Summary of Landmark Judgments on Government Contracts and Tenders by the Supreme Court in 2024 (Part I of II)

This article is presented in two parts, offering a comprehensive roundup of all landmark judgments on government contracts and tenders (GCT) delivered by the Supreme Court in 2024. It brings together every significant decision that reflects judicial consideration, nuanced interpretation, and the evolving principles shaping this specialised area of commercial law. This is Part I of the series, in which the judgments compiled here are as follows:

Abbreviations for various common terminologies in the judgments

Act of 1872 — Contract Act, 18721	Addl. Commr. — Additional Commissioner
APTEL — Appellate Tribunal for Electricity	Art. — Article
BEC — Bid Evaluation Committee	CB — Constitution Bench
CG — Central Government	COI — Constitution of India2
DDA — Delhi Development Authority	DB— Division Bench
DGM — Director of Mines and Geology	DSC — digital signature certificate
DRT — Debts Recovery Tribunal	Fis — financial institutions Sec. — Section
GOI — Government of India	Govt. — Government
HC — High Court	KMC — Katra Municipal Committee
KMC — Kolkata Metropolitan Corporation	Or. — Order
PDC — post-dated cheques	R — Rule
RFP — request for proposal	r/w — read with
RVPN — Rajasthan Rajya Vidyut Prasaran Nigam Limited	SARFAESI — Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 20023
SC — Supreme Court	Sec. — Section
SEC — State Electricity Commission	SG — State Government
The Auction Rules — Mineral (Auction) Rules, 20154	The Electricity Act — Electricity Act, 20035
UOI — Union of India	WP — writ petition

The judgments are as follows:

(1) Jaipur Vidyut Vitran Nigam Ltd. v. MB Power (M.P.) Ltd.⁶

(Delivered on 8-1-2024)

Coram: 2-Judge Bench of B.R. Gavai and Prashant Kumar Mishra, JJ.

Authored by: HM B.R. Gavai, J.

The appeals before the Supreme Court challenged the judgment and order of the Rajasthan High Court allowing the writ petition of the respondent MB Power Ltd. holding that respondent State of Rajasthan is bound to purchase a total of 906 MW electricity from the successful bidders. The High Court also directed the respondent writ petitioner MB Power Ltd. to supply 200 MW electricity to the respondents therein (appellants herein) within the limit of 906 MW. The State of Rajasthan was also directed to issue letter of intent (LoI) in respect of bid filed by Power Trading Corporation of India Limited (PTC India) for doing the needful in terms of the tariff determined by the Bid Evaluation Committee (for short, “BEC”). The High Court also determined the tariff to be actually paid by the procurer respondent before it as earlier specified by the Supreme Court in its interim order dated 28-9-2020 passed in Rajasthan Rajya Vidyut Prasaran Nigam Ltd. v. SKS Power Generation (Chhattisgarh) Ltd.⁷

Brief facts

The Government of India (for short, “GOI”) vide notification dated 19-01-2005 notified the Competitive Bidding Guidelines⁸ under Section 63⁹ of the Electricity Act, 2003 (for short, “the Electricity Act”). The said Bidding Guidelines were issued for the purposes of introduction of competition and protection of consumer interest in the process of tendering and bidding of tenders/contracts for supply of electricity. In February 2013, bids were received from the bidders for participating in the competitive bidding for procurement of 1000 MW under the Bidding Guidelines. Thereafter at the stage of negotiations, it was decided to reduce the tariff proposed in view of the long-term impact and quantum of amounts involved. Accordingly, the Rajasthan Rajya Vidyut Prasaran Nigam Ltd. (for short, “RVPN”) revised the quantum of power as also the tariff table by various bidders and decided to issue LoI in favour of the L-1, L-2 and L-3 bidders who had emerged as the lowest bidders post the stage of negotiations.

The Energy Assessment Committee (for short, “EAC”) constituted by the Government of Rajasthan under Regulation 3 of the Power Procurement Regulations, 2004 (for short, “Procurement Regulations”)¹⁰ recommended that proposal for procurement of 1000 MW was much in excess of the requirement, and therefore needed to be revised.

Meanwhile, the L-4 and L-5 bidders who could not get the tenders of power purchase approached the Rajasthan High Court challenging the negotiation process and the revised tariffs at which tenders were awarded to L-1, L-2 and L-3 bidders (viz. M/s PTC India Ltd. (developer M/s DB Power Ltd.) and M/s Lanco Power Ltd.). The High Court refused to entertain the writ petition which was accordingly dismissed. The Government of Rajasthan on the other hand, approved the purchase of quantum of 500 MW power as against the 1000 MW for which power purchase agreements (PPAs) had already been executed in view of the recommendations of the EAC for revision of proposal of purchase of power. This decision of the Government of Rajasthan was approved by the State Electricity Commission affirming the decision to purchase only 500 MW of power, considering the demand in the State as recommended by the EAC. This decision of the State of Rajasthan was approved by the State Electricity Commission (for short, “SEC”) which accepted the recommendations of the EAC and accordingly the SEC also approved the tariff quoted by L-1 to L-3 bidders. Appeals preferred before the learned Appellate Tribunal for Electricity (for short, “APTEL”) against the aforesaid order of SEC reducing the quantum from 1000 MW to 500 MW was set aside as incorrect and SEC was accordingly directed by the APTEL directed SEC to pass orders of approval of PPAs with revised tariff. This order of APTEL was challenged before the Supreme Court by the various parties, which also affirmed and upheld the decision of APTEL. The Supreme Court in the said appeal held that decision of the learned APTEL on the quantum to be procured from the individual bidders was liable to be reversed and that the quantum originally offered by the bidders in the bidding process has to be taken into consideration and increased/decreased by means of negotiation was not permissible.

After the judgment of the Supreme Court, the BEC came to the finding that tariffs offered by L-4 and L-5 were not aligned to the prevailing market prices. Against the aforesaid order of SEC, SKS Power (L-5 bidder) approached APTEL again, which allowing the appeal held that SEC had to necessarily adopt a tariff and had no power to consider whether a tariff was aligned to market prices or not. The Supreme Court in appeal challenging the order of APTEL passed an interim order directing that L-5 bidder was entitled to supply power at the tariff of Rs 2.88 per unit.

In the meanwhile, writ petitions were preferred before the High Court praying for a direction to the Government of Rajasthan and RVPN for issuance of LoI in their favour, signing of the PPA and other reliefs. This writ petition was allowed by the Rajasthan High Court against which the matter again travelled to the Supreme Court.

The issue before the Supreme Court was therefore about the powers of the State Government (for short, “SG”) EAC and the SEC of firstly reducing the quantum of power to be supplied and secondly about powers of the SEC of declining the bid on the grounds of it being not aligned with the market prices.

The Court in the above context referred to Sections 63¹¹, 79¹², 86¹³ and the Bidding Guidelines notified by the Union of India (for short, “UOI”) as referred to supra. Reference was specially made to Clause 2.15 of the request for proposal (for short, “RFP”) (NIT) which permitted the tenderer to withdraw the RFP and to reject any bid; Clause 3.5.7 which authorised the procurer/tenderer to increase/decrease of acquisition capacity by up to 10% of the quantum indicated originally in the RFP; reference was also made to Clause 5.15 of the Bidding Guidelines which permitted the EAC to reject all the price bids if the rates quoted are not aligned to the prevailing market prices. The Supreme Court then proceeded to hold that impugned judgment of the High Court was basically based on the earlier judgment of APTEL in the previous round of litigation where the decision of the SG of reducing the quantum from 1000 MW to 500 MW was set aside and the SG was directed to approve PPAs with the original quantum of 1000 MW.

The respondent’s claim was essentially that after the orders of the Supreme Court, RVPN under distribution companies (DISCOMS) were bound to procure electricity/power from the bidders going down the ladder until the entire 906 MW power was exhausted. The procurers were bound to accept supply from the bidders at the rates quoted by them. The contention of the respondents was favoured by the High Court, which in the impugned judgment concluded that applying the test of “filling the bucket”, the procurers were bound to take supply from the respondent MB Power Ltd. This reasoning of the High Court was driven by the judgment of the APTEL passed in the earlier round and affirmed by the Supreme Court.

The Court then first proceeded to deal with interpretation to be offered to Section 63¹⁴ of the Electricity Act, as elucidated in Energy Watchdog v. CERC¹⁵, where it was held that the SEC does not “determine” tariff, but simply “adopts” the tariff already determined under Section 63. The adoption is only if such tariff determined through a transparent process of bidding and the bidding must have been carried out in terms of the guidelines issued by the UOI. The general regulatory power of the Commission under Section 79(1)(b)¹⁶ is the source of the power to regulate which includes the power to determine and adopt tariff. Explaining the interplay of various clauses of Section 79 Clause 1¹⁷, Court held that wherever the guidelines issued by the Central Government/UOI, covered the field, the SEC as well as the Central Commission by those Guidelines and must exercise its regulatory functions. Only in those situations, where there are no Guidelines framed at all or where Guidelines do not provide or deal with the given situation that the Commission’s general regulatory power under Section 79 ¹⁸can be resorted to and be used accordingly.

It is only when there are no guidelines or there is a vacuum, that regulatory powers are available. Reference was further made to the judgment of Tata Power Co. Ltd. Transmission v. Maharashtra ERC¹⁹, to state that same principle applies to the power of SECs in the exercise of tariff determination or fixation.

The Court then proceeded to interpret Clause 5.15 of the Bidding Guidelines, wherein the bidder who had quoted lowest levelised tariff as per the evaluation procedure was held to be entitled to be considered for the award. It also empowered the EAC to reject all price bids if the rates quoted in the bids were not found aligned to the prevailing market prices. Thus, the SEC was held to be justified in considering Clause 5.15 of the Bidding Guidelines and exercising its powers of rejecting the quotes, not aligning with the prevailing market prices. The Court held that if the DISCOMS are compelled to purchase electricity at a much higher rate, as compared to other suppliers, even when they are not compatible with the market values, it will adversely affect the interests of the consumers. Thus, the APTEL was found to have grossly erred in holding that SEC had no powers to go into the question as to whether the prices quoted were market aligned or not or to take the interest of consumers into consideration. The Court also found that BEC had considered the levelised tariff quoted by L-4 and L-5 bidders, which was a Committee of Experts in financial matters. When such a Committee headed by experts concluded that prices quoted by L-4 and L-5 were exorbitantly high, resulting in additional financial burden on the consumers of the State, then SEC could not have ignored the same. The APTEL to the contrary grossly erred in reversing the well-reasoned order passed by the State Commission.

The Supreme Court had never directed that SEC was bound to accept the bid as quoted by the bidders till the bucket was filled. The Court held that the same was not in the larger interest of the consumers. Interpreting the word “any” occurring under the Bidding Guidelines, the Court held that the same was referable to any and all the bidders, whose proposals were not found to be apt by the SEC. Referring to Section 13(2)of the General Clauses Act, 1897²⁰ and the Constitution Bench judgment of Vivek Narayan Sharma (Demonetisation Case-5 J.) v. Union of India²¹, the Court held that the word “any” if employed by the legislature would mean “every” in its purport and import. Referring to the judgment of Tej Kiran Jain v. N. Sanjiva Reddy²², the Supreme Court held that the word “anything” is of the widest import and is equivalent to “everything” if the context and the text so requires. Thus, the word “all” used in Clause 5.15 of the Bidding Guidelines read with the legislative policy of the Electricity Act, will have to be construed and shall include “any” as well. The EAC/BEC would therefore be entitled to reject all such price bids which are found not aligned with the prevailing market prices. The BEC would be entitled to recommend acceptance of the bids of all those bidders, whilst the rejection of all those bidders whose quoted rates/prices are found to be market aligned and those which are not aligned respectively. Accordingly, interpreting Clause 5.15 of the Bidding Guidelines, the Court held that the word “all” will include “any” under its ambit, failure to interpret which will lead to absurdity. Referring to the Constitution Bench judgment of PTC India Ltd. v. CERC²³, the Court held that the Electricity Act²⁴ is an exhaustive code on all matters concerning electricity. The SEC and the APTEL have ample powers to adjudicate in matters relating to electricity. They are tribunals consisting of experts having vast experiences and thus the High Court erred in directly entertaining the petition when respondents had adequate alternative remedy of approaching the SEC.

