SC quashes West Bengal’s decision to cancel contract, says State not absolute owner of resources

“Public tenders are a cornerstone of governmental procurement processes, ensuring transparency, competition, and fairness in the allocation of public resources.

“It emanates from the Doctrine of Public Trust which lays down that all natural resources and public use amenities and structures are intended for the benefit and enjoyment of the public.

“The State is not the absolute owner of such resources and rather owns it in trust and as such it cannot utilise these resources as it pleases…,” said a bench of Chief Justice D Y Chandrachud and justices JB Pardiwala and Manoj Misra.

In an 83-page judgement for the bench, Justice Pardiwala said as a trustee of public resources, the State owes a duty to ensure that community resources are put to fair and proper use that ensures the benefit of the public.

The verdict said there was an obligation on the State to not indulge in any favouritism or discrimination with these resources.

It also dealt with the scope of judicial review of the actions of the State in matters relating to contract and tender disputes under writ jurisdiction.

“A relief by way of a writ under Article 226 of the Constitution will also lie against a termination or a breach of a contract, wherever such action is found to either be palpably unauthorised or arbitrary.

“Before turning away the parties to the remedy of civil suit, the courts must be mindful to see whether such termination or breach was within the contractual domain or whether the State was merely purporting to exercise powers under the contract for any ulterior motive,” it said.

Any action of the State to terminate a contract, which is beyond the terms agreed, will be amenable to the writ jurisdiction to ascertain if such decision is imbued with arbitrariness or influenced by any extraneous considerations, it said.

Referring to the facts of the case, it said, “We are of the considered opinion that the present lis (litigation or case) is 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 at the behest of none other but the concerned Minister-In-Charge.”

It held that there was an arbitrary exercise of powers by the state authorities in cancelling the tender “that too at the behest of none other than the concerned Minister-In-Charge and thereby rendering the Notice of Cancellation dated February 07, 2023 illegal.” “As, we have held the Notice of Cancellation …to be non-est, the issuance of a fresh tender to any third-party in respect of the same work would not defeat the vested rights that accrued in favour of the appellant.

“Thus, for all the foregoing reasons, the appeal succeeds and is hereby allowed. The notice of cancellation dated 07.02.2023 is quashed and the impugned judgment and order passed by the High Court is hereby set aside,” it said.

The top court had reserved the judgement on May 8.

Referring to the facts of the case, the CJI had said no reason was given for cancellation of the contract.

A division bench of the high court had on May 25, 2023, upheld the verdict of a single-judge bench which had approved the cancellation of the contract awarded to a firm headed by Subodh Kumar Singh Rathour.

The firm had secured the contract for maintaining two underpasses on the Eastern Metropolitan Bypass in Kolkata for 10 years.

As part of the contract, the firm was allowed to place advertisements both inside and above the underpasses for which it was required to undertake some construction work.

However, the contract was terminated by the KMDA (Kolkata Metropolitan Development Authority) on February 7, 2023.

The KMDA had made it clear that it would refund the licence fee deposited by Rathour and the cost incurred by him on construction activity and maintenance etc.