The Vice Chairman & Managing Director, City and Industrial Development Corporation of Maharashtra Ltd.& Anr. vs Shishir Realty Private Limited & Ors. etc

Government contracts: Constitutional factors – Satisfaction of – Held: Governmental bodies being public authorities are expected to uphold fairness, equality and rule of law even while dealing with contractual matters – Right to equality u/Art. 14 abhors arbitrariness – Public authorities have to ensure that no bias, favouritism or arbitrariness are shown during the bidding process, unless public interest demands otherwise – Degree of compromise of any private legitimate interest must correspond proportionately to the public interest, so claimed – On mere grounds of public interest or loss to the treasury, the successor public authority cannot undo the work undertaken by the previous authority – In that case, businessmen would be hesitant to enter Government contract or make any investment.

Administrative law: Administrative orders – Principle of natural justice – Significance of – Held: Natural justice is an important aspect while viewing the administrative orders – To maintain rule of law, effective natural justice is to be provided to affected parties, before a decision is taken – Any attempt by authority to evade the requirement of providing effective hearing before reaching a conclusion, cannot pass the muster.

Dismissing the appeals, the Court

HELD: 1.1 The Constitution of India allows the government to enter into contracts and perform certain commercial activities. Due to increase in government business, there is a requirement of this Court to uphold certain discretion accruing to the government and disallow certain conduct in light of prevailing circumstances. Merely instilling an agency with discretion may not be prohibited by the Constitution, rather it is unfettered use of such discretion, that is prohibited; the Constitution frowns upon those decisions which are taken in gross abuse of law. [Para 25][210-C]

1.2 Being governed under “rule of law” every action of the State or its instrumentality while exercising its executive powers must met the aforesaid requirements. While recognising the existing principle of freedom to enter or not to enter into contracts by the state and its instrumentalities, the manner, method and motive behind the aforesaid decision can be subjected to judicial review on the touchstone of equality, fairness, proportionality and natural justice. The decision of the executive must strike a balance with the alleged violation with that of the penalty imposed. This Court, in many of its orders reviewing tender conditions, has vouched for providing sufficient discretion and independence to administrative authorities so as to enable them to perform their duties in the interest of the public. Further, the observation of judicial restraint while reviewing such contracts is a continuing trend. The power of judicial review accorded to Constitutional Court of India and its jurisdiction is supervisory. [Para 26, 27][210F-H; 211-A]

1.3 The principles elucidated in Tata Cellular case acquire importance as the efficacy of commercial activities in the public sector increases greatly. It appears that public interest litigation has opened a large window to entertain any tender, regardless of scale, which are now sought to be challenged as a matter of routine. Such disruption could hardly have been the objective of expanding the need of Constitutional Review. Close scrutiny of minute details, contrary to the view of the tendering authority, makes execution of contracts in the public sector a cumbersome exercise. Often, it is the case that parties entertain the idea of a long-drawn-out litigation at the very threshold itself. The purpose of imbibing the spirit of competition in a process such as that of the bidding process, is lost in this meandering exercise and delays suffered due to pending litigation. This causes great disadvantage to the government and public sector in general. This Court, in appropriate cases while interpreting the contract, can restrict the review mechanism by not inuring to the interpretation so provided by third parties or parties competing for the tender, unless the impugned interpretation is shown to be gross abuse of law. The object of judicial review cannot be that in every contract where some parties lose out, a second opportunity is provided to such parties to pick holes so as to disqualify successful parties, on grounds which even the party floating the tender find to be without merit. [Para 30][212-E-H; 213-A-B]

1.4 The perusal of the materials produced on record shows that the initiation of the enquiry by the Principal Secretary, Urban Development Department was suo-motu, without any natural justice being provided for the respondents-lessees. After arriving at a conclusion, a show-cause notice was issued by CIDCO to sanctify the enquiry. The said fact of post-decisional hearing just to sanctify the process of cancellation is clearly evidenced in the order dated 16.03.2011, passed by the Vice-Chairman and Managing Director CIDCO, cancelling the tender. Such illegal procedure adopted, clearly vitiates the subsequent order by the Vice-Chairman, due to the irregularity, which goes to the root of the matter. The conduct of the appellant authorities indicate that the enquiry was not conducted with an open mind. The preexisting findings of the Principal Secretary recommending the cancellation of allocation has the potential to color the entire proceedings held subsequently just to meet the procedural requirements. [Para 36-37][214-A-B, H; 215-A]