The Supreme Court further held that there is not even a single allegation with regard to a manifest unreasonableness or arbitrariness in the whole tendering process, in view of which clearly the writ court could not have interfered. A right is created by a statute, which itself prescribes a remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226²⁵ of the Constitution of India. Thus, the High Court was found to have committed an error in entertaining the writ petition on the grounds of delay and latches. The High Court was not justified in issuing the mandamus and directions of the nature of which it issued. Referring to the judgment of Tata Cellular v. Union of India²⁶, courts will not interfere unless the decision-making process is vitiated by arbitrariness, mala fide, irrationality. In the present case, adopting the aforesaid principle, once the SEC came to the conclusion that rates quoted by L-4 and L-5 bidders were not market aligned and the decision was not irrational or arbitrary, it could not have been entertained by the learned APTEL. If the procurers of power/electricity are compelled to procure the same at higher rates quoted by the bidders, then not only the State would be required to bear financial burden running in thousands of crore rupees, but also the same would be passed on to the consumers. The mandamus issued by the Court by failing to take into consideration the larger interests of the consumers and the consequential public interest is not sustainable and deserves to be quashed.

Accordingly allowing the appeals, Supreme Court set aside the judgment of the Rajasthan High Court and the directions issued thereunder.

***

(2) DDA v. Hello Home Education Society²⁷

(Delivered on 11-1-2024)

Coram: 2-Judge Bench of Vikram Nath and Rajesh Bindal, JJ.

Authored by: HM Vikram Nath, J.

Delhi Development Authority (for short, “DDA”) being aggrieved by the judgments of both Single as well as Division Bench filed the appeals, through which the institutional allotment of plot of land falling in Vasant Kunj to the respondent Hello Home Educational Society (for short, “the Society”) was affirmed.

Brief facts

The Society desired to establish a school in Jasola area, New Delhi, for which it obtained the essentiality certificate, sponsorship letter and necessary recommendation from the appropriate authority. The allotment of land was subject to the issuance of essentiality certificate qua the area specified in the said certificate. The Society accordingly applied for allotment in three areas, viz. Jasola, Vasant Kunj and Sarita Vihar of Delhi, when the recommendation was made for allotment of land to society in Jasola. However, Vasant Kunj as area for allotment was mentioned under some misconception in the letter, as the essentiality, sponsorship, and other documents were all issued for Jasola (Zone 25, now Zone 29). Certain complaints were made for against allotment of land in Vasant Kunj area of Society, when in-principle approval was granted by the Lieutenant Governor for grant of approval. In the meanwhile, the allotment policy was changed in December 2003, when the allotment to any entity was to be made only through auction on commercial lines. Till this date no allotment was made in favour of the Society, when again a series of complaints were received against the Society of trying to get the plot illegally allotted in Vasant Kunj area. Accordingly, the appellant DDA rejected the request for allotment in view of the changed policy, requiring the society to participate in the public auction of school sites. It is then that the writ petition came to be filed before the Delhi High Court seeking issuance of writ of mandamus directing the appellant for issuing the formal order of allotment of plot to the appellant in view of the approval granted earlier for the Vasant Kunj site. The learned Single as well as the Division Bench both held that respondent-petitioner was entitled for allotment of plot in the Vasant Kunj area without being subjected to new policy of allotment only through auction.

Analysis of submissions of the parties

The Supreme Court held the writ petition to be marred by delay and laches inasmuch that the writ petition was filed after 11 years in the year 2014 based on in-principle approval granted in March 2003. The Society was held to have failed in claiming its rights within a reasonable time from the date of the said in-principle approval and thus the petition was liable to have been dismissed on this ground alone of delay and laches. Referring to the judgments of State of Orissa v. Laxmi Narayan Das²⁸, the Court held that word “laches” is derived from the French language meaning remissness and slackness. It involves acquiescence on the part of the party approaching the Court, apart from the change in position in the interregnum. It becomes unjustifiable for a court of equity to confer a remedy on a party who knocks its doors after putting the other party in a particular position and waving its right.

The Court further held that the original essentiality certificate and sponsorship letters all mentioned about the establishment of the institution by the Society in Jasola area and thus were area specific. Therefore, no allotment could have been proposed for Vasant Kunj area, more so when complaints were repeatedly being made on the said score highlighting the said irregularity. DDA could not be compelled to allot a site where essential and mandatory conditions were not fulfilled. Jasola and Vasant Kunj both fall in different areas and the High Court thus committed a factual error in creating them to be in the same zone without any basis.

On the issue of applicability of the altered policy decision introduced in December 2003, the Court stated that the policy clearly included all those cases and files where allotment was yet to be made formally. There was no challenge either to the policy decision of December 2003 or to the Amendments of 2006 introduced in the 1981 Allotment Rules, which also introduced a mode of auction as the only permissible mode for allotment of any site. On the strength of the in-principle approval given by the Lieutenant Governor, writ of mandamus therefore could not have been sought for allotting the site based on previously applicable policy all the unamended Allotment Rules of 1981.

On the issue of sanctity of internal notings and in-principle decision of allotment in favour of the respondent-petitioner and whether any right accrued on the basis thereof, the Court held that until and unless the decision taken on file is converted into a final order, communicated and duly served on the party concerned, no right accrues to the said party. Mere notings and in-principle approvals do not confer any vested right, as has been already held in the judgments of Bachhittar Singh v. State of Punjab²⁹ and Sethi Auto Service Station v. DDA³⁰. It is a settled law that it is of the essence that the order must have been communicated to the person affected by the order and until the order is duly communicated, it is always open to the authority to reconsider the matter and take a different view. Inter-departmental communications are always in the process of consideration for appropriate decisions and cannot be relied upon as a basis to claim any right.

Accordingly, the judgment of both the Single as well as Division Bench of the High Court was set aside by the Supreme Court by allowing the appeals filed by the DDA.

***

(3) Central Bank of India v. Shanmugavelu³¹

(Delivered on 2-2-2024)

Coram: 3-Judge Bench of HM Dr D.Y. Chandrachud, C.J., J.B. Pardiwala and Manoj Misra, JJ.

Authored by: HM Dr D.Y. Chandrachud, J.

The appeal arose out of the judgment of the Madras High Court, which while setting aside the orders of Debts Recovery Appellate Tribunal (for short, “DRAT”) held that forfeiture of the earnest money deposited with the appellant Bank must be refunded after adjusting only the amount to the extent of the loss suffered by it.

Factual matrix

The appellant Bank had initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002³² (for short, “SARFAESI”) proceedings for recovery of outstanding debt from the original borrower, “Best and Crompton Engineering Projects”. The properties owned by the said borrower, were auctioned on a default being made in the repayment. The respondent-petitioner emerged as the successful bidder in the said e-auction held by the Bank, the relevant extract of the terms and conditions of which pertaining to the dispute at hand read as follows:

7. * * *

(11) The earnest money deposit (EMD) of the successful bidder shall be retained towards part sale consideration and the EMD of unsuccessful bidders shall be refunded. The earnest money deposit shall not bear any interest. The successful bidder shall have to deposit 25% of the auction price less the EMD already paid, within 24 hours of the acceptance of bid price by the authorised officer and the balance 75% of the sale price on or before 15th day of sale or within such extended period as agreed upon in writing by and solely at the discretion of the authorised officer. If any such extension is allowed, the amount deposited by the successful bidder shall not carry any interest. In case of default in payment by the highest and successful bidder, the amount already deposited by the bidder shall be liable to be forfeited and property shall be put to re-auction and the defaulting bidder shall have no claim/right in respect of property/amount.

After the e-auction was convened, the successful bidder, viz. the respondent-petitioner was required to pay the remaining 25% of the auction price which was deposited on the same day as earnest money deposit, upon which the sale was confirmed and sale certificate also came to be issued in favour of theirs being the successful bidder and auction-purchaser. The balance amount of 75% was to be deposited within 15 days from the date of confirmation of the sale failing which, as stated above vide Condition 11, the amount deposited by the successful bidder was liable to be forfeited entirely.

The balance amount pertinently was Rs 9,20,25,000 (Rupees Nine Crores Twenty Lakhs Twenty-Five Thousand only) payable within 15 days from the date of issuance of the sale confirmation letter on 7-12-2016. However, the respondent started seeking extension and time for the payment of the balance amount on the ground that its term loan was still under process. The Bank initially granted extension suitably whereafter, after giving extension of three months a show-cause notice came to be issued by the Bank proposing forfeiture of the entirely deposited amount with it for failure to pay the remaining 75% of the sale consideration. Accordingly on the failure of the respondent petitioner of making the remaining 75% sale amount, the entire amount of around Rs 3.06 crores came to be forfeited by the appellant Bank. This was laid challenge before the Debts Recovery Tribunal (for short, “DRT”) and DRAT, which directed refund of the entire amount after deducting certain sum towards the expenditure incurred. In short, both the DRT as well as DRAT held that Bank was not entitled to forfeit the entire amount of Rs 3.06 crores, but only the amount to the extent of losses suffered by it, in view of the admitted fact that property was put to re-auction and was already sold at a much higher price. DRAT further held that Bank therefore ideally suffered no loss and forfeiture of the entire 25% amount deposited by the respondent-petitioner was unjust and unfair.

Impugned judgment of the High Court and issues for consideration

The High Court in the challenge made to it at the behest of the auction-purchaser to the DRAT order, allowed the petition restoring the quantum awarded by DRT, Chennai and setting aside the order of DRAT, which had enhanced the amount to be refunded by the Bank from Rs 5 lakhs to 55 lakhs. The High Court broadly held that forfeiture of the amount by the secured creditor under Rule 9 (5) of the Security Interest (Enforcement) Rules, 2002 (SARFAESI Rules)³³ cannot be over and above the losses or damages suffered by it, lest it would override the underlying ethos of Section 73³⁴ of the Contract Act, 1872 (for short, “Act of 1872”).

The High Court further held that the concept of compensation is not relatable to the commission of breach per se, but relatable to the extent of loss or damage suffered as a consequence thereof. Rule 9(5) ³⁵of the SARFAESI Rules cannot be conferred an exalted status to override the underlying ethos of Section 73³⁶ of the Act of 1872. The High Court further held that permitting forfeiture of the entire EMD deposited by the respondent-petitioner would also amount to unjust enrichment, which is clearly impermissible. Rule 9(5)³⁷ of the SARFAESI Rules was held to be merely an enabling provision permitting forfeiture in-principle. It cannot be permitted to override Section 73³⁸ so as to authorise unjust enrichment by the Bank in the guise of forfeiture.

In appeal, accordingly the Supreme Court framed the following issues for its consideration:

(I) Whether the underlying principle of Sections 73³⁹ and 74⁴⁰, respectively of the Act of 1872 is applicable to forfeiture of earnest money deposit under Rule 9(5)⁴¹ of the SARFAESI Rules? In other words, whether the forfeiture of the earnest money deposit under Rule 9(5)⁴² of the SARFAESI Rules can be only to the extent of loss or damages incurred by the Bank?

(II) Whether, the forfeiture of the entire amount towards the earnest money deposit under Rule 9(5) ⁴³of the SARFAESI Rules amounts to unjust enrichment? In other words, whether the quantum of forfeiture under the SARFAESI Rules⁴⁴ is limited to the extent of debt owed?

(III) Whether a case of exceptionable circumstances could be said to have been made out by the respondent to set aside the order of forfeiture of the earnest money deposit?

