the order impugned being based on the report of the

Managing Director dated 14.6.2019, the first issue is answered

in affirmative in favour of the petitioner. One legal question we

15

need to answer at this stage also is, as to whether the Managing

Director was justified in taking an action on the basis of his

own administrative enquiry and to pass order on the findings

returned by him in his enquiry report can the order be turned as

vitiated for bias.

Doctrine of fair play and fairness in action connote one

thing and that is an administrative authority has to demonstrate

that the procedure that it has followed is unquestionable if

tested on the rule of natural justice and then the ultimate action

is in accord with the principles as enshrined under Article 14 of

the Constitution of India. Had the Managing Director while

holding an enquiry heard the petitioner also who was working

already under the agreement and then had recorded a finding

that the procedure followed in the finalization of tender was

bad for arbitrariness or malafides on the part of the officials of

the respondent Corporation, it could have been said that the

findings are not ex parte and, therefore, if action has been taken

in pursuance thereof, this Court may not interfere and the

charge of bias may not be sustainable. However in the present

case the Managing Director not only held an enquiry himself

without any participation of a third party and then did not hold

exactly the petitioner guilty of any charge of undue influence

and no finding has come to be returned that the procedure

followed in the finalization of tender in question was bad for

certain reasons, the Managing Director virtually acted in an

arbitrary manner in accepting his own report. The letter of the

Special Secretary is absolutely silent about any independent

finding of fact on the basis of the material, if any, produced

before him. He only issued a direction to the Managing

Director to act upon his own enquiry report. In such

16

circumstances, therefore, issuance of a show cause notice to the

petitioner of the proposed action was quite imperative as any

opportunity of that kind and inviting explanation from the

petitioner and consideration thereof, would have definitely

removed the element of bias in the decision making process at

the end of the respondent- Managing Director but since no

such procedure was followed and the manner in which the

Managing Director has conducted ex parte enquiry and then

proceeded to take action on the basis of the report in which no

definite finding has come to be recorded regarding undue

advantage taken by the petitioner in getting his tender accepted

by the authority, the impugned action is certainly vitiated for

bias.

Coming to the second question as to whether the

petitioner was entitled to any opportunity of hearing or not, or

as to whether principles of natural justice would be attracted in

the present case or not, it is required to be examined as to what

kind of action has been taken and what were the considerations

thereof. As we have already discussed in earlier part of this

order that it was a simple complaint of a third party that the

entire proceedings had been initiated and the complainant being

not one of the tender applicants and so no stakes of the

complainant was involved, he seems to have been taken as a

whistle blower in the matter and it is on that basis that taking

the issue opposed to public policy involving huge public

money that the respondents have proceeded to pass an order. In

this case it was not a case of a kind where a tender application

is said to have been accepted for any action of mala fides, and a

result of some conspiracy at the end of the petitioner and the

officials of the Corporation. If the officials had canceled the

17

earlier tender notice in their wisdom and those tender notices

and the cancellation of those tender notice was never

questioned, merely because those earlier tender notices were

cancelled/ withdrawn, a necessary presumption cannot be

raised that the third notice inviting tender was for some

extraneous considerations. It is true that the prices this time

were taken to be very high as against the earlier ones in the

process of tender in which the prices were quoted very low but

that does not itself become the ground to cancel the entire

tender process which had not only been finalized but even the

agreement had been entered into and the party under the

contract was carrying out the work making huge investment of

money. Had it been a case also of the kind where the party to

the contract had violated the terms and conditions of the

contract, it could have been said that the tender was liable to be

canceled for violation of terms and conditions of the tender

agreement. But in the instant case no such finding has come to

be returned. The reasons for which the tender proceedings that

had already been concluded with the execution of the

agreement, has been canceled without assigning any reason of

wrong practice adopted by the petitioner in obtaining the

agreement. Thus the petitioner cannot be said to be at fault in

the matter and, therefore, in our considered opinion if the

petitioner was already working under the agreement and no

charge was there that he violated the terms and conditions of

the agreement, the respondents were not justified in canceling

the agreement ex parte.