1.5 Natural justice is an important aspect while viewing the administrative orders. Providing effective natural justice to affected parties, before a decision is taken, it is necessary to maintain rule of law. Natural justice is the sworn enemy of intolerant authority. Any attempt by authority to circumvent the requirement of providing effective hearing before reaching a conclusion, cannot pass the muster. Coming to the facts, the postdecisional hearing given to the respondent-lessee is reduced to a lip-service, which cannot be upheld in the eyes of law. [Para 38][215-B-C]

1.6 As a first step of judicial review, when statutory functionaries such as CIDCO render an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of an affidavit or otherwise. To this extent, the submission that the scope of this Court is limited is accepted. [Para 39][215-D]

1.7 The perusal of the bid document clearly indicates that the respondent at the time of applying for the bid had duly disclosed that the firm had already applied for registration and had also forwarded the Registration Form and Partnership Deed along with the tender documents. Subsequently, on 16.01.2009 the Registrar of the firms issued the certificate of registration in favour of the respondent. Having considered the communication and legal opinion tendered before accepting the highest bid, CIDCO’s law officers did their due diligence, who opined that partnerships being creatures of contracts, the requirement of Board resolutions and other technical objections raised were not an essential condition. Therefore, at this stage it may not be equitable to review such issues in detail. Moreover, after accepting the lease premium of Rs.282,39,99,700/- and a transfer fee of Rs. 1,38,56,000/-, the appellant authority cannot contend that the respondents-lessees lacked the eligibility to contend in the tender. The respondents-lessees also pointed out that, being the highest bidder with a margin of Rs. 23 crores over the second highest bidder, the appellant authority did not go into the technicalities behind the matter. Even, the High Court while passing the impugned judgment has commented that the appellant was aware about the pending registration, and even assented to the same as no objections were raised while assessing the technical bids. [Para 41- 43][215-G-H; 216-A-D]

1.8 As regards, the second objection by the CIDCO of multiple offers, there is no reason provided as to what provision of law such bids violate. Further, there is no concrete allegation or adjudication on the suggested cartelization. There is no reasoning considered as to why such a practice was harmful to public interest. Such considerations are important elements of party autonomy and commercial freedoms while framing the contract, which is not within the purview of judicial review. As there is no such law or contract provision which bars such conduct, the considerations undertaken by the order of CIDCO are extraneous and the same cannot be accepted. [Para 45][216-FG]

1.9 Clause 15 of the tender document and the corresponding Condition 19 of the allotment letter, allows for such modification. Although the language used in the aforesaid clause is contradictory, this Court needs to interpret the same to harmonize and eliminate any absurdity. If the interpretation supplied by CIDCO, by reading Clause 15 (m) and (n) of allotment letter with Clause 15 of the tender document in isolation, is accepted, then the phrase ‘If he so desires, may apply for the application of the modified regulation of the General Development Control Regulation to CIDCO’, as occurring under Clause 15 of the tender document, is rendered redundant. In this context, the said clause needs to be interpreted to mean that, ‘lessee cannot apply for change of land use as a matter of right, rather, CIDCO, on its discretion could grant such ‘change in land use’ on satisfaction based on material considerations’. The contradictory contractual clauses, seen within various documents issued by CIDCO, have led to this seemingly unending dispute, which required more than a decade to be settled. This only emphasizes the importance of due diligence and careful drafting, which could have avoided such type of litigation in the first place. In the same breath, the CIDCO has fairly conceded that the power of change of land of use does exist with CIDCO and has, on multiple occasions, been used to change the land use pattern. Most importantly, in the instant case, after accepting the change of user fee, the authorities cannot postfacto question the same. [Para 47-49][220-C-G]

1.10 The plots fell in the zone of commercial-cumresidential area, and through the contract, this condition was earmarked for construction of a five-star hotel. As seen from the records, the respondents-lessees sought dilution of this condition basing on the fact that the airport, which was supposed to come up near the area had not materialized; similarly situated hotels were loss-making endeavors; and a general economic slump. Further, the order of the CIDCO dated 11.02.2010 clearly indicates the reasons as to the change in land use in view of prevailing circumstances. From the said reasoning, CIDCO has not been able to show as to how the its own order was illegal or arbitrary. Moreover, they have not been able to identify whether the consideration taken by CIDCO at that time was deficient. The prevailing circumstances and changes in the factual conditions need to be appropriately considered. It may be noted that delay in construction of Navi-Mumbai airport, economic slump and lossmaking endeavors by similarly situated hotels are ‘material considerations’ and the order has appropriately taken the same into account. [Para 50][221-A-B; 222-A]

CIDCO Maharashtra Ltd. v. M/s. Shree Ambica

Developers C.A. No.7581 of 2012 – relied on.

