State can’t use mere possibility of more money in the public coffers to forgo contractual obligations: Supreme Court 

Supreme Court: In a case where process of cancellation of a tender was initiated without affording a chance to be heard to the lessees and the tender was cancelled “because of the possibility of larger profits”, the 3-judge bench of NV Ramana*, CJ and Vineet Saran and Surya Kant, JJ has held that when a contract is being evaluated, the mere possibility of more money in the public coffers, does not in itself serve public interest.

Invoking the doctrine of promissory estoppel, the respondents, in the case at hand, had argued that the authorities could not have walked out of the bargain, merely because of the possibility of larger profits. The Court, hence, took the opportunity to explain the principle of promissory estoppel and the responsibility of the Government while entering into a Government Contract.

Stating that Courts need to have a broader understanding of public interest, while reviewing such contracts, the Court explained that,

“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.”

In Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409, the Court laid down the necessity of the government being bound by the principles of promissory estoppel and held that it would not be enough for the Government to merely state that public interest requires that the Government should not be compelled to carry out the promise. It is imperative that the Government   when seeking exoneration from liability of enforcing contract, must satisfy the Court as to how public interest overrides the necessity of enforcing the contract.

The Court stressed that, 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 will remain no sanctity in the words and undertaking of the Government.

“Businessmen will 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.”

The Court explained that though 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.

“Governmental bodies being public authorities are expected to uphold fairness, equality and rule of law even while dealing with contractual matters. It is a settled principle that 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.”

[City and Industrial Development Corporation of Maharashtra Ltd v. Shishir Realty Private Limited, 2021 SCC OnLine SC 1141, decided on 29.11.2021]


Counsels

For CIDCO: Senior Advocate Rakesh Dwivedi

For State: Senior Advocate Atmaram Nadkarni

For PIL petitioner­-appellant: Advocate Harinder Toor

For respondents: Senior Advocates Dr. Abhishek Manu Singhvi and Mukul Rohatgi


*Judgment by: Chief Justice NV Ramana

Know Thy Judge| Justice N.V. Ramana

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