There are three stages in which the entire tender

proceeding is undertaken:

1. The issuance of notice inviting tender;

18

2. Opening Technical and financial bid; and

3. Approval of the financial bid and agreement pursuant

thereto.

There is no finding returned that at the stage of

submission of the application against the notice inviting tender,

the petitioner was not eligible or that at the time of the opening

of the technical bid and financial bid the petitioner got

wrongfully qualified and that the financial bid of the petitioner

was wrongly approved and that the agreement entered between

the petitioner and the Corporation was void being against the

law.

If in all the above three stages the petitioner cannot be

held to be guilty in any manner for manipulating the things and

obtaining the tender by hatching any conspiracy in connivance

with the officials of the Corporation, cancellation of the

agreement suddenly by the Managing Director holding that the

entire Notice Inviting Tender was bad, certainly required a

notice and opportunity of hearing to be afforded to the

petitioner prior to passing of such an order. It is a settled

principle of law that in administrative exercise of power, the

authority exercising power has to not only render due

application of mind but also to follow the procedure which

would not render the entire action arbitrary. It is settled legal

principle that whatever is arbitrary, is hit by Article 14 of the

Constitution of India and in the present case we find that only

the procedure that was followed by the respondents in taking

impugned action was not only quite ex parte but also under the

executive fiats of the Special Secretary of the Government

which was quite uncalled for. Merely because the orders have

come from the higher echelons of the Government

19

functionaries, a Corporation which is an autonomous body

would not mechanically act in compliance thereof and then

administrative authority, therefore, is required to render due

application of mind. The words and expression due application

of mind means what a reasonable person holding a responsible

position would consider an appropriate step to be taken in a

situation where a process has already undergone and a

consequential actions have been taken, to question the process

already undergone and to annul the action already undertaken

as a consequence thereof. Thus any action by a responsible

administrative officer calls for not only reasonable approach in

conducting a proceeding but also giving opportunity to the

person whose interest and rights are going to be prejudiced by

the proposed action. The rights and obligations that flow from a

contract pure and simple, no doubt calls for an action in

common law and no writ will ordinarily be issued to protect the

interest of either of the parties but where a party has been put to

prejudice not for any obligations not being discharged under

the agreement at his end but for certain administrative reasons,

then it cannot be said to be an action flowing from a contract

pure and simple and, therefore, even in such matters the rule of

principles of natural justice will be attracted. The cases cited by

the learned counsel for the contesting respondents are

distinguishable on facts.

In the case of Rajasthan Housing Board vs. G.S.

Investments and another (Supra) the auction notice had been

published on 19.2.2002, the auction was conducted on

20.2.2002 and the bid offered was much below the market rate.

On 22.2.2002, the records were summoned by the State

Government and on 20.3.2002 the action was taken against the

20

erring officials of the Rajasthan Housing Board by the

Government. So factually in that case situation was different

because the auction proceedings held never came to be

finalized and no auction bid was finally approved by the

authority, under such circumstances no right as such had

accrued in favor of the auction bidder and under the

circumstances the Court was justified while refusing to

interfere in the matter.

In the Case of ECI-SPIC-SMO-MCML(JV) vs Central

Organisation for Railway Electrification and another, the Court

refused to interfere with the order of the competent authority in

the matter because there was a breach of the terms and

conditions of the agreement on the part of the petitioner and

resultantly the Chief Project Director issued the order of

termination with the approval of the General Manager. That

was a case indeed where the violation of terms of agreement

had taken place and the authorities were well within their rights

to rescind the contract. So factually this case was also

distinguishable and Court rightly refused to interfere with the

order terminating the contract. Insofar as the case of Employees

State Insurance Corporation and others vs. Jardine Henderson

Staff Association (Supra) is concerned, in the said case, the

Court had observed vide paragraph-61 that both law as well as

the facts in the said case were in favor of the respondents and

the High Court had correctly appreciated the tremendous

hardship that would be caused by the respondents staff

association in case if the arrears were sought to be paid and no

body stood to gain either the employer or the employee. The

Court had declined to interfere in the matter by observing that

"Even assuming that the law is in the favour of the ESI,

21

keeping in view the special facts and circumstances of the case,

relief cannot be denied under Article 226 of the Constitution of

India" Thus it is in that background of facts of that case that the

Court refused to interfere with the impugned judgment even if

it was found to be erroneous, in order to do substantial justice

in the matter.

