# STATE OF U.P v. SUDHIR KUMAR SINGH AND ORS

- **Citation:** [2020] 13 S.C.R. 571
- **Court:** Supreme Court of India
- **Decided:** 2020-10-16
- **Case number:** Civil Appeal No. 3498 of 2020
- **Bench:** R. F. Nariman, Navin Sinha, K. M. Joseph
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-u-p-v-sudhir-kumar-singh-and-ors-34367
- **Pages:** 50

## Headnote

Principles of Natural Justice - audi alteram partem - Breach
of - U.P. State Warehousing Corporation issued e-tender inter alia
for unloading/loading of foodgrains/fertilizer bags from/into railway
wagons, trucks etc.; transporting from Railway Station to
Corporation godowns or vice versa - Tender cancelled - e-tender
again published in the same terms, for Vindhyachal (Mirzapur)
region, it was regarding appointment of Handling and Transport
Contractor for food grain in FCI for four depots/centres of Uttar
Pradesh for two years - Cancelled again - Another tender reissued
for the same region - Respondent No.1 declared as successful
bidder for the Bhawanipur-I centre - Agreement entered into
between the Corporation and Respondent No.1 for execution of
the work under the tender - Complaints of financial irregularities
in the issuance of the e-tender - Tender cancelled - Respondent
no.1 filed Writ Petition - Allowed - On appeal, held: Prayer in the
Writ Petition confined itself to the cancellation of the tender -
However, impugned judgment went ahead and not only set aside
such cancellation vide letter dtd. 26.07.19, but also set aside the
Managing Director's report dtd. 14.06.19, and the Special
Secretary's order of 16.07.19, which required taking disciplinary
action and recovery of financial loss from those responsible - Set
aside to that extent - Further, entire proceedings leading to
cancellation of the tender, together with the cancellation itself, were
done on an ex parte appraisal of the facts behind respondent no.1's
back - Natural justice is a flexible tool in the hands of the judiciary
to reach out in fit cases to remedy injustice - In the present case,
respondent no.1 was completely in the dark so far as the cancellation
of the tender is concerned, the audi alteram partem rule having been
breached in its entirety - Impugned judgment upheld on this ground
- Tenders - Maxims - Constitution of India - Arst.226, 14.
571
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SUPREME COURT REPORTS
[2020] 13 S.C.R.
Constitution of India - Art.226 - Writ petition - Maintainability
of, for enforcing contractual obligation of the State/its
instrumentality - Discussed.
Disposing of the appeals, the Court
HELD: 1.1 Despite the fact that the prayer in the Writ
Petition filed by Respondent No.1 was set out in the very
beginning of the impugned judgment, confining itself to the
cancellation of the second tender, the impugned judgment went
ahead and not only set aside such cancellation vide the letter dated
26.07.2019, but also went ahead and set aside the Managing
Director's report dated 14.06.2019, and the Special Secretary's
order of 16.07.2019, which required the taking of disciplinary
action and recovery of financial loss from those who are
responsible. It was fairly conceded that no relief was asked qua
the delinquent officers. This being the case, the impugned
judgment is set aside insofar as it has quashed the Managing
Director's report dated 14.06.2019, and the order of the Special
Secretary dated 16.07.2019. Any consequential action that is to
be taken pursuant to these orders must follow in accordance with
law. Every case in which a citizen/person knocks at the doors of
the writ court for breach of his or its fundamental rights is a matter
which contains a "public law element", as opposed to a case which
is concerned only with breach of contract and damages flowing
therefrom. Whenever a plea of breach of natural justice is made
against the State, the said plea, if found sustainable, sounds in
constitutional law as arbitrary State action, which attracts the
provisions of Article 14 of the Constitution of India. The present
case is, therefore, a case which involves a "public law element"
in that the petitioner (Respondent No.1) who knocked at the
doors of the writ court alleged breach of the audi alteram partem
rule, as the entire proceedings leading to cancellation of the
tender, together with the cancellation itself, were done on an ex
parte appraisal of the

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 [2020] 13 S.C.R. 571
STATE OF U.P.
v.
SUDHIR KUMAR SINGH AND ORS.
(Civil Appeal No. 3498 of 2020)
 OCTOBER 16, 2020
[R. F. NARIMAN, NAVIN SINHA AND K. M. JOSEPH, JJ.]