1.11 The submission that the relaxation of land use was made under the policy of 1997 which has been substituted by a new policy in 2004, is patently wrong, considering the fact that the letter dated 11.02.2010 specifically alludes to the expanded policy of 2004 whereby additional categories of land use were added. It is mentioned in the letter that the policy of the CIDCO was not to impose any limit on the user of an area out of allotted area which can be converted. In light of the said discussion, the change of land use from five-star hotel to partly residential-cumcommercial purpose cannot be said to be illegal or arbitrary. [Para 51][222-B-C]

1.12 On perusal of the Clause 16 of the General Terms and Conditions and the corresponding Condition 21 of the allotment letter, it is clearly revealed that the allottee was permitted to transfer or assign his rights, interests or benefits with prior written permission of the Corporation and on payment of such transfer charges as may be prescribed by the Corporation. Both the clause and the condition have further stipulated that such permission could be granted only after the agreed lease premium has been paid in full and after execution of agreement to lease. In the instant case, agreed lease premium was paid in full. However, agreement to lease was made on the very next day, i.e. on 30.03.2010. Merely because the agreement to lease was executed on the very next day, the assignment and transfer would not be invalidated. Such breach cannot in itself be termed as a fundamental to annul the tender, especially after receiving the lease amount, CIDCO cannot question the subsequent transfer. Such clause can be construed as a warranty alone rather than a condition, in light of the circumstances. The CIDCO, being a public body, had a duty to act fairly. Having acquiescence of the facts and allowing such transfer, they ought not to have taken such a hyper-technical view on contractual interpretation. Thus, no substantial reason sought to be adduced by the CIDCO to differ from the High Court is found. [Para 52][222-D-H]

1.13 There is no substantial deviation as sought to be projected by the appellants. The appellants have sought to invoke the doctrine of promissory estoppel to argue that the CIDCO could not have walked out of the bargain, merely because of the possibility of larger profits. It is pertinent to note that, the CIDCO has failed to prove any losses suffered. [Para 53][223-B-C]

1.14 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. [Para 54][223-D]

Jagdish Mandal v. State of Orissa (2007) 14 SCC 517; Andhra Pradesh Dairy Development Corporation

Federation v. B. Narasimha Reddy (2011) 9 SCC 286 : [2011] 14 SCR 1 – referred to.

1.15 It is clear that the change of usage and the subsequent division was well-within the statutory limitations. Therefore, the earlier undertakings taken by the appellant-authorities cannot be set aside with the change of person in power, without any rhyme or reason. After all one cannot change the rules of the game once it has started. [Para 57][224-F-G]

1.16 From the contradictory submissions asserted before this Court and the concessions given regarding practice of CIDCO to allow change in land use in other cases, clearly points to a ‘regime revenge’. Such conclusion reached is further buttressed by the fact that no inquiry or disciplinary proceedings were initiated against the earlier Vice-Chairman, whose orders have been annulled. Such phenomenon is clearly detrimental to the constitutional values and rule of law. [Para 58][224-G-H; 225-A]

1.17 The respondents-lessees claimed that considering they have acted upon the directions of the appellant authority and have duly paid the requisite amounts to the tune of Rs. 321.32 crores, CIDCO is bound by the doctrine of promissory estoppel. On the contrary, principles of estoppel do not apply if enforcing the promise would lead to the prejudice of public interest. [Para 59][225-B]

1.18 Although the appellants are right in claiming that Government cannot be compelled to perform its undertaking, but equity demands that the Government must place on record sufficient material on record to claim such exemption. [Para 61][227-H; 228-A]

Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh (1979) 2 SCC 409 : [1979] 2 SCR 641; Union of India v. Godfrey Philips India Ltd. (1985) 4 SCC

369 : [1985] 3 Suppl. SCR 123; Vasantkumar

Radhakisan Vora (Dead) by His LRs. v. Board of Trustees of the Port of Bombay (1991) 1 SCC 761 : [1990] 3 SCR 825 – referred to.