Legislative history, scheme of the SARFAESI Act and applicability of Sections 73 and 74 of the Act of 1872 to provisions of forfeiture thereunder

The Court then towards resolution of the aforementioned issues traced the history behind enactment of the SARFAESI Act⁴⁵ by the Parliament. Referring extensively to the recommendations of reports of Tiwari Committee, Narasimham Committee and the Andhyarujina Committee and the recommendations made therein, it stated that the SARFAESI Act⁴⁶ was enacted to empower the banks and financial institutions (for short, “FIs”) to take possession of the securities and to sell them without intervention of the Court. Referring further to the judgment of Mardia Chemicals Ltd. v. Union of India⁴⁷, the Court stressed upon the aspect of the SARFAESI Act⁴⁸ being a self-contained code, being a complete legislation in itself occupying the field for recovery of debts and securities directly by the banks and FIs. Rules 8 ⁴⁹and 9⁵⁰ of the SARFAESI Rules were referred to and adverted to prescribing the procedure and formalities to be followed for the sale or removal of secured assets under Section 13⁵¹ of the SARFAESI Act. Reference was made thereafter also to Sections 35⁵² and 37⁵³ of the SARFAESI Act, where under expressions “provisions of the SARFAESI Act override other laws” and “application of other laws is not barred” were employed. Referring to the judgment of Madras Petrochem Ltd. v. Board for Industrial and Financial Reconstruction⁵⁴, the Supreme Court highlighted the purpose and correlation between Sections 13⁵⁵, 35⁵⁶ and 37⁵⁷, which held that the non obstante laws under Sections 35 ⁵⁸and 37⁵⁹ must be given full effect to and must be held to override other legislations on the aspect of recovery of dues by the Bank directly.

Referring to the judgment of Hadley v. Baxendale⁶⁰, the Supreme Court elaborated underlying principles of Section 73 ⁶¹of the Act of 1872 relating to awarding of damages arising out of breach of contract. The European Courts in the judgment of Hadley case⁶² held that damages for breach of contract should be such as may fairly and reasonably be considered as either arising naturally in the usual course of things or as may reasonably supposed to have been in the contemplation of both the parties at the time they made the contract. Referring further to the judgment of Victoria Laundry (Windsor) LD. v. Newman Industries LD.⁶³, the Court reiterated that governing purpose of awarding damages is to put the party whose rights have been violated in the same position so far as money can do so as if the rights had been observed and not violated. The aggrieved party in case of breach of contract is entitled to recover only such part of the losses actually resulting from the breach of the contract. Thus, damages cannot be awarded for any remote or indirect loss not within the contemplation of the parties at the time of executing the contract sustained by reason of the breach of contract. The Court also referred to concept of penalty under Section 74 of the Act of 1872 by referring to its earlier judgment in K.P. Subbarama Sastri v. K.S. Raghavan⁶⁴, wherein the test was laid down for determining whether a particular clause is a penal clause or not.

Referring to the judgment of SBI v. C. Natarajan⁶⁵, the Supreme Court held that Sections 73⁶⁶ and 74 ⁶⁷of the Act of 1872 shall not be applicable to the penal action of forfeiture under Rule 9(5)⁶⁸ of the SARFAESI Rules. The SARFAESI Act and the Rules being a special enactment shall have overriding effect over other laws by virtue of its Sections 35⁶⁹ and 37⁷⁰, making Sections 73 ⁷¹and 74⁷² inapplicable. The need to have enacted Rule 9(5)⁷³ under the SARFAESI Ruleswould have never arisen for the Parliament or the Central Government (for short, “CG”) if the principles of general law of contract enshrined under Sections 73 ⁷⁴and 74 ⁷⁵were to be continued, nor a special provision regarding forfeiture would have ever been thought of as incorporated under Rule 9(5).⁷⁶ The Supreme Court thus held that sale of property under Rules 8⁷⁷ and 9⁷⁸ is marred by lot of uncertainties about its outcome and if any successful auction purchaser tries to delay the realisation of the sale amount, then it adds to the uncertainty about the future prospects of the property being resold expediently and expeditiously. Therefore, the party suffering the forfeiture (successful auction purchaser) cannot take advantage of the general contractual principles under Sections 73⁷⁹ and 74⁸⁰, since the Bank may not be aware about the exact quantum of loss suffered by it at the time of forfeiture, the sale/resale of the property being completely contingent. Further Court observed that if Sections 73⁸¹ and 74⁸² of the Act of 1872 are applied to Rule 9(5)⁸³ then the very auction process may be set at naught by any mischievous or devious borrower by gaming the auction through sham bids. Therefore, forfeiture conceived under Rule 9(5)⁸⁴ is a penal provision, which defaulting bidder must suffer on its failure to make payment of the entire sale price within the statutorily fixed period. The Court must therefore be mindful of attempts of abortion of the auction process being mounted at the instance of the mischievous borrower who may have highly valuable property purchased by one of its henchmen for a song. Rule 9(5)⁸⁵ therefore serves twin purposes: firstly, of facilitating due enforcement of security interest by the secured creditor; and secondly, of prohibiting wrongdoers from being benefited by liberal construction thereof.

Referring to the judgment of Madras Petrochem case⁸⁶, the Court held that Sections 35⁸⁷ and 37 ⁸⁸of the SARFAESI Act form a unique scheme of overriding provisions, though the scope and ambit of Section 37 is restricted only to the securities laws. Referring further to the judgment of Celir LLP v. Bafna Motors (Mumbai) (P) Ltd.⁸⁹, the Court stated that only those laws which have been either enumerated under Section 37⁹⁰ or which occupy and deal with the same field as the SARFAESI Act shall be applicable in addition to the SARFAESI Act under Section 37⁹¹. Other enactments, not of the similar nature or on other subject-matters shall not apply under Section 37⁹². Therefore, the provisions of the Act of 1872 shall not ipso facto apply under Section 37⁹³ of the SARFAESI Act to transactions and auctions made thereunder. Though forfeiture is a result of a breach of obligation, but however the consequences of the forfeiture are not because of the breach, but by virtue of the operation of a statutory provision, attracted as a result of the breach. If Sections 73⁹⁴ and 74⁹⁵ were to have been applicable there was no occasion for the legislature to have consciously provided for only one consequence, viz. forfeiture of the entire deposited 25% amount. The Court enumerated the severe consequences of applying Sections 73⁹⁶ and 74⁹⁷ to the Act of 1872 to breaches under Rule 9(5)⁹⁸ of the SARFAESI Rules as follows:

(A) Firstly, it would be preposterous to suggest that in recovery proceedings, due to default of the successful auction-purchaser, another recovery proceedings would have to be initiated by the secured creditor in terms of Sections 73⁹⁹ and 74 ¹⁰⁰to recoup the loss and expenditure occasion to it by the defaulting successful purchaser.

(B) Secondly, such an interpretation of applicability of provisions of the Act of 1872 allows unscrupulous borrowers to be hands in glove with the auction purchaser and using mischievous subversive methods for delaying the auction process and defeating the recovery exercise so initiated under the SARFAESI Act.

(C) Thirdly, such an interpretation completely defeats the very purpose and object of the SARFAESI Act and undermines the country’s economic interest.

Accordingly, the Court held that the SARFAESI Act being a special enactment and Rule 9(5) ¹⁰¹of the SARFAESI Rules being validly framed thereunder in exercise of statutory powers conferred by Section 38¹⁰² of the SARFAESI Act, the provisions of the Act of 1872¹⁰³ shall not apply. The Court held that Rules having been validly framed under Section 38¹⁰⁴ of the SARFAESI Act, automatically became part of the statute.

Earnest money and law on forfeiture of EMD

The Supreme Court then referred to various meanings and interpretations accorded in various judgments to the word “forfeiture”. Being derived from the French word “forfaiture”, meaning the loss of property by violation of his own duty. The Court referred to the judgment of STO v. Ajit Mills Ltd.¹⁰⁵, and that of Privy Council in Chiranjit Singh v. Har Swarup¹⁰⁶, to reiterate whether a forfeiture clause is penal in nature or not must be decided always in the specific setting of any statute. “Forfeiture” is generally a punishment annexed by law to some illegal act on negative negligence and generally associated with the imposition of penalty. It is generally, unless the construction requires otherwise regarded as a punishment, inflicted for a violation of some duty and joined upon the party by law. The legislature by inflicting “forfeiture” does not cross its crease, when it hits out against the dealer and deprives him through such statutory penalty of the amount illegally gathered from the customers.

Referring to the Constitution Bench (for short, “CB”) judgment of Fateh Chand v. Balkishan Dass¹⁰⁷, the Court stated that “forfeiture” clause in an ordinary contract would fall within the meaning of the words “any other stipulation by way of penalty” of Section 74¹⁰⁸ of the Act of 1872 and thus only a reasonable amount can be forfeited. Thus Section 74¹⁰⁹ would come into play when “forfeiture” is in the nature of penalty, and not otherwise. Explaining the meaning of “earnest money”, the Court stated that earnest is something given by the promisee to the promisor to mark the conclusiveness of the contract and is quite apart from the price. It can be even an advance to be adjusted at the time of final payment; it may not necessarily be money but some gift or token given, denoting a thing of value given by the promisor to indicate that the bargain is concluded between them and a tangible proof that business relations are established.

Referring to the judgment of Kailash Nath Associates v. DDA¹¹⁰, the Court stated that however Section 74¹¹¹ shall not be applicable where “forfeiture” takes place under the terms and conditions of a public auction, before agreement is reached. Therefore, auction under Section 13¹¹² of the SARFAESI Act read with Rules 8 ¹¹³and 9¹¹⁴ of the SARFAESI Rules, the penalty of “forfeiture” will not attract the applicability of Section 74¹¹⁵, the same being relatable to public auction.

Discussion on “principles of reading down” and “unjust enrichment”

The Court then proceeded to examine the findings of the High Court of applying the principle of reading down for interpreting Rule 9(5) ¹¹⁶of the SARFAESI Rules. The High Court applying the said principle held that to save the constitutionality of Rule 9(5)¹¹⁷, it must be so interpreted as to make the provisions of the Act of 1872¹¹⁸ applicable to it.

Referring to the judgments of B.R. Enterprises v. State of U.P.¹¹⁹ and Calcutta Gujarati Education Society v. Calcutta Municipal Corpn.¹²⁰, the Supreme Court held that the aforesaid principle of reading down is rooted in the idea that courts should make every effort to preserve the validity of legislation and should only declare a law invalid as a last resort. The principle is a judicial tool used to salvage the constitutionality of a statute by giving a provision narrowed or limited interpretation, thereby mitigating potential conflicts with constitutional or legal principles. It is an exercise of according that interpretation to any provision, a restricted and a narrow one, so as to make it workable, when the plain meaning may lead to invalidation. The limited purpose for which this principle is applied is to make the provision workable and its objective achievable.

However, the Court further proceeded to hold that harshness of a provision is no reason to read down the same, if the plain meaning is unambiguous and perfectly valid. If the harsh consequence of the statutory provision is consciously incorporated by the legislature to serve the larger aim and objective of the enactment, then reading down cannot be applied to defeat the purpose for which the enactment is introduced by the Parliament.

In the present case also, Rule 9(5) ¹²¹has been enacted to subserve the larger object behind enactment of the SARFAESI Act¹²² of timely resolution of bad debts of the country. The harsh consequence is not illusory, but to accord legal sanctity to the auction process being conducted and concluded under the SARFAESI Act¹²³. Therefore, “reading down” cannot be applied by treating the provision as unworkable or invalid in terms of its plain and ordinary meaning. The findings of the High Court on the set score were found to be palpably erroneous.

On the finding of “unjust enrichment” returned by the High Court, the Supreme Court expressed disagreement with the observations of the High Court. Holding that in any auction convened under Section 13, there looms a degree of uncertainty about realisation of the outstanding debt or in any future auction on failure of the one already undertaken, the principle of “forfeiture” under Rule 9(5) ¹²⁴therefore serves the laudable purpose of securing the value of the secured asset. Whether fresh auction would be successful or not after failure of the earlier auction, justify the imposition of complete “forfeiture” of the deposited amount. Referring to the judgments of Sahakari Khand Udyog Mandal Ltd. v. CCE & Customs¹²⁵, the Court stated that doctrine of unjust enrichment is based on equity, and operates against inequitable retention of a benefit.