Principles of Natural Justice - audi alteram partem - Breach
of - U.P. State Warehousing Corporation issued e-tender inter alia
for unloading/loading of foodgrains/fertilizer bags from/into railway
wagons, trucks etc.; transporting from Railway Station to
Corporation godowns or vice versa - Tender cancelled - e-tender
again published in the same terms, for Vindhyachal (Mirzapur)
region, it was regarding appointment of Handling and Transport
Contractor for food grain in FCI for four depots/centres of Uttar
Pradesh for two years - Cancelled again - Another tender reissued
for the same region - Respondent No.1 declared as successful
bidder for the Bhawanipur-I centre - Agreement entered into
between the Corporation and Respondent No.1 for execution of
the work under the tender - Complaints of financial irregularities
in the issuance of the e-tender - Tender cancelled - Respondent
no.1 filed Writ Petition - Allowed - On appeal, held: Prayer in the
Writ Petition confined itself to the cancellation of the tender -
However, impugned judgment went ahead and not only set aside
such cancellation vide letter dtd. 26.07.19, but also set aside the
Managing Director's report dtd. 14.06.19, and the Special
Secretary's order of 16.07.19, which required taking disciplinary
action and recovery of financial loss from those responsible - Set
aside to that extent - Further, entire proceedings leading to
cancellation of the tender, together with the cancellation itself, were
done on an ex parte appraisal of the facts behind respondent no.1's
back - Natural justice is a flexible tool in the hands of the judiciary
to reach out in fit cases to remedy injustice - In the present case,
respondent no.1 was completely in the dark so far as the cancellation
of the tender is concerned, the audi alteram partem rule having been
breached in its entirety - Impugned judgment upheld on this ground
- Tenders - Maxims - Constitution of India - Arst.226, 14.
571
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SUPREME COURT REPORTS
[2020] 13 S.C.R.
Constitution of India - Art.226 - Writ petition - Maintainability
of, for enforcing contractual obligation of the State/its
instrumentality - Discussed.
Disposing of the appeals, the Court
HELD: 1.1 Despite the fact that the prayer in the Writ
Petition filed by Respondent No.1 was set out in the very
beginning of the impugned judgment, confining itself to the
cancellation of the second tender, the impugned judgment went
ahead and not only set aside such cancellation vide the letter dated
26.07.2019, but also went ahead and set aside the Managing
Director's report dated 14.06.2019, and the Special Secretary's
order of 16.07.2019, which required the taking of disciplinary
action and recovery of financial loss from those who are
responsible. It was fairly conceded that no relief was asked qua
the delinquent officers. This being the case, the impugned
judgment is set aside insofar as it has quashed the Managing
Director's report dated 14.06.2019, and the order of the Special
Secretary dated 16.07.2019. Any consequential action that is to
be taken pursuant to these orders must follow in accordance with
law. Every case in which a citizen/person knocks at the doors of
the writ court for breach of his or its fundamental rights is a matter
which contains a "public law element", as opposed to a case which
is concerned only with breach of contract and damages flowing
therefrom. Whenever a plea of breach of natural justice is made
against the State, the said plea, if found sustainable, sounds in
constitutional law as arbitrary State action, which attracts the
provisions of Article 14 of the Constitution of India. The present
case is, therefore, a case which involves a "public law element"
in that the petitioner (Respondent No.1) who knocked at the
doors of the writ court alleged breach of the audi alteram partem
rule, as the entire proceedings leading to cancellation of the
tender, together with the cancellation itself, were done on an ex
parte appraisal of the facts behind his back. [Paras 18, 23][589-FH; 590-A-B; 598-E-G]
Nawabkhan Abbaskhan v. State of Gujarat (1974) 2
SCC 121 : [1974] 3 SCR 427 - relied on.
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1.2 In some of the early judgments of this Court, the nonobservance of natural justice was said to be prejudice in itself to
the person affected, and proof of prejudice, independent of proof
of denial of natural justice, was held to be unnecessary. The only
exception to this rule is where, on "admitted or indisputable"
facts only one conclusion is possible, and under the law only one
penalty is permissible. In such cases, a Court may not issue its
writ to compel the observance of natural justice, not because it is
not necessary to observe natural justice, but because Courts do
not issue writs which are "futile". Equally, the prejudice that is
caused, apart from natural justice itself being denied, cannot be
said to be present in a case in which there are admitted facts.
What is important to note is that it is the Court or Tribunal which
must determine whether or not prejudice has been caused, and
not the authority on an ex parte appraisal of the facts. [Paras 28,
29 and 33][600-C-D; 601-B; 605-E-F]
S.L. Kapoor v. Jagmohan and Ors. (1980) 4 SCC 379 :
[1981] 1 SCR 746; P.D. Agrawal v. State Bank of India
and Ors. (2006) 8 SCC 776 : [2006[ 1 Suppl. SCR 454;
K.L. Tripathi v. State Bank of India and Ors. (1984) 1
SCC 43 : [1984] 1 SCR 184; State of U.P. v. Neeraj
Awasthi and Ors.(2006) 1 SCC 667 : [2005] 5 Suppl.
SCR 906; Managing Director, ECIL and Ors. v. B.
Karnakumar and Ors. (1993) 4 SCC 727: 1993 ( 2 )
Suppl. SCR 576; Haryana Financial Corporation and
Anr. v. Kailash Chandra Ahuja (2008) 9 SCC 31 :
[ 2008] 10 SCR 222 - relied on.
1.3 Under the broad rubric of the Court not passing futile
orders as the case is based on "admitted" facts, being admitted
by reason of estoppel, acquiescence, non-challenge or non-denial,
the following judgments of this Court are all illustrations of a
breach of the audi alteram partem rule being established on the
facts of the case, but with no prejudice caused to the person
alleging breach of natural justice, as the case was one on admitted
facts. [Para 38][618-B-C]
STATE OF U.P. v. SUDHIR KUMAR SINGH AND ORS.
