Judicial Review in Public Contracts: Supreme Court Strikes Down Arbitrary Tender Cancellation

The Supreme Court of India recently delivered a significant ruling in the case of Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors., addressing the scope of judicial review in contractual disputes involving public authorities. The case revolved around the arbitrary cancellation of a public-private partnership (PPP) tender, raising crucial questions about fairness, transparency, and state accountability.

Background of the Case

The appellant, Subodh Kumar Singh Rathour, was awarded a tender by the Kolkata Metropolitan Development Authority (KMDA) for the maintenance of two underpasses on a public-private partnership basis. However, the tender was later canceled by the authorities, citing technical faults and financial losses.

The case emerged when the Urban Development and Municipal Affairs Department of West Bengal transferred the maintenance of the E.M. Bypass and associated underpasses to the Kolkata Municipal Corporation (KMC). Consequently, KMDA issued a notice canceling the tender, stating technical ambiguities and financial losses.

Arguments by the Petitioner

The petitioner contended that the cancellation was arbitrary and influenced by extraneous considerations. He argued:

The contract was validly executed, and cancellation lacked a rational basis.
The internal file notings showed that the decision was taken at the instruction of a Minister without an independent evaluation.
The policy change cited as a reason for cancellation was not a valid justification, as KMDA retained advertisement rights.

Arguments by the Respondent

The respondents, represented by senior counsel, argued:

The contract was a purely contractual matter, not subject to judicial review under Article 226.
The cancellation was necessary due to technical faults in the tender, including ambiguities in advertisement rights.
The decision was taken in public interest and to maximize revenue collection.

Supreme Court’s Analysis

The Supreme Court, while adjudicating the matter, made crucial observations on judicial review in contractual matters:

Public Law Element: Even in contractual disputes, where state action is arbitrary, courts can intervene under Article 14.
Internal File Notings: The Court scrutinized internal documents revealing that the cancellation decision was driven by political influence rather than genuine reasons.
Public Interest: The Court rejected the argument that more revenue could be generated as a valid reason for cancellation, stating that contractual sanctity must be maintained.
Doctrine of Legitimate Expectation: The appellant had invested significant resources in the project and had a legitimate expectation that the contract would be honored.

Final Verdict

The Supreme Court ruled in favor of the appellant, setting aside the tender cancellation. The Court held that:

The cancellation order was arbitrary and illegal.
The contract must be upheld to protect the integrity of public-private partnerships.
Public authorities must act fairly and transparently, ensuring procedural fairness.

The ruling reinforces the principle that public authorities cannot arbitrarily cancel contracts under the guise of policy changes or financial interests. It underscores the need for fairness, transparency, and adherence to legal obligations in public tenders.

Impact of the Judgment

Precedent for Public Contracts: The ruling sets a precedent ensuring that state entities cannot arbitrarily cancel validly awarded contracts.
Judicial Scrutiny on Government Actions: Courts can intervene in contractual matters when the state acts unfairly or arbitrarily.
Investor Confidence in PPP Models: The decision strengthens the legitimacy of PPPs, ensuring that agreements are honored unless compelling reasons justify termination.
Protection Against Political Influence: The ruling highlights the need for independent decision-making in public contract awards and cancellations.

Conclusion

The Supreme Court’s ruling in this case serves as a landmark judgment ensuring transparency and accountability in public contracts. By striking down an arbitrary cancellation, the Court has reinforced the fundamental principles of fairness and non-arbitrariness in government decision-making. This case will serve as a guiding precedent in matters of judicial review in contractual disputes.

Petitioner Name: Subodh Kumar Singh Rathour.
Respondent Name: The Chief Executive Officer & Ors..
Judgment By: Justice Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala, Justice Manoj Misra.
Place Of Incident: Kolkata, West Bengal.
Judgment Date: 09-07-2024.

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