“Equity always follows the law, but cannot supplant it if the law is clear and unambiguous.” “Forfeiture” of 25% of deposit by way of statutory provision, therefore, does not constitute, as an unjust enrichment, more so when under Rule 9(3) ¹²⁶money exchanges hands for a definite purpose of repayment of the bad loans attached to the mortgage property. The penal consequence of “forfeiture” is a legal statutorily prescribed consequence in the event of default in payment of balance amount which follows the action regardless whether a subsequent sale takes place or not. Therefore, equity cannot substitute or dilute the statutory consequence of “forfeiture” stipulated under Rule 9(5)¹²⁷. Referring further to the judgment of National Spot Exchange Ltd. v. Dunar Foods Ltd. (Resolution Professional)¹²⁸, the Supreme Court reiterated that where law is clear, the consequence thereof must follow and courts have no option but to implement the law. Thus, the finding of the High Court therefore on unjust enrichment stood set aside by the Supreme Court.

The Supreme Court accordingly held that no exceptional circumstances exist to set aside the “forfeiture” of EMD under Rule 9(5).¹²⁹ Distinguishing the judgment of Alisha Khan v. Indian Bank (Allahabad Bank)¹³⁰, wherein the refund of the EMD was directed after the “forfeiture”, on the grounds of difficulties faced by auction purchasers during the COVID-19 Pandemic, the Court held that it should ordinarily refrain from interfering in “forfeiture”. There must be existence of very rare and exceptional circumstances for claiming refund of the forfeited amount and facts must be examined in depth to locate whether there is likelihood of hidden interest of the bidder to stall the sale for the benefit of the defaulting borrower. In the case at hand, the Supreme Court held that there were no extraneous conditions existing which demonstrated inability of the successful auction purchaser (respondent-petitioner) from depositing the balance 75% amount with the Bank. The respondent was already granted an extension of 90 days’ time to make the payment of balance amount with specific reminders that further extension would not be granted. The failure despite the above to pay the remainder amount disentitles the respondent from claiming refund of the forfeited amount.

The High Court in conclusion therefore was found to have committed an egregious error in passing the impugned judgment and accordingly its same judgment was set aside by allowing the appeals filed by the Bank.

***

(4) Travancore Devaswom Board v. Ayyappa Spices¹³¹

(Decided on 6-3-2024)

Coram: 2-Judge Bench of P.S. Narasimha and A.S. Bopanna, JJ.

Authored by: HM P.S. Narasimha, J.

Introduction

The present case related to dispute arising in relation to the tender of supply of 7000 kgs of cardamom for the preparation of Aravana Prasadam for distribution by the Sabarimala Temple.

Background and facts

The petitioner, Travancore Devaswom Board filed an appeal challenging the decision of the High Court allowing the writ petition filed as a public interest litigation (PIL) by the respondent Company in respect to a contract by tender for sourcing raw material for preparation of Aravana Prasadam in the Sabarimala Temple. Through the impugned order, the High Court confirmed the order restraining distribution of the prasadam and held that the Appellant Board is a “food business operator” as per Section 3(1)(j)¹³² of the Food Safety and Standards Act, 2006 (FSSAI Act, 2006) and directed for the Appellant Board to be prosecuted for violation of provisions of the FSSAI Act, 2006¹³³.

The Court found that Appellant Board is a statutory and autonomous body that manages Sabarimala Temple and was tasked with procuring the raw material necessary for its preparation including cardamom. For this procurement, the Appellant Board issued several tenders which failed due to inappropriate bids and herein Respondent 1 was a successful bidder in 2021. When the festive season was fast approaching, the Board invoked urgency clause and authorised the executive officer of Sabarimala Temple to procure cardamom from local sources through a notice inviting quotations along with samples.

Out of the samples received only two samples passed the quality test and Respondent 1 was not one of them. Respondent 2 then was given supply orders for procurement of 7000 kgs cardamom. Later, samples from supply of Respondent 2 were sent for testing at the Government enlist lab which were reported to have contained pesticides above the permissible threshold limit.

Respondent 1 filed a writ petition before the High Court wherein directions were given for the samples to be subjected to re-examination by the Government enlist lab followed by examination by the Food Safety and Standards Authority of India (FSSAI) office at Kochi. In both reports, the product was termed as “unsafe”. The High Court relied upon the reports and restrained distribution of the Aravana Prasadam and sealed the warehouse where it was stored. In the ongoing proceedings, the Board filed an interlocutory application (IA) pleading parallel sampling by another laboratory. The writ petition was partly disposed of and the High Court dismissed the IA relying on the previous tests conducted upon the set sample. It further stated that the Appellant Board falls under the definition of “food business operator” and has an obligation to ensure that the food sold or distributed and the raw materials used for the preparation of the food are safe and pure. The High Court finally directed destruction of the seized stock for institution of appropriate criminal proceedings against the Board. Against these impugned orders the Appellant Board filed appeal before the Supreme Court.

Prasadam was fit for human consumption

The Supreme Court issued notices initially while staying the operation of the impugned orders and by the very same order specifically directed FSSAI to take random samples of the available Aravana Prasadam stock and file a report before the Court regarding quality of the prasadam and their fitness for human consumption. The report which was submitted significantly contradicted earlier tests findings and found that the pesticides mentioned in the analytical report are below quantification limits. The samples were found to be satisfactory with its microbiological parameters confirming to “ready to eat grain products”; not substandard, finally stating that the Aravana Prasadam is fit for human consumption. The Bench, due to the dramatic reversal in findings raised serious questions about testing procedures and standards applied by different laboratories.

PIL must not be used for business rivalries

The Bench identified two issues for its consideration:

(i) whether the writ petition at Respondent 1’s behest should have been entertained by the High Court; and

(ii) whether the Appellant Board qualified as “food business operator” as defined under Section 3 ¹³⁴of the FSSAI Act, 2006.

Referring to the decision in the judgment of Ashok Kumar Pandey v. State of W.B.¹³⁵, the Bench held that writ petition was motivated with unresolved business conflict as PIL petitioner was earlier the supplier of cardamom to the Appellant Board and had also participated in the tenders thereby being an interested party. The writ petition ought not to have been entertained by the High Court. The Bench emphasised that PIL is a weapon which must be used with great care and circumspection and to use it for purposes motivated by ugly private malice and business interests would amount to its use as a “suspicious product of mischief”.

The Bench further stated that none of these facts were revealed in the writ petition, and it was the duty of the High Court to have examined carefully the members of the public who approached the Court acting bona fide and not for personal gain. The Bench observed that the writ petitioner sought to convert judicial review proceedings for achieving his personal gain and thus the writ petition before the High Court was not maintainable.

Final verdict and conclusions

The Bench finally held that the decision of the Board authorising Chief Executive Officer (CEO) of the Sabarimala Temple to procure cardamom from local sources was not an arbitrary, irrational or unreasonable decision but was a legal, fair and transparent decision validly made after invoking urgency clause under its regulation due to fast approaching festival season. The Bench further held that there was no illegality or arbitrariness in awarding the contract to Respondent 2 as all prospective bidders were given a fair chance in the earlier 2 tenders and during the procurement of cardamom from local sources also. A notice inviting quotations was even issued and published on the notice board. The Bench did not deem it fit to answer on the Issue 2 as the writ petition itself was not maintainable in the High Court.

However, the petitioner Board submitted before the Bench that the Aravana Prasadam should not be distributed for being long stored in warehouse. It may have become unsafe for human consumption, on which submission the Bench directed the SG to follow due procedure to destroy/dispose of the existing stocks of the Aravana Prasadam as expeditiously as possible.

The appeal was disposed of with the above directions by the Supreme Court.

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(5) NBCC (India) Ltd. v. Zillion Infraprojects (P) Ltd.¹³⁶

(Decided on 19-3-2024)

Coram: 2-Judge Bench of B.R. Gavai and Sandeep Mehta, JJ.

Authored by: HM B.R. Gavai, J.

Introduction and background

An appeal was filed before the Supreme Court wherein the appellant NBCC (India) Ltd. is a public limited company and Government of India undertaking which issued an invitation for tender for the purposes of construction in certain infrastructure projects. Through the tender documents a private limited company, M/s Zillion Infraprojects Private Ltd., the respondent fulfilled the tender criteria and thus vide letter of intent the appellant awarded the contract for construction to the respondent.

During the execution of the contract, certain disputes arose between the parties and the respondent, when arbitration clause was invoked and notices issued to the appellant seeking their consent for the appointment of a former Judge of the High Court as sole arbitrator. When the appellant did not respond to the aforementioned notices, the respondent filed an application before the High Court under Section 11(6)¹³⁷ of the Arbitration and Conciliation Act, 1996 (Arbitration Act)¹³⁸ and through the impugned order the High Court allowed the arbitration petition and later on confirmed the proposed appointment of the former Judge of the Delhi High Court as the sole arbitrator.

Proceedings before the Supreme Court

It was argued by the appellant that the intention of the parties with respect to the forum and jurisdiction for the disputes arising out of the contract is amply clear by the Clause 7.0 of the LoI which stated that the dispute redressal between NBCC and the respondent can “only” be done through civil courts having jurisdiction of Delhi “alone”. Also, Clause 1.0 of the LoI specifically states that various “contractual, financial and technical” conditions mentioned in the tender documents shall be binding on the respondent for the execution of works and shall be part of the document. It was further submitted that merely on account of reference by LoI of general terms and conditions contained in the tender documents, the arbitration clause, if any, cannot be invoked unless its application is stated so specifically.

Dispute is of reference

Referring to the decision in judgment of M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd.¹³⁹, the Bench stated that the issue is no more res integra as when the parties enter into a contract, the general reference to another contract would not have the effect of incorporating an arbitration clause from the referred document unless it has been specifically so referred. The Bench further observed that the present matter is not a case of incorporation of an arbitration clause, but a mere case of reference as only by a specific reference to an arbitration clause from another contract. such a clause can be incorporated into the contract when it is specifically provided that execution or performance of that contract shall be in terms of another contract then the terms of the referred contract in regard to execution/performance alone will apply.

Present case is a “two contract” case and not a “single contract” case

The Bench observed that wherein it is provided that the standard form of terms and conditions of an independent institution will bind the parties or apply to the contract then such standard, including any provision of arbitration, if provided in such standard form, would be deemed to be incorporated by such reference. This can happen in a case where there is a “single contract”. The Bench stated that Section 7(5)¹⁴⁰ of the Arbitration Act shows that the parties to the contract through the terms of the contract must specifically show in the contract their intention to incorporate the arbitration clause from another contract.

Referring to the decision in Inox Wind Ltd. v. Thermocables Ltd.¹⁴¹ and distinguishing it with the decision in M.R. Engineers & Contractors case¹⁴², the Bench stated that the standard form of contract would be enough for incorporation of the arbitration clause but the present case is a “two contract” case and not a “single contract” case. In a “single contract” the mere reference to a standard form of contract of one party would be sufficient to incorporate the arbitration clause, but in the present case where there are two contracts and the contract which is referring to the second contract itself provides means of redressal of disputes through civil court then in such case a specific reference to an arbitration clause is required to be stated if the parties intended to have settled their disputes through arbitration.

The Bench stated that the LoI specifically provides under Clause 7.0 that the disputes arising between the appellant and the respondent shall be redressed “only” through civil courts having jurisdiction of Delhi “alone” and does not further refer to any other tender document or any arbitration clause. The use of the word “only through civil courts” is sufficient to make clear the intention of the parties with respect to choosing a forum for redressal of arbitration.

The Bench held that the intention between the parties is very clear and mere reference to the general conditions of a contract would not ipso facto make the arbitration clause present in the contract be applicable to the second contract unless it is specifically mentioned. The Bench further reiterated that a general reference cannot have the effect of incorporating the arbitration clause in a separate contract. The Bench while stating that the Delhi High Court erred in allowing the application of the respondent with respect to appointment of arbitrator, finally quashed and set aside the impugned orders passed by the Delhi High Court.

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(6) Level 9 Biz (P) Ltd. v. H.P. Housing & Urban Development Authority¹⁴³

(Decided on 2-4-2024)

Coram: 2-Judge Bench of Bela M. Trivedi and Pankaj Mithal, JJ.

Authored by: HM Bela M. Trivedi, J.