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Punjab and Sind Bank and Ors. v. Sakattar
Singh (2001) 1 SCC 214: 2000 ( 3 ) Suppl. JT
450; Karnataka SRTC and Anr. v. S.G. Kotturappa and
Anr. (2005) 3 SCC 409 : [ 2005] 2 SCR 520; Viveka
Nand Sethi v. Chairman, J&K Bank Ltd. and Ors. (2005)
5 SCC 337 : [2005] 3 SCR 1095; Mohd. Sartaj and
Anr. v. State of U.P. and Ors. (2006) 2 SCC 315: [ 2006]
1 SCR 377; Punjab National Bank and Ors. v. Manjeet
Singh and Anr. (2006) 8 SCC 647 : 2006 (6 ) Suppl.
 SCR 825; Ashok Kumar Sonkar v. Union of India and
Ors. (2007) 4 SCC 54 : [2007] 3 SCR 95; State of
Manipur and Ors. v. Y. Token Singh and Ors. (2007) 5
SCC 65: [2007] 2 SCR 965; Secretary, A.P. Social
Welfare Residential Educational Institutions v. Pindiga
Sridhar and Ors. (2007) 13 SCC 352 : [2007] 4
SCR 145; Peethani Suryanarayana and Anr. v. Repaka
Venkata Ramana Kishore and Ors. (2009) 11 SCC 308
: [2009] 2 SCR 48; Municipal Committee, Hoshiapur
v. Punjab State Electricity Board and Ors. (2010) 13
SCC 216 : [2010] 13 SCR 658; Union of India and
Anr. v. Raghuwar Pal Singh (2018) 15 SCC 463 : [2018]
4 SCR 1012 - referred to.
1.4 (1) Natural justice is a flexible tool in the hands of the
judiciary to reach out in fit cases to remedy injustice. The breach
of the audi alteram partem rule cannot by itself, without more,
lead to the conclusion that prejudice is thereby caused.
(2) Where procedural and/or substantive provisions of law
embody the principles of natural justice, their infraction per se
does not lead to invalidity of the orders passed. Here again,
prejudice must be caused to the litigant, except in the case of a
mandatory provision of law which is conceived not only in
individual interest, but also in public interest.
(3) No prejudice is caused to the person complaining of the
breach of natural justice where such person does not dispute the
case against him or it. This can happen by reason of estoppel,
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acquiescence, waiver and by way of non-challenge or non-denial
or admission of facts, in cases in which the Court finds on facts
that no real prejudice can therefore be said to have been caused
to the person complaining of the breach of natural justice.
(4) In cases where facts can be stated to be admitted or
indisputable, and only one conclusion is possible, the Court does
not pass futile orders of setting aside or remand when there is, in
fact, no prejudice caused. This conclusion must be drawn by the
Court on an appraisal of the facts of a case, and not by the authority
who denies natural justice to a person.
(5) The "prejudice" exception must be more than a mere
apprehension or even a reasonable suspicion of a litigant. It should
exist as a matter of fact, or be based upon a definite inference of
likelihood of prejudice flowing from the non-observance of natural
justice. [Para 39][618-H; 619-A-E]
1.5 Judged by the touchstone of these tests, it is clear that
Respondent No.1 has been completely in the dark so far as the
cancellation of the award of tender in his favour is concerned, the
audi alteram partem rule having been breached in its entirety.
Prejudice has indeed been caused to respondent no.1, not only
from the fact that one year of the contract period has been taken
away, but also that, if the impugned High Court judgment is to be
set aside today, he will be debarred from bidding for any of the
Corporation's tenders for a period of three years. Undoubtedly,
prima facie, the rates at which contracts have been awarded
pursuant to the tender dated 01.06.2018 are way above the rates
that were awarded of the same division, and for exactly the same
amount of work awarded vide the earlier tender advertisement
dated 01.04.2018. The argument that in the neighbouring regions
the rates tendered were also high, and nothing has yet been done
to nullify these tenders and the financial loss caused, does carry
some weight. That a huge financial loss to the Corporation has
also taken place is something for the Corporation to probe, and
take remedial action against the persons responsible. The
impugned judgment of the High Court is therefore, upheld on
STATE OF U.P. v. SUDHIR KUMAR SINGH AND ORS.
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the ground that natural justice has indeed been breached in the
facts of the present case, not being a case of admitted facts leading
to the grant of a futile writ, and that prejudice has indeed been
caused to Respondent No.1. In view of this finding, there is no
need to examine the other contentions raised by the parties.
