Subodh Kumar Singh Rathour vs The Chief Executive Officer & Ors.

Held: The tender was not terminated pursuant to any terms of the contract subsisting between the parties – Respondent cancelled the tender saying that there was technical fault in the tender that was floated – Thus, the respondent exercised powers in its executive capacity as the action to cancel the tender fell outside the purview of the terms of the contract – Hence, the present matter is not purely a contractual dispute even if related to a tender, 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 – Thus, writ petition filed by the respondent was maintainable and the relief prayed for could have been considered by the High Court in exercise of its writ jurisdiction – On facts, just a month prior to cancelling the tender, the respondent issued work stop notice to the appellant, asking to stop all work in respect of the tender in view of the handing over of the operation & maintenance of the concerned underpasses by the respondent to another authority, Kolkata Municipal Corporation – Appellant pointed out that the work stop orders were misconceived as the respondent continued to retain the custody as well as the advertisement rights of the concerned 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 tender issued to the appellant – Change in policy had no bearing on the cancellation of the tender – 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 – Furthermore, although the internal-file notings mention about the policy change in the operation and maintenance of the concerned underpasses, however, the cancellation of the tender for work was neither due to any technical fault nor due to the policy change but it was at the behest of the concerned minister who suggested to cancel the tender – 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 – Cancellation of the tender was not in public interest – Present lis is a classic case of an arbitrary and capricious exercise of powers by the respondent to cancel the tender on the basis of extraneous considerations and at the behest of the concerned Minister-In-Charge – Notice of cancellation was non-est, quashed – Impugned judgment of the High Court upholding the decision of the respondent to cancel the tender, set aside. [Paras 60-62, 103-105, 107, 122] Contract/tender disputes – Involving State or its instrumentalities – Administrative actions of the State – Judicial Review – Shift in the scope of – Earlier position of law; misconception of the State as a Largesse – Concept of ‘Public Law’ Element in contractual matters – Development of principles of natural justice, reasonableness and proportionality – Judicial review and administrative discretion – Interplay between – Discussed.

Administrative Law – Internal-file notings – Judicial review – Constitution of India – Article 14 – Tender awarded to the appellant was cancelled by the respondent-Authority on the ground that there was a technical fault therein – Challenge to – Appellant relied on various notings made in the internal file of the respondent in respect of the tender to contend that the cancellation thereof was arbitrary and influenced by extraneous considerations:

Held: 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 and whether it conforms to the principles enshrined in Article

14 of the Constitution – In the present case, if the purported action of cancelling the tender was claimed to have been taken in view of certain 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 – However, in the entire records, 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 – From the internal-file notings it is evident that the notice of cancellation issued to the appellant was at the behest of the concerned minister – Respondent recorded that, because instructions for cancellation were 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. [Paras 85, 90] Contract/tender disputes – Administrative Decisions – Public Interest – Potential financial losses – Possibility of fetching higher license fees if can be a ground to cancel the tender: Held: No – 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 – Considerations of public interest should not be narrowly confined to financial aspects – 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 – Respondent’s stance of a mere possibility of fetching higher license fees was no ground to cancel the tender for the purposes of rectifying it, especially when it 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. [Paras 115, 116, 118]

Tenders – Sanctity of Public-Private Partnership Tenders – Termination of tenders – Public authorities cautioned – Duty of Courts:

Held: 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 – Public tenders are designed to provide level playing field for all potential bidders – Its sanctity 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 – Arbitrary terminations of contract create uncertainty and unpredictability, thereby discouraging public participation in the tendering process – Courts are duty bound to zealously protect the sanctity of any tender 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 – 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 – Public authorities also 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. [Paras 124-126] Contractual disputes – Judicial review – Amenability to writ jurisdiction – Private law element vis-à-vis public law element – Demarcation – Assessment:

Held: Demarcation between a private law element and public law element in the context of contractual disputes, 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 does not extend to fixing contract stipulations but ensures that the public authorities act within their authority to prevent arbitrariness – 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 – 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, when contractual power is being used for public purpose, it is certainly amenable to judicial review. [Paras 57-59]

Contract/tender disputes – Contractual disputes concerning public authorities – Arbitrary exercise of powers by public functionaries – Challenge to – Constitution of India – Article

14 – Duty of Courts:

Held: 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 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 relation. [Para 56]

Contract – Contractual disputes – Arbitrariness of State actions – Meaning and Import of – Test of reasonableness – Vice of arbitrariness – When attracted:

Held: The question, whether an impugned action is arbitrary or not, is 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 an act uninformed by reason, is arbitrary – To enthuse efficiency in administration, a balance between accountability and autonomy of action should be carefully maintained – 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 – 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 – 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 – Another way to assess whether an action complained of could be termed as arbitrary is by scrutinizing the reasons assigned to such an action – However, the Court is not supposed to delve into every minute details of the reasoning assigned, 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 – Thus, the question to be answered in such situations is whether the decision was based on valid considerations. [Paras 65, 67, 69-71]