Facts and background

In the present case, the impugned order passed by the High Court in a WP was challenged by the appellant on the ground that the petition was disposed by merely accepting the statement made by Respondent 1, Himachal Pradesh Urban Development Authority (for short, “HIMUDA”) that it wanted to withdraw the cancellation of initial tendering process and by Respondent 2, M/s Vasu Constructions that it was ready to execute the project on the same terms and conditions and the rates as per the initial tender, though the said tender was already withdrawn by Respondent 1, HIMUDA in view of the irregularities and illegalities committed by it, which was also recorded by an independent Committee appointed by the High Court in earlier writ petitions filed by the present appellant, Level 9 Biz Pvt. Ltd. and one M/s Dalip S. Rathore. The appellant himself was not a party in the civil writ petition filed before the High Court.

Chronology of events

Initially, the appellant and Respondent 2 were declared qualified in the technical bids opened and on the very same day the financial bid of the said two parties were also opened. The letter of intent was issued after 2 days of opening of the bids by Respondent 1 in favour of Respondent 2. Subsequently, an unsuccessful bidder, M/s Dalip Singh Rathore filed a writ petition before the High Court alleging irregularities and illegalities in the tender process, challenging the eligibility of Respondent 2 to take part in the process while also seeking cancellation of the tender along with rejection of the technical and financial bids placed by Respondent 2. In the meantime, Respondent 1 HIMUDA appointed an Internal Committee to review the tender process and on the very next day withdrew the letter of intent issued in favour of Respondent 2. Subsequently, the High Court also appointed an Independent Committee to look into the alleged illegalities and irregularities. The Internal Committee reported that the officers responsible for evaluation of the tender had not acted responsibly and fairly, as a consequence of which both Respondent 2 and M/s Level 9 Biz Pvt. Ltd., the appellant, were wrongly declared eligible in the technical bid and so the tender needed to be cancelled. The Inquiry Committee set up by Respondent 1 accepted the recommendations by the Internal committee constituted by the High Court and the High Court observed that the petitions so filed for the alleged illegalities and irregularities were rendered infructuous. Respondent 1 had cancelled the tender and issued fresh NIT based on the common order passed in the writ petitions filed by M/s Dalip Singh and the appellant.

In the writ petition filed by Respondent 2, on mere statements made by them, Respondent 1 withdrew the cancellation of initial tendering process, permitting Respondent 2 to execute the project on same terms and conditions and rates as per the initial tender. The material issue before the Court was whether the High Court passed a valid order by disposing of the writ petition by merely accepting the statements made on behalf of Respondents 1 and 2.

High Court ought not had disposed in such manner

The Bench stated with surprise that it was difficult to understand that when Respondent 1 itself had decided to cancel the initial tendering process while accepting the findings of the Internal Committee constituted by the High Court for the reason that there were irregularities and illegalities committed by the officers of Respondent 1 in processing the tender and accepted the fact that Respondent 2 was not technically qualified to place the bid, then how Respondent 1 could have stated before the Division Bench of the High Court that the competent authority of Respondent 1 wanted to withdraw the cancellation of the initial tendering process. How the respondents could have further without any objection given Respondent 2 a go ahead with the execution of work on same terms and rates as were agreed at the time of finalisation of the NIT.

The Bench stated that it was incumbent on the part of Respondent 2 to have implead M/s Dilip Singh and the appellant as party respondents in the writ petition filed before the High Court and it was also incumbent on the High Court to have given opportunity of hearing to both the entities before disposing of the said petition in the said superficial manner.

LoI does not create a binding legal relationship

It was argued before the Court that earlier an LoI was issued by Respondent 1 in favour of Respondent 2 and the same was later withdrawn by Respondent 1 on account of pending litigations in the High Court. The Bench stated that such LoI’s cannot become a basis for creating a binding legal relationship as an LoI is merely an expression of intention to enter into a contract but it does not by itself create any right or any binding legal relationship in favour of the party to whom it is due. The Bench further stated that for any binding legal relationship, an agreement or contract is required to be drawn up between the parties after the LoI is received by the other party, specially, in a contract of such a mega scale.

Final verdict and conclusions

The Bench after taking all the facts and events into consideration held that Respondent 1 colluded with Respondent 2 and took the High Court for a ride and misused the process of law for covering up the irregularities and illegalities committed in the tender process and even after taking the order of the Single Bench to cancel the tender, anyhow awarded the contract Respondent 2 under the guise of the Court’s order. The Bench further stated that High Court also passed the impugned order without proper application of mind as it also could not notice the ill intentions of Respondents 1 and 2 and disposed of the petition permitting them to go ahead with the original tender ignoring the reports of the Independent Committee of the High Court and the order of the Single Bench. Therefore, the same deserved to be quashed and set aside. It further imposed heavy costs upon Respondent 1, it being a State within the meaning of Article 12¹⁴⁴ of the Constitution of India acting mala fide and in collusion with Respondent 2 and for taking the High Court for a ride while allowing them the liberty to initiate a fresh tender process after following due process of law.

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(7) Municipal Committee, Katra v. Ashwani Kumar¹⁴⁵

(Delivered on 9-5-2024)

Coram: 2-Judge Bench of B.R. Gavai and Sandeep Mehta, JJ.

Authored by: HM Sandeep Mehta, J.

Challenge was made to a common judgment passed by the Division Bench (for short, “DB”) of Jammu and Kashmir High Court, which affirmed the judgment of the learned Single Judge in awarding of monetary relief/damages arising from fallout of contractual obligations to the respondent/original writ petitioner (The original writ petitioner shall be referred to as the petitioner).

Katra Municipal Committee (for short, “KMC”) issued a notice inviting tender (for short, “NIT”) inviting bids for supply of mules and mazdoors for transportation of pilgrims from base camp at Katra to holy shrine of Mata Vaishno Devi atop the Trikuta Hills. The petitioner being the second highest bidder in the said NIT, who subsequently became the highest bidder in the absence of the actual bidder coming forward, was offered the contract by the respondent which was accepted by him. Clause 8 of the NIT required the successful bidder to deposit 40% of the bid amount within 24 hours, along with 5 post-dated cheques (for short, “PDC”) along with the bank guarantee towards securing the amount for remaining tenure of the contractual period. Failure to do so would lead to security deposit/earnest money being forfeited.

The petitioner (respondent before the Supreme Court) sought relaxation of Clause 8 of the NIT on the ground that the condition of furnishing bank guarantee for the remainder amount was unjust and arbitrary. Having failed to get any favourable response, a civil suit came to be filed by the petitioner respondent along with an application seeking temporary injunction. The said application was allowed by the civil court directing the KMC to issue the order of allotment of contract to the petitioner. The aforesaid order was affirmed by the High Court also in appeal directing the issuance of work order and execution of contract with the petitioner-respondent.

After conclusion of the contract period, another writ petition (for short, “WP”) came to be filed by the petitioner contending that execution of contract was delayed at the behest of KMC due to onerous condition, viz. Clause 8 of the NIT, and thus he be awarded pro rata damages for the loss of period suffered by him for performance of the contract. Both the learned as well as the DB, though held that petitioner-respondent was responsible for the delay in execution of the contract having challenged the condition stipulated vide Clause 8 of the NIT, but however on equitable grounds that in a social welfare state, the Government must protect and promote the economic interests and social well-being of the citizens, it cannot be allowed to earn undue benefit/profit from the citizens. Accordingly, the Single Judge quantified the damages himself so suffered by the bidder and directed the KMC to make payment thereof to the petitioner-respondent of the damages suffered by him. The DB affirmed the same. Pertinently both before the Single Bench as well as the DB, the respondent did not dispute that he never challenged the Clause 8 of the NIT before participating in the auction proceedings. It was also not disputed that delay in issuance of work order was purely attributable to the respondent-petitioner, who had avoided compliance of Clause 8 of the NIT, whilst dragging the proceedings to litigation before the court of law.

The Court referred to the following two Latin maxims whilst deciding the whole dispute at hand:

(a) Nullus commodum capere potest de injuria sua propria — meaning thereby that no man can take advantage of his own wrong. Reference was also made to the judgment of Union of India v. Maj. Gen. Madan Lal Yadav¹⁴⁶, for the said purpose to elaborate upon the said maxim.

(b) Frustra legis auxilium invocat quaerit qui in legem committit — one who prevents a thing from being done shall not avail himself of the non-performance of what he has occasioned, a wrongdoer ought not to be permitted to make a profit out of his own wrong.

Referring to the aforesaid two legal maxims, the Court stated that conduct of the respondent-petitioner stands fully covered by the aforesaid Latin maxims. The petitioner himself had challenged Clause 8 of the NIT after the whole exercise had been concluded and bidders were finalised. KMC was more than willing to go for a fresh auction and tender, but was prevented by the order of the High Court which directed it to award the contract to the petitioner-respondent. Thus, despite being aware and fully conscious of the terms and conditions of the auction notice and having participated in the tender process, the respondent-petitioner was fully estopped from taking a U-turn for questioning the legality or validity of the terms and conditions of the auction notice/NIT. By dragging the matter to litigation before the civil court it was the respondent-petitioner who was responsible for the delay occasioned in issuance of the work order and the resultant deprivation of opportunity work for the entire period of 365 days. Therefore, the High Court was held to have erred clearly in placing the blame on the shoulders of KMC.

The Supreme Court further held that relief which was sought by the respondent in the petition was purely of monetary relief/damages. The quantification of damages requires the High Court to enter into disputed questions of facts and hence under Article 226¹⁴⁷ of the Constitution of India, the petitioner-respondent ought to have been relegated to the competent court for damages, if so advised. Referring to the judgment of Union of India v. Puna Hinda¹⁴⁸, the Court held that disputes arising out of contractual obligations cannot be entertained by High Court in exercise of extraordinary writ jurisdiction, as they lie purely in the field of private law, without any statutory flavour and are better adjudicated upon by the forum agreed to by the parties.

Accordingly, the Supreme Court set aside the judgments of the High Court, being ex facie illegal and without jurisdiction. The appeals were accordingly allowed.

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(8) Ahmednagar District Central Cooperative Bank Ltd. v. State of Maharashtra¹⁴⁹

(Delivered on 27-9-2024)

Coram: 2-Judge Bench of Dipankar Datta and Prashant Kumar Mishra, JJ.

Authored by: HM Dipankar Datta, J.

The petition arose out of the judgment of the Bombay High Court, Aurangabad Bench dismissing the writ petition of the Ahmednagar District Central Co-operative Bank Limited (the Co-operative Bank herein). The Co-operative Bank had challenged the auction sale pertaining to the immovable property of Mula Sahakari Soot Girni Ltd., essentially on two grounds: firstly, that the valuation of the property of the society was much on the lower side; and secondly, that the three bidders had not participated in the auction sale, which was held without providing sufficient opportunity to interested parties for placing their bids. The High Court while dismissing the writ petition held that no mala fides can be attributed in respect of the questioned auction sale, since the auction purchaser was not any private individual but a statutory body, viz. Agricultural Produce Market Committee, Rahuri (for short, “APMC”).

The appellant had sanctioned loan to one society, which defaulted in repayment of the same, in light of which recovery proceedings under the provisions of the Maharashtra Co-operative Societies Act, 1960¹⁵⁰ were initiated. The appellant was held entitled to recover the amount of around Rs 1.06 crores from the borrower society. Thereafter the appellant Co-operative Bank was subjected to liquidation and the liquidator was obtained of the borrower society. Appellant issued the auction sale notice with the upset price of Rs 4.10 crores, in which the APMC placed its bid along with the deposit of earnest money. The auction was unsuccessful. In the meanwhile, on the directions of the Bombay High Court in the writ petition for clearing off the dues of employees of the liquidated society, the Registrar, cooperative society was directed to take effective steps for sale of the properties and assets of the society within six months. Fresh valuation of the property in question mortgaged with the Co-operative Bank was carried out in which valuation came to around Rs 2.47 crores. The liquidator accordingly initiated the auction process again for selling off the assets of the society. At this juncture, the appellant Co-operative Bank requested the Registrar for crediting of the proceeds of the proposed auction in their accounts. The appellant interestingly neither objected to the valuation of the property put to e-auction by the liquidator, nor did immediately question the auction sale before the High Court in time. After almost two months, the said writ petition was filed.

