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The Vice-Chairman And Managing Director-City And Industrial Development Corporation Maharashtra And Another Vs Shishir Realty Private Ltd And Others: Businessmen Will Be Hesitant To Enter Govt Contracts If Undertakings Are Altered On Mere Change Of Person In Power Says SC

Kawmini Liyanage ,
  07 December 2021       Share Bookmark

Court :
Supreme Court of India
Brief :

Citation :
[2021] SC 692

DATE OF JUDGEMENT
29th November 2021

BENCH
Chief Justice N V Ramana
Justice Vineet Saran
Justice Surya Kant

PARTIES
Appellant/s- The Vice Chairman and Managing Director-City and Industrial Development Corporation Maharashtra Ltd. & Anr.
Respondent/s- Shishir Realty Private Ltd & Ors etc.

SUBJECT

The State and its officials are obliged to uphold the contracts that have been entered by previous regimes, despite the change of power. In the event of its violation of Public Interest or serious loss caused to the treasury, it is mandatory to provide factual and numerical evidence to back their reasoning.

LEGAL PROVISIONS

Article 14 of the Constitution- Right to Equality

Doctrine of Estoppel

OVERVIEW

  • The tender was called by the City and Industrial Development Corporation of Maharashtra (CIDCO) to lease a certain property (land) for infrastructural development.
  • Metropolis Hotels the 1st Respondent bid on this tender who was objected to by Indian Hotels Company Ltd. Yet, the CIDCO officials rejected the objection and proceeded with the 1st Respondent as it was the highest bidder.
  • Letter of allotment issued by CIDCO to the 1st Respondent officially confirms the winning of bid. Later with the global pandemic and recession, there were a couple of requests to change of use of land made to the CIDCO which got accepted.
  • A similar action was taken by Shishir Realty Private Limited who is also a partner in the allotment.
  • Due to complaints made to CIDCO regarding alteration from the terms and conditions a preliminary inquiry was held by the officials of the Urban Development Authority.
  • According to its findings, the aforementioned allotments for winning bids got cancelled.
  • The decision was challenged by the said Companies and the High Court quashed the cancellations as the authority was initially granted by CIDCO and failed to provide factual evidence and figure on behalf of CIDCO and based on Estoppel.
  • Said decisions were appealed by CIDCO which was taken into examination in the presence of Honourable Chief Justice N V Ramana, Justice Vineet Saran and Justice Surya Kant.

SUPREME COURT FINDINGS

After giving careful consideration to the filed appeals, contestations made by each party as well as the findings by the High Court namely;

  1. The questioned alterations of the course made by the Shishir Realty Private Limited and Metropolis were duly requested and approved by CIDCO.
  2. The contentions brought by the CIDCO was Public Interest Litigation and the financial blow to the treasury, yet they have failed to demonstrate the factual evidence and numerical evidence which supports their reasoning.
  3. The doctrine of estoppel binds CIDCO to fulfil its obligations relevant to the said contracts.

And based on the decision of the High Court, the following findings were made by the Supreme Court:

  1. Dissolving over hyper-technical reasons cannot be granted as it is contrary to the doctrine of fairness.
  2. Initiating the tender process therein after receiving money from the selected bidders and changing tender allotment is an act of abusing bureaucratic power.
  3. Further, the mere use of the ground public interest or financial loss caused to treasury cannot redeem the decisions taken by the previous regime; unless factual and figurative evidence is provided.
  4. Constitution on the chapter of Fundamental rights strongly establishes the guarantee against arbitrariness by ensuring the exercise of a transparent, fair process.
  5. Even in the instance of public interest demand being contradictory a degree of consideration should be given to private legitimate expectations.

ISSUES

  1. Whether M/s Metropolis Hotels is eligible to participate in the bidding process?
  2. Whether being partners M/s Metropolis Hotels and M/s Sun-N-Sand Hotels are qualified to make two separate bids?
  3. Whether the transferring of lots to Shishir Realty Pvt Ltd was consistent with terms and conditions of the tender or allotment letter between CIDCO and respective other parties?
  4. Whether the cancellation of contracts made by the appellant lawful in the face of Law?