[Paras 40, 41][619-F-H; 620-A-C]
1.6 The submission that as respondent no.1 is working for
the Corporation in another subsequent tender, he is not going to
claim damages for the lost period post cancellation of the tender
is reiterated. This being the case, and other things being equal,
the earnest money deposit and security deposit made by him is
ordered to be returned by the Corporation within a period of
eight weeks from today. He may also request the Corporation to
pay any amount that remained unpaid for work actually done, which
the Corporation will, after a hearing, either allow or reject for
reasons to be stated. The appeals arising out of SLP (C) 5136 of
2020 and SLP (C) 7351 of 2020 are thus partially allowed, and the
impugned judgment of the High Court of Judicature at Allahabad
dated 11.12.2019 is set aside only to the extent indicated. [Paras
42, 43][620-C-E]
1.7 Insofar as the appeal arising out of SLP (C) No. 7364 of
2020 is concerned, the facts therein are distinct from the other
two connected appeals before this Court only to the extent that
Respondent No.1 therein, M/s Dharam Raj Singh, was the
successful bidder for the Tendu (Sonbhadra) region, which award
of tender was also cancelled by the Corporation's order dated
26.07.2019. The judgment impugned in this appeal, dated
07.01.2020 of the High Court of Judicature of Allahabad (Lucknow
Bench), allowed M/s Dharam Raj Singh's writ petition challenging
the cancellation order, stating that it was to be governed by the
judgment of the High Court of Judicature at Allahabad dated
11.12.2019. As a result, the judgment in the two connected
appeals, and all consequential reliefs granted, will apply on all
fours to this appeal also. [Para 44][620-F-G]
ABL International Ltd. and Anr. v. Export Credit
Guarantee Corporation of India Ltd. and Ors. [2004]
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3 SCC 553; Food Corp. of India and Anr. v. SEIL Ltd.
and Ors.(2008) 3 SCC 440 : [2008] 1 SCR 663;
Central Bank of India v. Devi Ispat Ltd. and Ors. (2010)
11 SCC 186 : [2010] 9 SCR 417; Surya Constructions
v. State of U.P. and Ors. (2019) 16 SCC 794; Verigamto
Naveen v. Govt. of A.P. and Ors. (2001) 8 SCC 344 :
2001 ( 3 ) Suppl. SCR 112; Rishi Kiran Logistics v.
Board of Trustees of Kandla Port and Ors. (2015) 13
SCC 233 : [2014] 5 SCR 411; Joshi Technologies
International Inc. v. Union of India and Ors. (2015) 7
SCC 728 : [2015] 6 SCR 1042; Dharampal Satyapal
Ltd. v. Dy. Comm. Of Central Excise, Gauhati and Ors.
(2015) 8 SCC 519 : [2015] 6 SCR 437; State Bank of
Patiala and Ors. v. S.K. Sharma (1996) 3 SCC 364 :
1996 ( 3 ) SCR 972; M.C. Mehta v. Union of India and
Ors. (1999) 6 SCC 237 : [1999] 3 SCR 1173; Aligarh
Muslim University and Ors. v. Mansoor Ali Khan (2000)
7 SCC 529; 2000 ( 2 ) Suppl. SCR 684; Union of
India and Ors. v. Alok Kumar (2010) 5 SCC 349 :
[2010] 5 SCR 35 - relied on.
Raunaq International Ltd. v. I.V.R. Construction Ltd.
and Ors. (1999) 1 SCC 492: [1998] 3 Suppl. SCR 421;
Jagdish Mandal v. State of Orissa and Ors. (2007) 14
SCC 517; Michigan Rubber (India) Ltd. v.State of
Karnataka and Ors. (2012) 8 SCC 216 :[ 2012] 8
SCR 128; Tata Cellular v. Union of India (1994) 6 SCC
651 : [1994] 2 Suppl. SCR 122; Rajasthan State
Housing Board and Anr. v. G.S. Investments and Anr.
(2007) 1 SCC 477 : [2006] 7 Suppl. SCR 868 -
distinguished.
Noble Resources v. State of Orissa and Anr. (2006) 10
SCC 236 : [ 2006] 6 Suppl. SCR 53; Radhakrishna
Agarwal and Ors. v. State of Bihar and Ors. (1977) 3
SCC 457 : [1977] 3 SCR 249 - referred to.
On Justice- Book by J.R. Lucas (Page 86) - referred
to.
STATE OF U.P. v. SUDHIR KUMAR SINGH AND ORS.
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Case Law Reference
[2006] 6 Suppl. SCR 53
referred to
Para 20
[2008] 1 SCR 663
relied on
Para 20
[2010] 9 SCR 417
relied on
Para 20
[1977] 3 SCR 249
referred to
Para 21
[2001] 3 Suppl. SCR 112
relied on
Para 21
[2014] 5 SCR 411
relied on
Para 22
[2015] 6 SCR 1042
relied on
Para 22
[1974] 3 SCR 427
relied on
Para 23
[1998] 3 Suppl. SCR 421
distinguished
Para 24
[2012] 8 SCR 128
distinguished
Para 25
[1994] 2 Suppl. SCR 122
distinguished
Para 25
[2006] 7 Suppl. SCR 868
distinguished
Para 25
[1981] 1 SCR 746
referred to
Para 28
[2006] 1 Suppl. SCR 454
referred to
Para 28
[1984] 1 SCR 184
referred to
Para 29
[2005] 5 Suppl. SCR 906
referred to
Para 30
1993 ( 2 ) Suppl. SCR 576
referred to
Para 31
[2008 ]10 SCR 222
referred to
Para 32
[2015] 6 SCR 437
referred to
Para 33
1996 ( 3 ) SCR 972
referred to
Para 34
[1999] 3 SCR 1173
referred to
Para 35
[2000] 2 Suppl. SCR 684
referred to
Para 36
[2010] 5 SCR 35
referred to
Para 37
[2005] 2 SCR 520
referred to
Para 38
[2005] 3 SCR 1095
referred to
Para 38
[2006] 1 SCR 377
referred to
Para 38
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[2006] 6 Suppl. SCR 825
referred to
Para 38
[2007] 3 SCR 95
referred to
Para 38
[2007] 2 SCR 965
referred to
Para 38
[2007] 4 SCR 145
referred to
Para 38
[2009] 2 SCR 48
referred to
Para 38
[2010] 13 SCR 658
referred to
Para 38
[2018] 4 SCR 1012
referred to
Para 38
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3498
of 2020.