After the writ petition was dismissed by the High Court, the matter travelled to Supreme Court. The Court directed the State (liquidator) to provide breakup of the amounts disbursed out of the proceeds of the auction sale of the property initially mortgaged with the Co-operative Bank. The Court in compliance of its order found that various creditors, including the employees/labourers were all paid out of the amount, which was realised as sale proceeds from the auction conducted by the liquidator.

The Court found that appellant Co-operative Bank was throughout responsible and negligent in allowing the auction process to progress to the extent of finalisation of the sale in favour of the respondent APMC. The appellant chose to sit on the fence and watch the report of the Government approved valuer which valued the property of the society much prior to the auction. Accordingly, the Court held that a writ court comes to the aid of only that litigant who approaches it with promptitude and before accrual of third-party rights. A writ court does not encourage petitions from indolent, tardy and lethargic litigants, and thus it was not open to the appellant to question the auction sale process in question after finalisation of the sale in favour of the respondent APMC.

However, in view of the fact that a huge sum was payable to the appellant as outstanding loan amount with interest, the Court proceeded to balance the equities.

The Court further held that merely because respondent APMC is a creature of the statute, it does not get clothed with any immunity if it is found that property is transferred to it at a throw away price. The appellant is not a private entity, but a Co-operative Bank and its interest of recovery of dues running into crores of rupees cannot be brushed aside, which is necessary for its survival in the banking sector.

In conclusion, the Supreme Court proceeded to direct the respondent APMC to pay the appellant a sum of Rs 1.05 crores towards full and final settlement of the dues of the appellant from the society within a period of three months. Accordingly, the civil appeal was disposed of by the Court.

***

(9) Subodh Kumar Singh Rathour v. Chief Executive Officer¹⁵¹

(Delivered on 9-7-2024)

Coram: 3-Judge Bench of Dr D.Y. Chandrachud, CJ, Justices J.B. Pardiwala and Manoj Misra, JJ.

Authored by: HM J.B. Pardiwala, J.

Appeal arose out of final judgment of the Calcutta High Court, through which decision of cancellation of tender awarded to the appellant by the respondents was affirmed by the High Court both by the Single as well as the DB.

Factual matrix leading to the High Court judgment

A tender notice was floated inviting bids for maintenance of two underpasses for a period of 10 years by the Kolkata Metropolitan Development Authority (for short, “KMDA”). The scope of work included regular maintenance of the aforementioned underpasses and the upkeep of its garden area and electromechanical fittings. The appellant was found to be H-1 bidder and accordingly awarded the said tender by the KMDA. The appellant accordingly commenced his work in terms of the contract after formal issuance of the work order.

After awarding of contract on 1-12-2022, the Government of West Bengal issued an order directing handing over of the maintenance of roads and drainage constituting subject-matter of the contract/tender to Kolkata Municipal Corporation (for short, “KMC”). This triggered the process of withdrawing of tender and issuance of stock work order both by the KMDA to the appellants. Requests were made by the appellant tenderer to recall the stock order, thereby allowing them to continue with the tender. However, the whole tender was cancelled on the ground quoting presence of some technical fault in the tender document.

The High Court dismissed both the writ petition as well as writ appeals, holding that decision to cancel the tender was not driven by any ulterior motives on the part of the respondent, and therefore be not treated as an arbitrary action. The appellant cannot have his grievances redressed under Article 226 ¹⁵²of the Constitution of India as there was admittedly no failure of any statutory duty or any public law element involved in the decision of the KMDA. The grievance of the petitioner essentially related to specific performance of the contractual obligation by the KMDA, in respect of which appropriate civil remedies for redressal could have been availed, including prayer for damages for breach of the contractual terms. Therefore, the writ petition was not maintainable.

The Court had called for records of the entire decision-making process, which disclosed that the direction to cancel the tender by the KMDA was issued upon instructions of the minister concerned in compliance of such instructions. Not only this, a fresh tender with the very same scope of work had been reissued and awarded with the work orders to one another third-party agency thereafter in May 2023.

Issues for determination

The Court framed two issues essentially for its adjudication, as follows:

(I) What is the scope of judicial review of the actions of the State in the matters relating to contract/tender disputes under writ jurisdiction?

(II) Whether the action on the part of the respondent in cancelling the tender vide its notice dated 7-2-2023 was amenable to the writ jurisdiction of the High Court? If so, whether the said action could be termed as arbitrary or unfair and in consequence of violation of Article 14¹⁵³ of the Constitution of India?

Scope of judicial review in matter relating to government contracts/tender under writ jurisdiction

The Court then traced the earlier position of law and misconception of the State counteract as a largesse. Earlier any dispute arising out of the contract entered into the State or its instrumentalities could not be adjudicated by the Court under its writ jurisdiction. The real grievance was being treated as essentially one of breach of contract for which appropriate remedy would be an ordinary suit and not a writ jurisdiction. Referring to the earlier view in the said regard in Radhakrishna Agarwal v. State of Bihar¹⁵⁴ and Premji Bhai Parmar v. DDA¹⁵⁵, the Supreme Court had consistently held that any claim to a right flowing from a contract cannot be redressed through the writ jurisdiction except where some statute steps in and confers some special statutory power or obligation on the State in the contractual field. A party claiming breach of any stipulation or the contract essentially seeks the relief of specific performance, for which the remedy does not lie before the High Court but before the competent civil court. The State or its instrumentalities were held to be acting in their private capacity when the existence was of a “contractual relation”. The actions of the State were held to be within the field of contract i.e. within the realm of private law, not amenable to judicial review in writ jurisdiction. This more often than not led to the State abusing its position and acting unfairly under the misconceived notion that contracts and tenders were nothing but a “largess” — a generosity bestowed upon its citizens by the State, which can be altered, modified or taken away without any consequences. This resulted in arbitrary exercise of power by the State under the guise of a contractual dispute, which remained unchecked and undisputable before the courts and out of the reach of the judicial review.

The Supreme Court highlighting the aforesaid concerns in the judgment of Indian Medicines Pharmaceuticals Corpn. Ltd. v. Kerala Ayurvedic Coop. Society Ltd.¹⁵⁶, treated such an understanding of State contracts being a largesse as a “doctrinal misconception”. The use of such a terminology or largesse belittles the sanctity of the social contract which the people entered into with the State to protect and safeguard their interests. Referring to the judgment of M.C. Mehta v. Union of India¹⁵⁷, the Court underscored the theory that law has to grow in order to satisfy the needs of the fast-changing society and be abreast with the economic developments taking place in the country. Law cannot afford to remain static, with new principles and new norms evolving necessarily to deal with the new problems which arise in a highly industrialised economy.

In view thereof, courts have through with various judgments and precedents evolved doctrines and principles to guide their judicial review, such as principles of natural justice (PNJ) reasonableness and proportionality, anti-arbitrariness, and such other principles relating to scrutiny of administrative actions. The courts by enforcing such standards ensure that rule of law is maintained and individual rights are protected and not abused and at the hands of the mighty State. Referring to the judgment of Mahabir Auto Stores v. Indian Oil Corpn.¹⁵⁸, the Court held that the earlier theory of contractual relations being in the field of private law has undergone a sea change and decisions of the State are now subject to judicial review on very many grounds like reasonableness, fair play, natural justice, quality and non-discrimination. They are an integral part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens. Wherever the instrumentality of the State enters the contractual field, the aforementioned principles automatically become applicable as grounds of judicial review.

The Court then referred to a host of judgments, which have developed the aforesaid principles of judicial review by leaps and bounds in contractual matters, pulling it out of the purely private law field to that of public law. The judgments referred to by Supreme Court on the aforesaid aspect are as follows:

(a) LIC v. Consumer Education & Research Centre¹⁵⁹, wherein, Supreme Court laid down that contractual relations of State falling in the field of private law is no longer a good law. Actions of the State or its instrumentalities should always be guided by public interest, based on some rational and relevant principles. Distinction between public law and private law remedy stands practically obliterated. Wherever State or its instrumentality in the sphere of contractual relation is enjoined with a duty on an obligation to the public, such actions could bear insignia of a public element and the duty to act fairly is an integral part of procedure envisaged under Articles 14¹⁶⁰ and 21¹⁶¹ of the Constitution of India.

(b) Shrilekha Vidyarthi v. State of U.P.¹⁶², wherein the Supreme Court held that every action of the State that has some degree of impact on the public interest can be challenged under writ jurisdiction to the extent that they are arbitrary, unfair or unreasonable, irrespective of the fact that it falls within the domain of contractual obligations. It is the nature of a government body’s personality which characterises the action as having a public law element and not the field of law where such action is taken. Ultimate impact of all actions of the State or a public body being undoubtedly on public interest, the requisite public element gets permeated and resultantly present also in all the contractual matters.

(c) In Verigamto Naveen v. Govt. of A.P.¹⁶³ and ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd.¹⁶⁴, the Supreme Court held that wherever breach of contract involves decision-making authority exceeding its powers violating the settled principles of judicial review, being perverse and arbitrary, such cancellation of contract can certainly be scrutinised in writ jurisdiction. Even though cause of action arises out or pertains to contract, if after entering into a contract its cancellation is found foul of Articles 14 and 19¹⁶⁵, it can be scrutinised and set aside under writ jurisdiction. The mere fact that State or its instrumentality is a party to the contract places an obligation to act fairly, justly and reasonably.

(d) In M.P. Power Management Co. Ltd. v. Sky Power Southeast Solar India (P) Ltd.¹⁶⁶, wherein the Supreme Court held that the State even in contractual matters cannot play the Dr Jekyll and Hyde game anymore, but its nature is cast in stone, character inflexible irrespective of the activity it indulges in stone. It is haunted by the mandate of Articles 14¹⁶⁷ and 19 ¹⁶⁸of the Constitution of India. Therefore, the law laid down in Radhakrishna Agarwal case¹⁶⁹ and others does not hold good in view of the subsequent views taken by the Supreme Court in various cases.

The writ jurisdiction is available even at the stage prior to the award of a contract by the State wherever such an award of contract is imbued with procedural impropriety, arbitrariness, favouritism or without any application of mind. Even after the contract comes into existence, writ lies to check the action of the State in being just and fair in the performance of its obligations. The State can even be called upon to honour its obligation of making payments where there is no dispute regarding the payments of amount due to the aggrieved party from the State. The need to deal with disputed questions of fact cannot be made a smokescreen to guillotine a genuine claim raised in a writ petition, when actually the resolution of a disputed question of fact is unnecessary and has no bearing on grant of relief to a writ applicant. The breach of Articles 14¹⁷⁰ and 19¹⁷¹ enables writ court to deal with arbitrary State action even after a contract is entered into by the State

The relief under Article 226¹⁷² of the Constitution of India was held to be available even against termination or breach of a contract wherever such action is found to be either palpably unauthorised or arbitrary. The Court laid down various considerations, which shall apply for exercising its writ jurisdiction for setting aside the cancellation of the breach/termination of contract by the State in exercise of writ jurisdiction. Resort to the constitutional remedy cannot be denied by quoting civil court as an alternative appropriate forum for agitating such a dispute. Thus, there has been a considerable shift in the scope of judicial review by courts when it comes to contractual disputes one of the parties is the State or its instrumentalities. However, the courts may usually refrain from interference where specific modalities of the performance of the contract are involved or where judicial review may require fixing contractual stipulation since contractual power is per se, being used for public purpose it is certainly amenable to judicial review.

Applying the aforesaid law and principles to the case at hand, the Court held that notice of cancellation of February 2023 mentioned that the tender was terminated quoting certain technical faults in it. The respondents therefore exercised powers in their executive capacity and resultantly the decision to cancel the same fell outside the purview of the terms of the contract. Clearly the matter was purely a contractual dispute, but however, it involved a public law element, viz. corresponding public duty on the shoulders of the State to act in a reasonable and rational manner. Therefore, the writ petition was clearly maintainable, and really great form would have been considered by the with the exercise of its writ jurisdiction.