1.19 There is no substantial violation portrayed by the appellants with respect to allotment of the scheduled land. Further, the tender documents, make it clear that the CIDCO had the power to change the land use, sub-divide and transfer the plots and accordingly, has been carried out in terms of the same. It is observed that ‘good faith standards’ applicable in Government contracts, serve an important purpose in reinforcing the ‘reliance interest’ in contracts. Even, the High Court while passing the impugned judgment correctly held that respondents-lessees have acted pursuant to the permission granted by CIDCO. Moreover, after getting the commencement certificate and other necessary clearances, the respondents-lessees borrowed a substantial sum of money from other financial institutions for the development of the plot. However, due to the ongoing dispute, no development could take place for the past decade. [Para 63, 64][228-E-G]

1.20 It is admitted as per record that the respondent was the highest bidder. Moreover, the appellants failed to bring anything on record to prove that the state exchequer has suffered losses pursuant to the said allotment. Nothing has been produced on record, the public interest that will be prejudiced if the respondents-lessees are allowed to go ahead with the said project. On the contrary, the respondents-lessees acting in furtherance of the assurances given by the authorities, obtained huge financial assistance. Equity demands that when the State failed to produce an iota of evidence of either financial loss or any other public interest that has been affected, it should be compelled to fulfill its promises. In fact, it is respondents-lessees who shall be gravely prejudiced if the order of cancellation is upheld by this Court after investing a significant amount and facing prolonged litigation. [Para 65][228-H; 229-A-C]

1.21 The public interest as sought to be shown in by the PIL petitioner is doubtful in light of his involvement in the business of construction service. Moreover, the tone and tenor of the notice dated 12.01.2009, issued by the PIL Petitioner to the CIDCO, threatening the concerned officers with criminal prosecution under Sections 405, 406, 420 read with Section 120(b) IPC, inter alia, on the ground of allowing partnership firm, which was in the process of registration, to bid, needs to be viewed with some suspicion. In fact, the non-prosecution of the erring officials for the alleged mismanagement and irregularities is quite telling. [Para 66][229-C-E]

1.22 When the Government contracts are spoken about, the constitutional factors are also in play. Governmental bodies being public authorities are expected to uphold fairness, equality and rule of law even while dealing with contractual matters. Right to equality under Article 14 abhors arbitrariness. Public authorities have to ensure that no bias, favouritism or arbitrariness are shown during the bidding process. A transparent bidding process is much favoured by this Court to ensure that constitutional requirements are satisfied. [Para 67][229-E-G]

1.23 Fairness and the good faith standard ingrained in the contracts entered into by public authorities mandates such public authorities to conduct themselves in a non-arbitrary manner during the performance of their contractual obligations. [Para 68][229-G]

1.24 The constitutional guarantee against arbitrariness as provided under Article 14, demands the State to act in a fair and reasonable manner unless public interest demands otherwise. However, the degree of compromise of any private legitimate interest must correspond proportionately to the public interest, so claimed. [Para 69][229-H; 230-A]

1.25 By merely using grounds of public interest or loss to the treasury, the successor public authority cannot undo the work undertaken by the previous authority. Such a claim must be proven using material facts, evidence and figures. If it were otherwise, then there would remain no sanctity in the words and undertaking of the Government. Businessmen would be hesitant to enter Government contract or make any investment in furtherance of the same. Such a practice is counter-productive to the economy and the business environment in general. [Para 70][230-B-C]

1.26 From the facts and circumstances, it is clear that there is an element of abuse of bureaucratic power behind subsequent change in the tender allotment. After conducting a tender process and receiving money, the Government backtracked which led to this present prolonged litigation. The impugned order of CIDCO, inter alia, annulling the allotment on hyper- technical grounds cannot be sustained for being contrary to the doctrine of fairness. The reasons stated in the said order are perverse and per-se based on extraneous considerations. Any substantive violation of law or tender conditions, which mandate annulling the allotment and subsequent arrangements, thereby proving the conduct of the appellant authority to be disproportionate are not been identified. [Para 71][230-D-E]

M/s Star Enterprises v. City and Industrial Development Corporation of Maharashtra Ltd. (1990) 3 SCC 280 : [1990] 2 SCR 826; Municipal Corporation, Ujjain v. BVG India Ltd., (2018) 5 SCC 462 : [2018] 6 SCR 861; Tata Cellular v. Union of India (1994) 6 SCC 651 : [1994] 2 Suppl. SCR 122; B. S. N Joshi & sons Ltd. v. Nair Coal Services Ltd. (2006) 11 SCC 548 : [2006] 8 Suppl. SCR 11; Mohinder Singh Gill v. Chief Election Commissioner, New Delhi (1978) 1 SCC 405 : [1978] 2 SCR 272; Ramana Dayaram Shetty v. International Airport Authority of India AIR 1979 SC 1628; Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh (1979) 2 SCC 409 : [1979] 2 SCR 641 – referred to.

Council of Civil Service Unions v. Minister for the Civil Service [1985] AC 374 – referred to.