JUDGEMENT ANALYSIS

  • The court initiated its judgment by way of commenting on the “Role of Constitutional Courts in revising tender procedure” hence, the government has been evolved into commercial engagements the need of entering into contracts has arisen. In such a scenario certain institute representing the government needs the authority to enter into agreements and contracts with private parties or personals. The protagonist; Constitutional Court is there not to oppose all such agreements that have been entered into by governmental institutions but to uphold the Law through such agreements. In the event of a violation of law, the Constitution frowns upon it. In such an event, the judiciary has the power to intervene and take necessary actions to re-establish constitutionality. The part played by the courts in administrative decision making is enumerated by the Supreme Court through referring to English Law principles set out by Lord Diplock in the decided case of Council of Civil Service Unions v. Minister for the Civil Servicewhere the decisions made by administrative officials succumb into illegality, irrationality, procedural impropriety and legitimate expectation.Which enhanced the scope of judicial review M/s Star Enterprises v. City and Industrial Development Corporation of Maharashtra Ltd. Was referred to showcase judicial review application into the commercial hemisphere.
  • The decisions taken by administrative wings are considered to be decisions of the executive. Such needs to abide by the Law. It is vital to maintain the natural law principles, equity and justice. The inquiry held by the Urban Development Authority regarding the petitions lodged against the respondent/s has not been notified to the respondent/s. and the inquiry has been conducted against them without informing the said party. And without allowing them to hear the respondent’s view. This is a clear violation of the principles of natural justice. The Suo motu characteristic of the inquiry is an infringement of the rights of the parties who are already engaged. the right to hold an inquiry without notifying the parties or Suo Motu is recognized by the Indian Constitution. But the power has been strictly limited to Supreme Court as it can be easily abused causing a grieving violation of fundamental rights. Article 32 along with Article 226 of the Constitution recognizes this power. The Urban development authority only sent a notice to show-cause post inquiry which emphasis the further deviation from the process of ensuring natural justice and irregularity.
  • When evaluating the legality of the bid posted by the said Metropolis Hotels the opposing argument was constructed on the fact that it has been duly registered as a partnership at the time of bidding. The Metropolis was informed that their status at the time was as they have already initiated the registration process and was in the middle of it while making the bid. Knowing that only CIDCO granted clearance for bidding. Hence, the knowledge possessed by CIDCO relevant to the registration process gives the legality to bid posted by the Metropolis. Raising such an issue of eligibility after charging the respondent transfer fees is unethical. As well as CIDCO has given up their right to contest at the moment of receiving money. This signifies the principles in contract law as they have accepted the offer and started to proceed with the mechanism.
  • Moreover, the separate bid posted by M/s Sun-N-Sand Hotels Pvt Ltd. was taken into consideration along with the principle of Public interest which should have accompanied the law of partnership as well. Since when a partnership is formulated, the parties are liable for their actions jointly and severally. Unlike a company, a partnership does not recognize as a legal person. Hence the liability of their action vests with each person who initiates such action. Which has not been addressed in the judgment. Further, the fact that it does not impose a contradiction to the public interest was discussed in the judgment. Furthermore, the tender document states as follow;
  • “4. Who is eligible to offer to acquire plot... (c) A partnership firm registered under Indian Partnership Act, 1932 is eligible to offer to acquire plot. The offer shall be signed by all partners and enclosed with a true certified copy of Deed of Partnership and certificate of registration.” Which recognize both bids posted regarding the tender.
  • The court examined the contradictory clauses that have been included in the documents provided by CIDCO. Which resulted in several disputes. Hence, the court advises on the importance of due diligence and the necessity of careful drafting especially given the fact that it is a governmental institution. Which has high stakes and responsibilities.
  • Lastly, the issue of altering from the set-out purpose was taken into examination by the court. As per the Cause 16 of General Terms and Conditions and corresponding condition 21 of the Allotment letter it was established that the allottee was granted the right to transfer or transact the rights, interests, benefits to a third party. The fact that tender was called in 2008 amid financial recession around the world was also taken into consideration. Along with the fact that the proposed Navi Mumbai Airport is adjacent to the said land. The frustration of the contract has been created at the moment where they failed to construct the airport as the tender was made to the development of land by way of a five-star hotel based upon the proposed project of the airport. Hence. It was necessary to give a proportionate value and consideration to private legitimate expectations. Quoting Jagadish Mandal v. the State of Orissaand Andhra Pradesh Dairy Development Corporation Federation v. B Narasimha Reddy.
  • After analysing the matter further, the court came to a firm conclusion the duly paid INR 321.32 crores by the respondent to CIDCO binds to the doctrine of promissory estoppel. If only enforcing creates contravention to public interest it would have terminated. The decided case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh establishes the application of estoppel and the binding nature of it on the government.

CONCLUSION

The court, in this case, held that the circumstantial evidence was not enough to prove that the proposed deviations from the original project affects the public interest. Hence the clear violation of bureaucratic power b CIDCO was strongly advised not to practice again. As it damages the credibility not only of CIDCO but the entire government. Which would create the lack of interest of businessmen to engage in government investment projects. Which would create a major blow on the macroeconomics of the country.

Click here to download the original copy of the judgement

QUESTIONS

  1. What are your thoughts on revoking decisions by governmental institutes due to a change of regimes?
  2. Do you think such decisions affect macroeconomics?
  3. Should the Doctrine of Estoppel be given more recognition by exercising?
  4. Do you believe the view taken by the Supreme Court rendered Justice?
 
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