The Court observed that a relief can be denied inter alia,

when it would be opposed to public policy or where quashing

of an illegal order may revive another illegal one. This above

principle of law is not attracted in the setting of facts of the

present case because here nothing was found illegal with the

tender proceedings that ultimately resulted in the agreement

with the petitioner by the Corporation. Fixation of price as a

cost to carry out the work, has been after the market survey was

carried out by the official of the Corporation itself on 19.4.2018

and merely because the Corporation in its wisdom decided to

accept the bid with its approval by the higher authority, it

cannot be said that the entire tender proceeding stood vitiated

in law as being result of some extraneous consideration.

Moreover, in this case, the petitioner has not been found guilty

of any charge of undue influence or conspiracy. The petitioner

has worked for over a year under the agreement and any

annulment whereof mid-term at this stage and floating of a

tender afresh for the same work will again entail a detailed

lengthy exercise involving public money and on the

mathematical principle of average such a stand would be

opposed to public policy.

Yet another judgment relied upon by learned counsel for

the petitioner is M/s. Ambe Carrier v. State of U.P. & 3 Ors

(Supra). This case is also distinguishable on facts because in

22

the said case the agreement had already come to an end in the

financial year 2013-14 and the period of the contract was

extended by administrative order until 31.3.2014 and there

were certain breaches committed by the Contractor that had

resulted into serious irregularities leading the authority to

terminate the agreement. It is in the above background that the

Court rejected the argument raised in that case that the order

terminating the contract must be held to be invalid, as no

opportunity of hearing was provided. The Court had rightly

observed that in matters arising out of contractual obligations

did not involve the strict compliance of the rule of natural

justice. The remedy for such termination of contract on

breaches of the conditions and failure to carry out the

obligation under the agreement are subject matter of either

arbitration or the common law remedy. In the present case there

is no such complaint against the petitioner nor, the petitioner is

guilty of any fault at his end in carrying out the agreement.

In the case of Ramana Dayaram Shetty (Supra), the

Court vide Paragraph-10 has held thus:

“.... 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. This rule was enunciated by

Mr. Justice Frankfurter in Viteralli v. Saton where the

learned Judge said:

"An executive agency must be rigorously held to the

standards by which it professes its action to be judged .

. . . Accordingly, if dismissal from employment is based

on a define(l procedure, even though generous beyond

the requirement that bind such agency, that procedure

must be scrupulously observed . . . . This judicially

evolved rule of administrative law is now firmly

established and, if I may add, rightly so. He that takes

the procedural sword shall perish with the sword.

This Court accepted the rule as valid and applicable in India

23

in A. S. Ahuwalia v. Punjab and in subsequent decision

given in Sukhdev v. Bhagatram, Mathew, J., quoted the

above-referred observations of Mr. Justice Frankfurter with

approval. It may be noted that this rule, though supportable

also as emanation from Article 14, does not rest merely on

that article. It has an independent existence apart from

Article 14. It is a rule of administrative law which has been

judicially evolved as a check against exercise of arbitrary

power by the executive authority. If we turn to the judgment

of Mr. Justice Frankfurter and examine it, we find that he has

not sought to draw support for the rule from the equality

clause of the United States Constitution, but evolved it purely

as a rule of administrative law. Even in England, the recent

trend in administrative law is in that direction as is evident

from what is stated at pages 540-41 in Prof. Wade's

“Administrative Law”, 4th edition. There is no reason why

we should hesitate to adopt this rule as a part of our

continually expanding administrative law.....

In view of the above, therefore, we are of the considered

opinion that in the facts and circumstances of the present case,

the petitioner was certainly entitled to an opportunity of

hearing before the order impugned was passed and so on that

count also since the petitioner has not been issued any show

cause notice, order impugned cannot sustained in law and is

liable to be quashed.

Coming to the third point as to when the respondents-

Warehousing Corporation is an autonomous body, could it be

administratively directed by the authorities to conduct the

affairs in a particular manner and can it be further directed by

Administrative Authorities through executive fiats to cancel an

agreement holding that the tender proceedings conducted were

bad in law. In other words, the argument is that whether an

autonomous body is bound to follow the dictates of the

Secretaries of the Government.