Arbitrariness in the context of contractual disputes and its impact on the eventual decision of the State

Referring to the judgment of Ramana Dayaram Shetty v. International Airport Authority of India¹⁷³, the Court stated that the State whilst entering into relationships, contractual or otherwise with any third party cannot act arbitrarily, but its action must conform to some standard or norm which is rational and non-discriminatory. Whether there is any discernable principle emanating out of the impugned act and if so, does it satisfy the test of reasonableness? Is the question to be applied to test whether any State action in contractual matters is arbitrary or not. Efficiency in administration requires a balance to be stuck between accountability and autonomy of action. For this, therefore the authorities are obligated to justify its action so assailed on the touchstones of justness, fairness and reasonableness. Referring to the judgment of Mahesh Chandra v. U.P. Financial Corpn.¹⁷⁴, the Court held that an arbitrary action per se is ultra vires and would not become bona fide merely because no personal gain or benefit to the person exercising discretion has been established. The fact that the State action is contrary to the purpose for which it was authorised to be exercised, imbued with dishonesty in discharge of duty vitiates the whole action without anything more. The courts therefore are duty-bound to find out whether the impugned decision is based on any discernible principle; to attend to the facts and circumstances of the case and find out whether the impugned State action is based on any principle. An action preceded by a total non-application of mind, without due regard to the rights of the parties and public interest may be a clear indicator of an arbitrary action. The exercise of scrutiny also involves overseeing whether the reasons which have been cited if at all genuinely formed part and basis of the decision-making process or whether they are merely a ruse/sham. The last test to be applied is whether the decision was based on valid considerations or not; ulterior motives or irrelevant considerations should not have peeped into the mind of the decision-maker to have influenced the ultimate decision.

Applying the aforesaid principles and tests of scrutinising the State action as to whether it was vitiated by arbitrariness or not, the Court held that tender was stated to be cancelled on grounds of technical fault, it was found to be “non-specific and not well defined” and was stated to have led to ambiguity resulting in financial losses to the respondent. The cancellation was also attributed to a change in policy whereby its operation and maintenance had been transferred from KMDA to KMC by the respondents.

The Court on scrutiny of the complete records and the file relating to cancellation of tender of the petitioners found that there was no mention of any such lacuna in the notice of cancellation issued by the respondents. Neither there is mention of any technicality in the tender, nor any specification of the clauses which led to respondent incurring financial losses. Prior thereto, the notice which was issued in January 2023 was so issued without mention of any technical faults in the tender of the respondent, but an altogether different reason that operation and maintenance was being transferred to another authority, viz. KMC.

Distinguishing various judgments, holding that internal notings on the file can have no decisive value, the Court held that once a decision has been officially made through proper means and channel, internal deliberations or file notings, which form part of the decision-making process can always be looked into by the Court for the purposes of judicial review to satisfy itself about the impeccability of the decision taken by the authority. Referring to the judgment of State of Bihar v. Kripalu Shankar¹⁷⁵, the Court further held that internal file notings reflect the views and line of reasoning and thinking of a particular officer. Until the views so expressed culminate into an executable order, the question of disobedience cannot arise, but however all opinions, deliberations and notings in the internal files become a part of the process by which the final decision has been arrived at and can be looked into for the purposes of judicial review.

Accordingly, after going through and perusing the internal file notings of the respondent KMDA, the Court concluded that there was no discussion or opinion formed at any level or even a whisper about technical faults or some anomaly in the clauses of the tender document. In fact, the cancellation of tender was found to have been affected for an altogether different and alien reason, viz. on the directions of the Minister-in-Charge as the Chairperson of the respondent authority who suggested and directed for cancellation of the work order through a cryptic non-reasoned direction issued to all the subordinates. Thus, the cancellation was clearly at the behest of the minister concerned and not for any objective considerations which pushed all the lower ranked officers to devise and contrive reasons for its cancellation. The Court also found that no prejudice would have been caused to KMDA with the transfer of the tender to KMC since even after transfer or change in policy, the rights to continue charging licence fee remained well with the KMDA. The tender that was issued in favour of appellant was distinct from the maintenance that was handed over to the KMC, since the scope of the tender and what was transferred was entirely different. It is the KMC only who floated a fresh tender immediately after cancelling the same so issued in favour of the petitioner with the same scope of work, in respect of the same subject-matter and thus it is clear that aforesaid change in policy had absolutely no bearing on the cancellation of the tender. The cancellation of the tender was therefore not in public interest, but for favouring a third party, to whom the tender came to be eventually reallotted. Also, there was no material produced by the respondents before the Court to demonstrate that cancellation had been affected because of financial losses arising from the aforesaid tender. Referring to the judgment of City & Industrial Development Corpn. of Maharashtra Ltd. v. Shishir Realty (P) Ltd.¹⁷⁶, the Court held that mere possibility of generation of more money in public coffers does not in itself serve “public interest”. State cannot forgo contractual obligations with respect to concluded and duly executed tenders on blanket claims of loss of public money not supported by any evidence or material. The larger public interest of upholding and respecting contractual obligations, and fairness of public authorities have an important real role to play, when contrasted with the mere possibility of more money in the public coffers. Referring further to the judgment of Vasantkumar Radhakisan Vora v. Port of Bombay¹⁷⁷, the Court held that whenever any public authority seeks to resile or relieve itself from any contractual obligation, it is legally bound to first show material or circumstances by which public interest would be jeopardised if enforcement of the same is insisted. It is bound to place before the Court material, circumstances, grounds and evidence on which it seeks to resile from the promise or obligations undertaken already. Therefore, public interest can never be conflated with an evaluation of the monetary gain or loss alone. Such decisions must be based on careful consideration of all relevant factors, including the potential harm to the integrity and sanctity of contractual relationships and also the larger interest of upholding contracts resting on the shoulders of the State. Thus, the respondent’s stance of possibility of earning higher licence fee as a pretext to cancel the tender issued to the petitioner appellant was found to be clearly unsustainable by the Supreme Court. The Court held that lis at hand was nothing, but a classic textbook case of an arbitrary and capricious exercise of powers by the respondent to cancel the tender that was issued to the appellant on the basis of extraneous considerations and the behest of none other, but the Minister-in-Charge concerned.

The Court then addressed one very important aspect regarding the sanctity of tenders in public-private partnership procurement (for short, “PPP projects”). Holding that public tenders are the cornerstone of governmental procurement processes, necessity to act with transparency, justness and fairness arises and emanates from the “doctrine of public trust”. The State cannot be permitted to use resources at its disposal as it pleases, but merely as a trustee of the public at large. Referring to the judgment of Nagar Nigam v. Al Farheem Meat Exports (P) Ltd.¹⁷⁸, the Court held that termination of any validly executed contract preceded by a valid tendering process must bound the State strictly and resort to termination must be made in exceptional cases wherever there is no other alternative. When public authorities enter into contracts they create legitimate expectations that the State will honour its obligations. Arbitrary or unreasonable terminations undermine these expectations and erode the trust of private players from the public procurement processes and tenders. The promises made by a public authority by way of a contract after a valid tendering process creates a legitimate expectation, which in turn is protected by the shield of Article 14. Arbitrary terminations of contract discourage public participation in the tendering process, and leave a negative impact on the overall PPP ventures, the ultimate sufferer of which is the public. The very purpose of having the arrangement of PPP ventures in place is defeated, which frustrates the very object of public interest. The Court accordingly cautioned all the State and public authorities to be circumspect in disturbing or wriggling out of their contractual obligations beyond the terms of the contract in exercise of the executive powers, as it has a very chilling effect on the successful party winning the tender.

Conclusion

Accordingly, the Court after detailed analysis as aforementioned held that various notices of cancellation issued to the petitioner were all non est, and third-party rights created in favour of a new contractor with the issuance of a fresh tender also was held to be bad in law. The vested rights having been accrued in favour of the petitioner with the execution of a final contract would continue to operate notwithstanding any change in the control and maintenance of the underpass or being allotted to a third party. The appeal was thus allowed by the Supreme Court, whilst setting aside the judgment of the High Court.

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(10) Al-Can Export (P) Ltd. v. Prestige H.M. Polycontainers Ltd.¹⁷⁹

(Delivered on 9-7-2024)

Coram: 2-Judge Bench of J.B. Pardiwala and Manoj Misra, JJ.

Authored by: HM J.B. Pardiwala, J.

The batch of appeals arose out of common judgment and order passed by the Bombay High Court, through which the writ petitions were dismissed, affirming the common orders passed by Additional Commissioner (for short, “Addl. Commr.”) Konkan Division, Mumbai which set aside the auction sale convened under the provisions of Maharashtra Land Revenue Code, 1966 (for short, “MLRC”)¹⁸⁰. The subject-matter of the litigation related to legality, validity and propriety of the auction proceedings conducted by the Tahsildar, Talasari originally owned by the R1 Prestige H.M. Polycontainers Ltd. The appellant pertinently was declared as a successful bidder, with the sale certificate being issued in his favour by the Additional Collector, Thane after convening the auction sale.

Factual matrix

R1 defaulted in repayment of loan and borrowing facilities taken from State Bank of India. Accordingly, the account after being classified as non-performing asset (NPA) was transferred to Asset Reconstruction Company (India) Ltd. (for short, “ARCIL”) for recovery of the outstanding debts due and payable from R1. Accordingly, proceedings for recovery of the aforesaid loan amount were issued under the MLRC Act¹⁸¹ as well as the Rules by the Tahsildar’s office, followed by auction of the same in December 2008. The appellant being declared as the highest bidder was issued the sale certificate and was transferred the ownership and possession of the auction property.

In a challenge being made, the Addl. Commr. exercising appellate powers set aside the sale being marred by a number of illegalities. The Addl. Commr. accordingly quashed the sale and directed for restoration of property back to its original owner, R1. The said order of Addl. Commr. was challenged before the High Court, which writ petitions came to be dismissed affirming the order passed by the Addl. Commr.

Issues for determination

The Court accordingly framed two essential issues for its consideration on the basis of arguments advanced by both the parties:

(a) Whether the provisions of Order 21 Rule 90¹⁸² of the Civil Procedure Code, 1908 would apply to the writ proceedings under Article 226¹⁸³ of the Constitution?

(b) Whether the Addl. Commr., Konkan Division, Maharashtra had the jurisdiction to decide the two appeals filed by Respondents 1 and 6 respectively under Section 247¹⁸⁴ of the Maharashtra Land Revenue Code, 1966?

In Re Issue 1 — Applicability of the Civil Procedure Code, 1908 to proceedings under Article 226 specially Order 21 Rule 90

The Court then proceeded to examine whether and to what extent provisions of the Civil Procedure Code, 1908¹⁸⁵ specially Order 21 Rule 90¹⁸⁶ of the Civil Procedure Code, 1908 were applicable. Referring to the judgment of Chilamkurti Bala Subrahmanyam v. Samanthapudi Vijaya Lakshmi¹⁸⁷, the Court held that a sale which has concluded in execution proceedings under the Civil Procedure Code, 1908¹⁸⁸, cannot be toppled or set aside on mere bald allegations of fraud or material irregularity. The fact as well as charge of fraud and material irregularity must be established to be reasonably sustained so that the sale so convened can be nullified on the grounds of material irregularity or fraud. The party is also obligated to prove further reasonably that such a fraud or material irregularity in the process of auction and creation of third-party right has actually resulted in substantial injury to such party, perceivable and visible to the Court. The Court then traced legislative changes incorporated in Order 21 Rule 90¹⁸⁹ for limiting the scope and restricting the possibilities of nullification of auction sale convened in execution proceedings.

However, it also held that there is a substantial difference between auction sale conducted in the execution proceedings towards satisfaction of a decree vis-à-vis auction conducted by the State through its revenue authorities like Tahsildar, etc. Though the former carries a lot of sanctity, being aimed at compliance of orders and decrees of the Court passed earlier, the same amount of sanctity may not attach to the auction sale conducted by the State instrumentalities.