From the Judgment and Order dated 11.12.2019 of the High Court
of Judicature at Allahabad in Writ C. No. 25389 of 2019.
With
Civil Appeal Nos. 3499 and 3500 of 2020.
Tushar Mehta, SG, Dr. Abhishek Manu Singhvi, Ms. Meenakshi
Arora, Rakesh Dwivedi, Sidharth Dave, Sr. Advs., Mrs. Rachna Gupta,
Amit Bhandari, Ms. Sakshi Kakkar, Shakti Singh, Ms. Preetika Dwivedi,
Mr. Imran Syed, Advs. for the appearing parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. Leave granted.
2. An e-tender notice was issued on 06.01.2018 by the U.P. State
Warehousing Corporation ("Corporation") for unloading/loading of
foodgrains/fertilizer bags from/into railway wagons, trucks etc., stacking
the foodgrains/fertilizers in bags, bagging, weighment, standardisation,
cleaning of foodgrains/fertilizers etc. and transporting of foodgrains/
fertilizers etc. from Railway Station to Corporation godowns or vice
versa or transporting them from any place to any other place for the
Vindhyachal (Mirzapur) Region. Ten days later i.e. on 16.01.2018, the
said tender was cancelled by the Corporation due to "administrative
reasons". On 01.04.2018, an e-tender was again published in the same
terms, and so far as the region Vindhyachal (Mirzapur) is concerned, it
was for the "appointment of Handling and Transport Contractor for food
grain in FCI and alleged material etc." of the following depots/centres
of Uttar Pradesh for a period of two years:
STATE OF U.P. v. SUDHIR KUMAR SINGH AND ORS.
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3. Technical bids for these four centres were opened on
17.04.2018. Price bids of technically qualified bidders were then opened
on 23.04.2018. The price bids that were received, so far as these four
centres were concerned, were as follows:
"PEG Bhawanipur-I Centre
PEG Bhawanipur-II Centre
Mirzapur Centre
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Tendu (Sonbhadra) Centre
(Where ASOR means Above Schedule of Rates)"
4. On 04.05.2018, the then Managing Director of the Corporation
cancelled the aforesaid tender apparently on the ground that it was
"impractical" to go ahead with such tender. As a result, on 01.06.2018,
for the same region, the aforesaid tender was reissued for the same
workable capacity and estimated annual value of the contract. It may be
added that each of these tenders were for a period of two years.
5. Sudhir Kumar Singh, Respondent No.1 in the appeals arising
out of SLP (C) No. 5136 of 2020 and SLP (C) No. 7351 of 2020, was
declared as the successful bidder for the Bhawanipur-I centre, at the
rate of 341% ASOR, the other successful tenderers for Mirzapur,
Bhawanipur-II and Tendu (Sonbhadra) being at 314%, 338% and 290%
ASOR respectively. On 13.07.2018, an agreement was entered into
between the Corporation and Respondent No.1 for execution of the
work under the tender, which began on and from that day, and continued
for a period of over one year.
6. Meanwhile, on 27.05.2019, two complaints were made by one
Shri Pramod Kumar Singh of the Purvanchal Trucker Owner's
Association to the Principal Secretary of the State of U.P. regarding
financial irregularities that occurred in the issuance of the e-tender notice
dated 01.06.2018. These complaints were then forwarded by the Principal
Secretary of the State of U.P. to the Managing Director of the
Corporation by a letter dated 30.05.2019. The said letter, insofar as
Respondent No.1 is concerned, read as follows:
"Shri Pramod Kumar Singh should analyse two enclosed
complaints dated 27.05.2019 of Truck Owners Association wherein
loss of Crores to Corporation is shown due to serious financial
irregularities caused in handling and transport contracts in
Vindhyanchal Division.
STATE OF U.P. v. SUDHIR KUMAR SINGH AND ORS.
[R.F. NARIMAN, J.]
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Tendering was done in Vindhyanchal Division on 16.04.2018,
wherein low rate of tenders were received. Issued tenders are
cancelled on 05.05.2018 without telling any reason and tender of
centres cancelled on 16.06.2018 were re-tendered wherein rates
are too high in new tenders than older one and by allotting work
on higher rates work is being done.
Kindly assure providing report within five days in respect of
aforesaid and in respect of all points mentioned in enclosed letters."