In the case of State of Punjab & Ors v. Raja Ram &

Ors in AIR 1981 SC 1694 Apex Court vide paragraph no.5 has

24

held thus:

"Learned counsel for the appellant then urged that the

Corporation is a Government department. We are unable to

accept this submission also. A Government department has to

be an organization which is not only completely controlled

and financed by the Government but has also no identity of

its own. The money earned by such a department goes to the

exchequer of the government and losses incurred by the

department are losses of the government. The Corporation,

on the other hand, is an autonomous body capable of

acquiring, holding and disposing of property and having the

power to contract. It may also sue or besued by its own

name and the government does not figure in any litigation to

which it is a party. It is true that its original share capital is

provided by the Central Government (S. 5 of the F.C. Act)

and that 11 out of 12 members of its Board of Directors are

appointed by that Government (S. 7 of the F.C. Act) but then

these factors may at the most lead to the conclusion (about

which we express no final opinion) that the Corporation is an

agency or instrumentality of the Central Government. In this

connection we may cite with advantage the following

observations of this Court in Ramana Dayaram Shetty v. The

International Authority of India, 1979 (3) SCR 1014: (AIR

1979 SC 1628 at p.1639):

"A Corporation may be created in one of two ways. It

may be either established by statute or incorporated under a

law such as the Companies Act, 1956 or the Societies

Registration Act, 1860. Where a Corporation is wholly

controlled by Government not only in its policy making but

also in carrying out the functions entrusted to it by the law

establishing it or by the Charter of its incorporation, there

can be no doubt that it would be an instrumentality or agency

of Government. But ordinarily where a corporation is

established by statute, it is autonomous in its working subject

only to a provision, often times made, that it shall be bound

by any directions that may be issued from time to time by

Government in respect of policy matters. So also a

Corporation incorporated under law is managed by a Board

of Directors or committee of management in accordance with

the provisions of the statute under which it is incorporated.

When does such a corporation become an instrumentality or

agency of Government? Is the holding of the entire share

capital of the Corporation by Government enough or is it

necessary that in addition, there should be a certain amount

of direct control exercised by Government and, if so what

should be the nature of such control? Should the functions

which the Corporation is charged to carry out possess any

particular characteristics or feature or is the nature of the

25

functions immaterial? Now, one thing is clear that if the

entire share capital of the Corporation is held by

Government it would be a long way towards indicating that

the Corporation is an instrumentality or agency of

Government. But, as is quite often the case the Corporation

established by statute may have no share or shareholders in

which case it would be a relevant factor to consider whether

the administration is in the hands of a Board of Directors

appointed by Government though this consideration also may

not be determinative, because even where the directors are

appointed by Government, they may be completely free from

governmental control in the discharge of their functions."

Even the conclusion, however, that the Corporation is an

agency or instrumentality of the Central Government does

not lead to the further inference that the Corporation is a

Government department. The reason is that the F.C. Act has

given the Corporation an individuality apart from that of the

Government. In any case the Corporation cannot be divested

of its character as a 'Company' within the meaning of the

definition in clause (e) of section 3 of the L.A. Act, for it

completely fulfils the requirements of that clause, as held by

us above."

In the case of U.P. State Warehousing v. Sunil Kumar

Srivastava and another 2013(3) ADJ 745 a Division Bench of

this Court vide paragraph no.28 and 43 has observed thus:

"28. Keeping in view the definition of corporation and

statutory provisions(supra), there appears to be no room of

doubt that the appellant corporation possess autonomy and

its business is regulated in pursuance to statutory power

conferred by the Act and Regulations framed thereunder. It

also possess autonomy to make appointment and deal with

the service conditions of its employees (Section 23). The

decision with regard to commercial mattes or with regard to

services of employees may not be subject-matter for approval

or disapproval for the State Government. Of course, in case

the Government takes a policy decision and circulate the

same subject to rider contained in sub-section (5) of Section

20, the corporation shall be abide by such policy decision.