Prior to 1976, Section 141¹⁹⁰ of the Civil Procedure Code, 1908 provided that it shall apply in all proceedings in any court of civil jurisdiction. There was a sharp cleavage of opinion on the interpretation of aforesaid Section 141¹⁹¹. Referring to the judgments of State of U.P. v. Vijay Anand Maharaj¹⁹² and Babubhai Muljibhai Patel v. Nandlal Khodidas Barot¹⁹³, the CB of the Supreme Court held that jurisdiction of the High Court under Article 226¹⁹⁴ is “extraordinary civil jurisdiction” and not an ordinary/regular civil jurisdiction. Though original in character as contrasted with its appellate and divisional jurisdiction, it is different from the regular civil jurisdiction exercised by civil courts. Therefore, it would be incorrect to assimilate and incorporate the procedure of a civil suit into the proceedings of Article 226¹⁹⁵ petitions.

However, to dispel and dilute the confusion that had taken place owing to varied interpretations of Section 141¹⁹⁶ of the Civil Procedure Code, 1908, through the Civil Procedure Code (Amendment) Act, 1976 (1976 Amendment)¹⁹⁷, Explanation came to be added to Section 141, stating as follows:

Explanation.— In this section, the expression “proceedings” includes proceedings under Order 9, but does not include any proceedings under Article 226 of the Constitution.¹⁹⁸

Referring to the judgments of Puran Singh v. State of Punjab¹⁹⁹, on the interpretation of amended Section 141²⁰⁰, the Court held that it is always open to the High Court to adopt its own procedure for granting relief to the persons concerned, a procedure which can be held to be not only reasonable, but also expeditious. Therefore, the High Court post the Amendment of 1976²⁰¹, cannot be expected to follow the procedures prescribed in the Civil Procedure Code, 1908²⁰².

It would therefore not be correct to hold that terms, tenor, and conditions of Order 21 Rule 90²⁰³ will have to be mandatorily complied with whilst assailing any auction sale under Article 226 ²⁰⁴writ petitions. The High Court exercises writ jurisdiction as its inherent powers under Article 226²⁰⁵, whereas the civil courts exercise their jurisdiction in terms of the provisions of the respective State Civil Courts Act read with Section 9²⁰⁶ of the Civil Procedure Code, 1908. The High Court exercises constitutional functions, whereas civil court exercises statutory functions, and for doing substantial justice between the parties, even reliefs can be moulded by the High Court in exercise of its extraordinary civil jurisdiction. Referring to the judgment of Tata Cellular v. Union of India²⁰⁷, the Court stated that judicial power of review is exercised to rein in any unbridled executive functioning. Wherever the legality, validity and propriety of the auction sale conducted by the State or its instrumentalities is questioned on the ground of mala fide, undue favour, extraneous consideration and gross violation of mandatory provisions of law, it would be unjust and assiduous to apply the provisions of Order 21 Rule 90²⁰⁸ of the Civil Procedure Code, 1908. The Constitutional Courts have a duty to ensure that State authorities have conducted public auctions in a fair and transparent manner, having not done anything by which the public exchequer has suffered. Once the action of the State is found to be unfair and arbitrary, then that is the end of the matter so far as the writ court is concerned.

The Court then examined various set of illegalities in the auction sale proceedings so conducted by the State authorities. It was found that mandatory provisions relating to conduct of auction, issuance of sale confirmation and opportunity to raise objections before the physical possession being transferred were blatantly and brazenly violated. Thus, the aforementioned lapses cannot be brushed aside as mere irregularity but amounted to gross illegality when rules and regulations are not followed or abridged. Whereas the former (gross illegality) goes to the root of the matter and renders the action null and void, removing the very foundation of the administrative action or decision; the latter (irregularity) does not ipso facto invalidate the action, unless prejudice is caused to the person making a complaint even if material irregularities are taken note of. Referring to the judgment of Ashutosh Sikdar v. Behari Lal Kirtunia²⁰⁹ and Holmes v. Russel²¹⁰, the Court distinguished between “nullity” and “irregularity” of any administrative action or decision. Unreasonable action of any public authority is arbitrary and any arbitrary action is ultra vires. It does not become bona fide and in good faith merely because no personal gain or benefit has enured to the person exercising discretion has been established. An action is mala fide if it is contrary to the very purpose of which it was authorised to be exercised. Dishonesty in discharge of duty vitiates the action without anything more. If the authority has been found to have acted contrary to reason, even without proof or motive or dishonesty, the action becomes bad in law and suffers from mala fide.

In Re Issue 2 — power and competence of the Addl. Commr. to adjudicate on the two appeals of the original borrower R1 questioning the validity of the auction sale

The Court found that remedy under Section 210²¹¹ of objecting to the auction sale so effected by the concern Tahsildar only delegatee of the SG lies under Section 210²¹² prior to transfer of possession. However, in the present case, much prior to the issuance of sales certificate, the physical possession had been transferred and therefore clearly the remedy of appeal before the Addl. Commr. was available to the aggrieved party. Once the sales certificate was issued, then the remedy for the aggrieved person fell only under Section 247²¹³ (appeal and appellate authorities) and not under Section 210²¹⁴ of the Revenue Code of raising objection before the very same authority.

The Court further held that issuance of writ or quashing/setting aside of any order shall be avoided by the writ court, if the consequence is revival of another pernicious or wrong or illegal order. The writ court in such cases declines to interfere in the matter refusing to exercise its discretionary powers conferred upon it. Referring to the judgments of Gadde Venkateswara Rao v. State of A.P.²¹⁵ and Chintamani Saran Nath Shahdeo v. State of Bihar²¹⁶, the Court held that writ court should not quash any order if the result is revival of a wrong or illegal order passed earlier. Accordingly, the Supreme Court held that even though the Addl. Commr. had allowed the appeal and remanded the matter back to the authority concerned, the High Court rightly chose not to disturb it in view of the glaring illegalities in the auction proceedings so convened by the competent Revenue Officer concerned.

Conclusion

In view of the foregoing decision, Supreme Court held that High Court committed no error in dismissing the writ petitions/appeals, but in view of the fact that appellant has made substantial investments and employed large number of people in setting up of the oxygen manufacturing plant, therefore it would lead to injustice to them, more so when the litigation took 15 years to be decided finally. The appellant was accordingly directed to deposit an amount of Rs 4 crores with the ARCIL towards full and final settlement of all the liabilities. If the appellant failed to deposit the amount within the time so fixed, the Court directed the competent authorities to take over the physical possession of the entire unit with the land in question and put the same once again for sale by way of fresh auction process. Accordingly, the special leave petitions (SLPs) were disposed of.

***

(11) Omsairam Steels & Alloys (P) Ltd. v. State of Odisha²¹⁷

(Delivered on 15-7-2024)

Coram: 2-Judge Bench of Sanjiv Khanna and Dipankar Datta, JJ.

Authored by: HM Dipankar Datta, J.

Appeal arose out of judgment of the Orissa High Court dismissing the writ petition, which had sought for reconvening of the e-auction of mining lease by the Director of Mines and Geology, Bhubaneshwar (for short, “DGM”) through MSTC Limited. The challenge was laid to e-auction on the ground that the petitioner had erroneously filled the figure of final price offer (for short, “FPO”) over and above the floor price as 140.10%, instead of filling the correct figure of 104.05% after 136 attempts made by the bidders. The appellant contended both before the High Court as well as the Supreme Court that he could not get a sufficient and adequate opportunity to rectify the typographical mistake that had occurred of erroneously filling the figure of 140.10% instead of 104.05% in their attempts. The High Court held that petitioner is bound by the terms of the bid document so framed under Mineral (Auction) Rules, 2015 (for short, “the Auction Rules”). The High Court dismissing the writ petition further held that appellant having made a mistake admittedly cannot be allowed to resile by pleading the same at a subsequent stage and stands bound by the bid offered by him. It is beyond the confines of the writ jurisdiction.

In view thereof, the Supreme Court framed the solitary issue as to “whether the appellant had made out a case of attributing the bid of 140.10% as a bona fide mistake, praying for recommencement of the e-auction process”.

The Supreme Court after examining the visual step by step e-auction process of submission of bid found that the electronic system apparently does not provide any option to cancel the bid once confirmed by the bidder or to retype the bid amount, should any error or mistake in the bid be noticed. In case of any error or mistake, the only option available to the bidder is to submit the bid with the digital signature certificate (for short, “DSC”) choose not to submit the bid with DSC and quit the process at the said stage only without submission of the said certificate. Thus, in a way the system of e-auction does not permit human error or mistake, rectification of which can be carried out immediately.

The Court also found that appellant immediately on discovering the error made in the bid submission on the pop up being displayed after submission of the DSC started making calls frantically and even sent an email within 24 hours to the DGM for rectification of the bid. However, the said email was responded in the negative by the auctioneering authorities, leaving the petitioner hapless.

Referring to the judgment of Silppi Constructions Contractors v. Union of India²¹⁸, the Court stated that magnifying glass should not be used by it whilst scanning the tenders and treating every small mistake as a big blunder. The Courts must give “fair play in the joints” to the Government and public sector undertaking in the matter of contract. Not every mistake must be blown up unreasonably and a fair balance between the interest of the Government and private entities must be struck. At the highest, the petitioner’s error was a mere typographical in nature and thus principles of proportionality, reasonableness, and equity require sympathetic and equitable consideration of his case.

Referring to the judgment of W.B. SEB v. Patel Engg. Co. Ltd.²¹⁹, the Court discussed the guidelines laid down thereunder for the courts to grant relief on equitable grounds of commission of mistake by the private entity in the tender process. One of them permitted the bidder to withdraw his bid if a mistake is discovered immediately after opening of the bid and if diligent efforts are made to get the error rectified. Accordingly, the Court held that admittedly on discovering the bid, the appellant took all necessary steps of seeking the typographical error rectified by making repeated calls and sending an email immediately within 24 hours, all of which remained either unanswered or elicited negative response. No rule or clause in the whole bid document or the Auction Rules was brought to the Court’s notice which provided bidders some scope of correction. Thus, no opportunity was available on the e-platform for the appellant to rectify the error having once entered it. Either the bidder had to suffer the effects of the error or mistake i.e. forfeiture of bid security or failure to deposit the first instalment of the front payment or quit the process realising such error/mistake having been committed by it. The bidder was thus caught between the devil and the deep sea. The Court thus found it unconscionable to hold the appellant accountable of the evidently extravagant bid erroneously/mistakenly offered. Even there is no sense in compelling the appellant to perform a commercially unviable contract. The path of rendering justice would suffer if appellant is allowed to be subjected to disproportionate punishment as proposed by the respondent authorities. Having regard to the trend of rate of enhancement of bid by the appellant and all the competitive bidders after scrutinising all the 137 attempts, the Court found that bidders were playing safe by marginally increasing the prevailing bid price to test each other’s extent of progression. In 136 attempts, the bid price had migrated from 84% (floor price) to the highest of 104.05% after 7 hours of bidding. Therefore, there was no question of an appellant intending to enhance the bid straight away to 36.05% which makes little commercial sense as no bidder would like to outrun all other competitors by jumping straight from 104.05% to 140.10%, when admittedly till the preceding bid each one of them had been crawling very minutely.

Referring and elaborating the doctrine of proportionality in the judgment of Coimbatore District Central Coop. Bank v. Employees Assn.²²⁰, the Court held that it is not permissible to use a “sledgehammer to crack a nut” and “where paring knives suffices, battle axe is precluded”. In the absence of any mala fides or the conduct being driven by conscious knowledge on the part of the bidder, forfeiture of the entire deposit hanging over the appellant’s head can hardly be treated as being in either party’s best interest. The respondents were advised to provide a window and cross-check possibility from the bidding parties to avoid any human error and mistakes.

However, the Court also found that though it was a human error on the part of the petitioner bidder, however it also evinced a degree of remiss and carelessness on their part, which has led to loss to the public exchequer heavily in terms of time, effort and expense. Accordingly, while setting aside and quashing the impugned communication proposing forfeiture of the entire security deposit of Rs 9.12 crores, the Court directed the appellant to deposit an amount of Rs 3 crores with the respondents within a month from the date of judgment. Rs 25 lakhs out of this amount of Rs 3 crores was directed by the Court to be expended towards charitable purposes for development of the young tribal population of the district where the subject mine is situated. Accordingly, the civil appeal was partly allowed by the Supreme Court.