7. As a result of this letter, the Managing Director of the
Corporation held an ex parte enquiry into the matter, and insofar as
Respondent No.1 was concerned, the Managing Director went into the
cancellation of the previous tender dated 01.04.2018, and into the
comparative details of rates received for these four centres earlier, as
compared to the rates of the same tendered quantity of the tender dated
01.06.2018, and found the latter rates to be extremely high. In his report
dated 14.06.2019, he therefore ultimately concluded:
"It is mentionable that cancellation of e-tendering process done
earlier through Advertisement No.1.1001.23318 dated 01.04.2018
on the ground that received minimum rates are impractical is not
acceptable in any circumstance. In this respect, for getting etendering process done the committee constituted at Division Level
considered PEG Tendu (Sonbhadra) Centre only as impractical
whereas the Head Office accepted it as it is in respect of all
centres. As far as question of hiding of fact regarding forfeiture
of security deposit by Uday Construction or application filed for
producing the same are concerned, then in this respect it is to be
known that Uday Construction applied only for PEG Tendu through
Advertisement No.1.1001.23318 dated 01.04.2018. Therefore, on
this ground rejection of bids received for other centres was prima
facie not justified."
8. Meanwhile, the Commissioner, Vindhyachal Mandal Mirzapur,
also conducted an ex parte investigation and found in his report dated
29.06.2019 as follows:
"1. State regional manager Sh. Madhukar Gupta has mentioned
in his letter no. R.BH.N/dated 26-05-2018 forwarded to State
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General Manager (finance) Uttar Pradesh State Warehousing
Corporation that committee of e-tendering has been formed only
for the purpose of formalities. It is cleared from examining the
paragraph that formality has been done in the tender. On 12-072018 the state manager gave the recommendation of acceptance
and on 13-07-2018 Uttar Pradesh State Warehousing Corporation
gave acceptance. On 13-07-2018 Sh. Madhukar Gupta State
Regional Manager, Uttar Pradesh State Warehousing Corporation
Vindhyachal gave appointment order to the concerned contractors.
Hereby uncommon vigilance has been shown in entire procedure.
2. Regional Manager, Uttar Pradesh State Warehousing
Corporation Sh. Anuj Shukla, computer consultant was got involved
by Sh. Madhukar Gupta which is not appropriate. It is objectionable
in keeping contract work in bid is objection.
3. Condition was kept on to participate only to the registered
contractors which is objectionable. Due to, only participation of
registered contractor, no contest took place amongst the
contractors. Because of which rate was obtained at manifold high
rate. Whereby damaged was caused to department.
4. Regional Manager in his letter no. R.B.N/284/dated 12-072018 which is addressed to Managing Director Uttar Pradesh
State Warehousing Corporation Lucknow. For determined rate to
314 percent, 341 percent, 338 percent, and 290 percent at high
rate conformation of recommendation of appointment of regular
contractors have been given for work of Indian Fertilizer
Corporation Handling and Transport. It is mentioned that despite
the high rate from determined rate regional manager neither any
market survey was conducted regarding high rate nor he
mentioned in his letter and he recommended the acceptance
irresponsibly. Hence Sh. Madhukar Gupta State Regional Manager
has not followed his duty and responsibility and he is responsible
for high rate and acceptance without any reason.
5. Even corporation Headquarter did not deem fit to take any
action regarding high rate from determined rate. What was
examined by Headquarter it is not cleared.
6. In this regard categorically it is not possible to determine the
financial loss since neither in this case, opportunity to contest has
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been given and nor market survey has been conducted. On the
basis of that formality rate can be determined. Damage has been
surely caused. But it cannot be explained. Record is sent for
perusal and necessary action."
9. Given these two reports, the Special Secretary, Government of
U.P. wrote a letter dated 16.07.2019 to the Managing Director, in which
the Managing Director's report dated 14.06.2019 was referred to, and
concluded:
"In this, the role of Officer of Regional Level (Vindhyachal
Division) and accepting Officer and erstwhile Managing Director
and officers concerned with Headquarter, also appears to be
doubtful.
So, I have been instructed to say that you by doing enquiry of
matter at your own level, the financial loss caused to the
Government and after evaluating the same, shall take action to
recover the said amount from concerned Contractor and concerned
Officers. The Officers/Employees against whom any previous
departmental proceeding is pending, in respect of them by including
these charges as additional Charge Sheet action shall be taken
and against officers/employees found guilty in the matter against
whom no proceedings are pending, proceeding shall be done by
marking them.
The tenders of abovementioned firms which are granted contrary
to rules, by cancelling them the appointment of contractors be
done through e-tendering again for handling and transport work
of concerned Warehouses.
Said proceedings be done as soon as possible and the action taken
shall be informed to the Government."
10. Pursuant to this letter, the aforesaid tenders were then
cancelled on 26.07.2019, and disciplinary proceedings were taken against
certain employees of the Corporation. These proceedings led to a report
dated 18.10.2019, in which the difference between the earlier rates and
the present rates were gone into, and it was found that an excess of
INR 4,40,05,369 had been paid relative to what was sanctioned previously
- this amount being the financial loss suffered by the Corporation.
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11. Mean while, Respondent No.1 filed Writ Petition no. 25389 of
2019 in July 2019 before the High Court of Judicature at Allahabad, in
which he challenged the "illegal and arbitrary" termination of the contract
with the Corporation after successful completion of over one year of a
two-year term, and prayed for the setting aside of the Corporation's
cancellation order dated 26.07.2019 of the tender dated 01.06.2018.