The corporation owes its origin and birth to the Act and not

established in compliance of certain orders or decision taken

by the State Government through its Cabinet. The

corporation has right to discharge its statutory obligations

through its authorities created under the Act. The State

Government lacks jurisdiction to interfere with the individual

decision taken by the corporation through its Board of

Directors to manage its affairs or its day to day working in

26

business interest.

.................

43. Keeping in view the aforesaid judgments right from

Rajasthan Electricity Board, Jaipur v. Mohan Lal and Others

(Supra) including the case of Neeraj Awasthi (Supra), it has

been consistent view of Hon'ble Supreme Court that while

establishing corporation under the statutory provisions the

sovereign power of the State is delegated to respective

Boards and the Board has been conferred power to discharge

its statutory obligations to run its business. The government

has been conferred power to play down policy decisions

which means the decision, order or circular in Rem and not

in personem. Any other interpretation shall be subversive to

autonomy and statutory function of the Board / Corporation

and shall create mal-administration and corrupt the system

because of day to day interference by the Government on one

or other grounds. "

In view of the above, therefore in ordinary

circumstances, we are of the opinion that the State Government

cannot interfere through its administrative officers in day to

day affairs and functioning of the Corporation which is an

autonomous body.

However, since the Corporation is a public sector

corporation, it is an instrumentality within the meaning of

Article 12 of the Constitution of India. The Government has

framed rules and regulations governing contractual matters and,

therefore, in principle it cannot be ruled out that Corporation

while dealing with such matter has to follow those rules and

regulations and, therefore, if any flaw is detected by the State

Government because of some wrongful action at the end of the

officials of the Corporation, we do not find anything wrong if

the State Government wants to set right the things but in every

State action it has to be seen as to whether the rule of law has

been followed or not. The State Government may have a deep

pervasive control in the affairs of a Corporation but the very

27

purpose of making a Corporation an autonomous body would

fail if it is not given freedom in the affairs of its working. The

overall general control in the day to day affairs of the

Corporation cannot be appreciated, however, where the

Government finds that the officials of the Corporation have

acted against the public policy and the State's interest is

geopardised on one hand and the public interest is put on stake

on the other hand, it can always interfere but for such

interference the Government has to follow the procedure, either

it may lay down the guidelines for the said purpose or it shall

follow the common rule of law but by no executive fiats or

orders it can dictate the officials of the Corporation to act in a

particular manner. The legal principle as has come to be

enunciated in catena of decisions by the Apex Court and this

Court do not warrant such action at the end of the Government

official/authorities.

In so far as 4

th

issue is concerned, in this matter we have

found that the Special Secretary had virtually got swayed away

by the complaint and taking the complaint to be a genuine one

prima facie he directed in a very hurried manner to the

Divisional Commissioner to hold an enquiry and also to the

Managing Director to conduct an enquiry. He did not

appreciate the enquiry reports and proceeded thereafter to hold

that the respondent- Corporation was at fault in issuing the

tender dated 1.6.2018. He also failed to appreciate that the

stage of acceptance of tender application of the petitioner and

approval thereof as a lowest bidder and then entering into the

agreement where all the stages that had already been

undertaken and there is no finding of arbitrariness. The manner

in which the order-cum-letter dated 16.7.2018 has been issued,

28

it does not indicate due application of mind and therefore the

letter cum order dated 16.7.2018 deserves to be quashed. The

Managing Director's report is also not very happily drawn.

Moreso, no conclusion has been drawn regarding involvement

of the petitioner by way of manipulation or conspiracy in

getting his tender accepted and then approval thereof and the

consequential agreement, so this enquiry report also is not

sustainable on that count. The findings are not cogent and

convincing to hold that the notice inviting tender dated

1.6.2018 was bad in any manner and, therefore, the enquiry

report to that extent also cannot be sustained in law.

Besides manafides and favouritism, illegality,

irrationality and procedural impropriety in State action also are

the reasons for judicial review thereof. In the case of Manohar

Lal Sharma v. Narendra Damodar Das Modi (2019) 3 SCC

25, speaking for the Bench the Chief Justice in paragraph 7 to

11 has observed thus:

"7. Parameters of judicial review of administrative decisions

with regard to award of tenders and contracts has really

developed from the increased participation of the State in

commercial and economic activity. In Jagdish Mandal vs.