12. By the judgment dated 11.12.2019 in this Writ Petition, which
is impugned in the appeals arising out of SLP (C) No. 5136 of 2020 and
SLP (C) No. 7351 of 2020, the High Court, after setting out the prayer in
the Writ Petition, set out four questions that arose before it as follows:
"(a) Whether the two enquiry reports are procedurally defective
inasmuch as the findings returned thereunder are based upon no
material and hence perverse;
(b) Whether the respondent Managing Director was justified in
cancelling the written agreement with the petitioner after a lapse
of a year, without putting him to notice;
(c) Whether being an autonomous body, Corporation could not
have been directed to take action in particular manner and
Managing Director was not justified in cancelling the agreement
under an executive fiat of Special Secretary; and;
(d) Whether the order passed by Managing Director is vitiated
for bias as he himself had been Inquiry Officer and without inviting
the petitioner to explain in his defence he himself conducted the
inquiry and then on the basis of report prepared by him, he
proceeded to cancel the agreement."
13. The High Court concluded that since the entire proceedings
were conducted behind the back of Respondent No.1, and considering
that the tender notice dated 01.06.2018 had never been challenged by
anybody in a court of law, an ex parte appraisal of the complaints received
was done in a hurry by the Managing Director of the Corporation and
the learned Commissioner, and was liable to be set aside on several
grounds, the single most important one - insofar as Respondent No.1 is
concerned - being the breach of natural justice. The High Court,
therefore, held:
"If the officials had cancelled the earlier tender notice in their
wisdom and the cancellation of those tender notice was never
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questioned, merely because those earlier tender notices were
cancelled/ withdrawn, a necessary presumption cannot be raised
that the third notice inviting tender was for some extraneous
considerations. It is true that the prices this time were taken to be
very high as against the earlier ones in the process of tender in
which the prices were quoted very low but that does not itself
become the ground to cancel the entire tender process which had
not only been finalized but even the agreement had been entered
into and the party under the contract was carrying out the work
making huge investment of money. Had it been a case also of the
kind where the party to the contract had violated the terms and
conditions of the contract, it could have been said that the tender
was liable to be cancelled for violation of terms and conditions of
the tender agreement. But in the instant case no such finding has
come to be returned. The reasons for which the tender proceedings
that had already been concluded with the execution of the
agreement, has been cancelled without assigning any reason of
wrong practice adopted by the petitioner in obtaining the
agreement. Thus the petitioner cannot be said to be at fault in the
matter and, therefore, in our considered opinion if the petitioner
was already working under the agreement and no charge was
there that he violated the terms and conditions of the agreement,
the respondents were not justified in cancelling the agreement ex
parte.
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There is no finding returned that at the stage of submission of the
application against the notice inviting tender, the petitioner was
not eligible or that at the time of the opening of the technical bid
and financial bid the petitioner got wrongfully qualified and that
the financial bid of the petitioner was wrongly approved and that
the agreement entered between the petitioner and the Corporation
was void being against the law. If in all the above three stages the
petitioner cannot be held to be guilty in any manner for manipulating
the things and obtaining the tender by hatching any conspiracy in
connivance with the officials of the Corporation, cancellation of
the agreement suddenly by the Managing Director holding that
the entire Notice Inviting Tender was bad, certainly required a
notice and opportunity of hearing to be afforded to the petitioner
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prior to passing of such an order. It is a settled principle of law
that in administrative exercise of power, the authority exercising
power has to not only render due application of mind but also to
follow the procedure which would not render the entire action
arbitrary. It is settled legal principle that whatever is arbitrary, is
hit by Article 14 of the Constitution of India and in the present
case we find that only the procedure that was followed by the
respondents in taking impugned action was not only quite ex parte
but also under the executive fiats of the Special Secretary of the
Government which was quite uncalled for."
14. Having so held, the High Court then concluded:
"Order impugned is basically based on the enquiry report prepared
by the Managing Director himself and that the enquiry was
conducted in the ex parte manner and the Managing Director
failed to offer any opportunity of hearing to the petitioner before
passing the order impugned which has the effect of terminating
the agreement for no justifiable reason to hold that the petitioner
was at fault at any point of time. Element of bias therefore, under
the circumstances at the end of Managing Director, cannot be
ruled out. The order impugned, therefore, terminating the
agreement dated 26.7.2019 cannot be sustained in law.
Thus, for the forgoing discussions writ petition succeeds and is
allowed. The order dated 26.7.2019 (Annexure-13) to the writ
petition and the enquiry report dated 14.6.2019 submitted by the
Managing Director as well as the order passed by the Special
Secretary dated 16.7.2019 are also hereby quashed.
The consequential action if taken pursuant to the impugned order
is also quashed. The consequences to follow, however, there will
be no order as to costs."
15. Dr. Abhishek Manu Singhvi, learned Senior Advocate appearing
on behalf of the Corporation, first adverted to the prayer in the Writ
Petition filed by Respondent No.1, and argued that the High Court had
gone way beyond what was asked for. According to him, the Writ Petition
only prayed for a quashing of the cancellation order dated 26.07.2019 of
the second tender. The High Court went way beyond, and not only quashed
the aforesaid cancellation, but also quashed the enquiry report of the
Managing Director dated 14.06.2019, as well as the order passed by the
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Special Secretary dated 16.07.2019, and the consequential action taken,
namely, the departmental proceedings against the delinquent officers,
which was never the subject matter of challenge in the Writ Petition. He
went on to argue, based upon the comparison between the rates that
were received in the earlier tender dated 01.04.2018 that was cancelled,
and the rates in the 01.06.2018 tender, that the disparity was so great as
to make it clear that the contracts for these four centres ought not to
have been entered into at these rates at all. He argued that the High
Court ought to have appreciated the huge financial loss that was caused
as a result of awarding the contract at these rates, and ought not to have
interfered with the cancellation of the tender, as it could not be
characterised as arbitrary, given the huge increase in rates in such a
short period for the same works. Further, he argued that the case law on
natural justice showed that it was not an inflexible straitjacket, but had to
be used wisely and well, and cited a number of judgments of this Court
for the proposition that even though natural justice may be breached in
the facts of a given case, if otherwise such breach does not result in
prejudice, it would be a mere exercise in futility to set aside the order
and remand it to the authorities to pass an order after hearing the affected
party. He also argued that as of today, the two year term of the contract
is over, and this very contractor, i.e. Respondent No.1, is doing the same
work awarded at Mirzapur on 21.03.2020 at rates (139% ASOR) which
are much lower than the rates tendered for previously, as is the successful
tenderer Tilotama Devi on and from 31.09.2019 so far as BhawanipurII is concerned, which was awarded at 221% ASOR. Dr. Singhvi also
argued that the writ court ought not to have interfered in contractual
matters, and ought to have left Respondent No.1 to approach a civil
court to file a suit for appropriate reliefs.
16. Shri Tushar Mehta, learned Solicitor General appearing on
behalf of the State of U.P., argued that he had a limited role, and confined
his arguments to the setting aside of the letter dated 16.07.2019 of the
Special Secretary to take departmental action. He argued that this letter
could not have been set aside by the High Court, as no such prayer or
argument was made before it by the writ petitioner.
17. Shri Rakesh Dwivedi, learned Senior Advocate appearing on
behalf of Respondent No.1, argued that the High Court judgment ought
not to be interfered with, inasmuch as his client had pumped in a lot of
money, and had worked the contract for a period of over one year
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successfully and without any complaint whatsoever from the Corporation.
He reiterated the fact that nobody had challenged the award of the
tender to his client, and that the cancellation of the tender was done
behind his client's back. Had the authorities bothered to give his client a
hearing, his client could have pointed out that in other nearby divisions,
tenders were awarded at roughly the same rates, all of which contracts
had been worked out, and none of which have been cancelled. Thus, he
argued that his client suffered serious prejudice, in that he was able to
work his contract for only one out of the two years that was awarded to
him. He further argued that had a hearing been given, his client would
also have demonstrated that the rates that were awarded could not be
characterised as unreasonable, given the magnitude of the contract in
his favour. He also argued that the award of tender at a lower rate at
Mirzapur, which is currently being processed through his client, is not
comparable with the tender that was awarded to his client for Bhawanipur
I, because, inter alia, there was a huge difference between the volume
of work awarded in the two contracts. He argued that it is idle to say
that no prejudice has been caused, inasmuch as he has not been able to
work the contract for one year, the contract period now being over, and
that if the contract with his client is set aside, his client is debarred from
bidding for a period of three years for any other contract with the
Corporation. He further argued, in support of the impugned High Court
judgment, that the action of termination by the Corporation was without
an independent application of mind, and was purely at the instruction of
the Special Secretary of the Government of U.P. dated 16.07.2019. He
also fairly argued that his statement may be recorded that his client is
not going to claim damages for the period of the agreement post
cancellation, and that in fairness, the earnest money deposit and security
deposit made by his client ought to be returned by the Corporation.
18. Having heard learned counsel for all the parties, one thing
becomes clear. Despite the fact that the prayer in the Writ Petition filed
by Respondent No.1 was set out in the very beginning of the impugned
judgment, confining itself to the cancellation of the second tender, the
impugned judgment went ahead and not only set aside such cancellation
vide the letter dated 26.07.2019, but also went ahead and set aside the
Managing Director's report dated 14.06.2019, and the Special Secretary's
order of 16.07.2019, which required the taking of disciplinary action and
recovery of financial loss from those who are responsible. Shri Rakesh
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Dwivedi also fairly conceded that his client had not asked for any relief
qua the delinquent officers. This being the case, we set aside the impugned
judgment insofar as it has quashed the Managing Director's report dated
14.06.2019, and the order of the Special Secretary dated 16.07.2019.
Any consequential action that is to be taken pursuant to these orders
must follow in accordance with law.
19. Dr. Singhvi's preliminary objection as to Respondent No.1
having to approach a civil court, and not a writ court, for actions that
pertain to breach of contract, need not detain us. In ABL International
Ltd. and Anr. v. Export Credit Guarantee Corporation of India
Ltd. and Ors.