State of Orissa, this Court, conscious of the limitations in

commercial transactions, confined its scrutiny to the

decision making process and on the parameters of

unreasonableness and mala fides. In fact, the Court held that

it was not to exercise the power of judicial review even if a

procedural error is committed to the prejudice of the

tenderer since private interests cannot be protected while

exercising such judicial review. The award of contract, being

essentially a commercial transaction, has to be determined

on the basis of considerations that are relevant to such

commercial decisions, and this implies that terms subject to

which tenders are invited are not open to judicial scrutiny

unless it is found that the same have been tailormade to

benefit any particular tenderer or a class of tenderers. (See

Maa Binda Express Carrier & Anr. Vs. NorthEast Frontier

Railway)

8. Various Judicial pronouncements commencing from Tata

29

Cellular vs. Union of India, all emphasise the aspect that

scrutiny should be limited to the Wednesbury Principle of

Reasonableness and absence of mala fides or favouritism.

9. We also cannot lose sight of the tender in issue. The

tender is not for construction of roads, bridges, etc. It is a

defence tender for procurement of aircrafts. The parameter

of scrutiny would give far more leeway to the Government,

keeping in mind the nature of the procurement itself. This

aspect was even emphasized in Siemens Public

Communication Networks Pvt. Ltd. & Anr. Vs. Union of

India. The triple ground on which such judicial scrutiny is

permissible has been consistently held to be "illegality",

"irrationality" and "procedural impropriety".

10. In Reliance Airport Developers (P) Ltd. vs. Airports

Authority of India the policy of privatization of strategic

national assets qua two airports came under scrutiny. A

reference was made in the said case (at SCC p.49, para 57)

to the commentary by Grahame Aldous and John Alder in

their book 'Applications for Judicial Review, Law and

Practice':

"57. ... There is a general presumption against

ousting the jurisdiction of the courts, so that statutory

provisions which purport to exclude judicial review are

construed restrictively. There are, however, certain areas of

governmental activity, national security being the paradigm,

which the courts regard themselves as incompetent to

investigate, beyond an initial decision as to whether the

Government's claim is bona fide. In this kind of

nonjusticiable area judicial review is not entirely excluded,

but very limited. It has also been said that powers conferred

by the royal prerogative are inherently unreviewable but

since the speeches of the House of Lords in Council of Civil

Service Unions Vs. Minister for the Civil Service this is

doubtful. Lords Diplock, Scaman and Roskili (sic.) appeared

to agree that there is no general distinction between powers,

based upon whether their source is statutory or prerogative

but that judicial review can be limited by the subject matter

of a particular power, in that case national security. Many

prerogative powers are in fact concerned with sensitive,

nonjusticiable areas, for example, foreign affairs, but some

are reviewable in principle, including the prerogatives

relating to the civil service where national security is not

involved. Another nonjusticiable power is the Attorney

General's prerogative to decide whether to institute legal

proceedings on behalf of the public interest."

[emphasis supplied]

30

Order impugned is basically based on the enquiry report

prepared by the Managing Director himself and that the

enquiry was conducted in the ex parte manner and the

Managing Director failed to offer any opportunity of hearing to

the petitioner before passing the order impugned which has the

effect of terminating the agreement for no justifiable reason to

hold that the petitioner was at fault at any point of time.

Element of bias therefore, under the circumstances at the end

of Managing Director, cannot be ruled out. The order

impugned, therefore, terminating the agreement dated

26.7.2019 cannot be sustained in law.

Thus, for the forgoing discussions writ petition succeeds

and is allowed. The order dated 26.7.2019 (Annexure-13) to the

writ petition and the enquiry report dated 14.6.2019 submitted

by the Managing Director as well as the order passed by the

Special Secretary dated 16.7.2019 are also hereby quashed.

The consequential action if taken pursuant to the

impugned order is also quashed. The consequences to follow,

however, there will be no order as to costs.

(Ajit Kumar, J.) (Ramesh Sinha, J.)

Order Date :- 11.12.2019

Deepika