Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors.

This appeal arises out of the final judgment and order dated 25.05.2023 passed by the High Court of Calcutta in M.A.T. No. 744 of 2023 (“Impugned Order”), by which the High Court upheld the decision of the respondent to cancel the tender that had been awarded to the appellant for the maintenance of two underpasses on Public-Private Partnership basis, and thereby dismissed the writ appeal filed by the appellant. A. FACTUAL MATRIX

The respondent floated a tender notice dated 12.05.2022 inviting bids for the maintenance of two underpasses on the Eastern Metropolitan Bypass and its abutting area against a License Fee for Advertisement Rights over designated sites at each underpass, for a period of 10-years. As per the aforesaid tender, the scope of work included the regular maintenance of the aforementioned underpasses and the upkeep of its garden area and electro-mechanical fittings. The relevant portion reads as under: - Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 542 [2024] 7 S.C.R. Name of Work Sl. No License Fee of the Yearly Charge for the 1st year (Rs.) Earnest Money (Rs.) Allotted Time Period for License & Work (1) (2) (3) (4) (5) REGULAR MAINTENANCE OF BELIAGHATA UNDERPASS INCLUDING UPKEEPING OF UNDERPASS PROPER, GARDEN AREA, AT GRADE UNDERPASS AREA AND ALL ELECTRO- MECHANICAL FITTINGS AGAINST LICENSE FEE OF ADVERTISEMENT RIGHTS OVER (10) YEARS. Tender ID – 2022_ KMDS_380215_1 REGULAR MAINTENANCE OF SWABHUMI UNDERPASS INCLUDING UPKEEPING OF UNDERPASS PROPER, GARDEN AREA, AT GRADE UNDERPASS AREA AND ALL ELECTRO- MECHANICAL FITTINGS AGAINST LICENSE FEE OF ADVERTISEMENT RIGHTS OVER (10) YEARS. Tender ID – 2022_ KMDS_380215_1 TO BE QUOTED 5,00,000.00 10 (Ten) Years [Rupees Five Lakh Only] Online (Net Banking/ NEFT/ RTGS) 5,00,000.00 [Rupees Five Lakh Only] Online (Net Banking/ NEFT/ RTGS) 10 (Ten) Years TO BE QUOTED Digital Supreme Court Reports [2024] 7 S.C.R. 543

Pursuant to the aforesaid, the tendering process was undertaken and the appellant herein on 13.06.2022 submitted his bid with a quotation of Rs. 29,55,555/- for the Beliaghata Underpass and Rs. 23,55,555/- for the Swabhumi Underpass. Out of the total bids received, the appellant’s quotations were found to be the highest and was classified as ‘H1’ for both the underpasses.

Accordingly, the respondent issued two Letter of Intents dated 27.06.2022 in favour of the appellant, accepting the quotation offered by him and declaring his firm as the successful bidder for the aforementioned tender, and a formal Memorandum of Tender for Work was executed and issued to the appellant.

As per the Memorandum of Tender for Work, the detailed ‘Scope of Work’ inter-alia included (i) the sweeping of floors & cleaning of the walls, stairwell, escalators, railings and glass-fixtures, (ii) regular emptying of dustbins and removal / processing of waste trash, (iii) upkeep of the garden and plants and (iv) the maintenance of light- fittings, escalators, water pumps and other electro-mechanical fixtures.

Furthermore, the Special Terms & Conditions of the Memorandum, more particularly Clause 35 therein stipulated that the contract would be liable to be terminated inter-alia in the event of any failure, breach or non-compliance of any of the obligations or terms delineated in the tender by the successful bidder.

Upon completion of all the formalities, the Work Orders dated 18.10.2022 were issued by the Executive Engineer, pursuant to which the appellant commenced his work in terms of the contract.

On 01.12.2022, the Urban Development and Municipal Affairs Department, Government of West Bengal issued an Order directing that the maintenance of the roads and drainage of the E.M. Bypass including the two subject underpasses shall be handed over by the Kolkata Metropolitan Development Authority (KMDA) i.e., the respondent herein to the Kolkata Municipal Corporation (KMC). The said order reads as under: -

Government of West Bengal Urban Development and Municipal Affairs Department NAGARYAN, DF-8, Sector-I Salt Lake, Kolkata - 700 064 Memo No. 5783 – UDMA-22012(14)/11/2022 Date : 01.12.2022 Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 544 [2024] 7 S.C.R. ORDER KMDA was the custodian for the maintenance of the E.M Bypass connecting the northern and southern part of the city and starts from northern hub Ultadanga to Garia in the South. The road length is 15.6 Km which runs along the eastern ring of the city. After careful consideration it has been decided that the maintenance of the road alongwith the drainage be handed over from KMDA to KMC with the following scope of activities. (1) The defects in carriageway would be maintained and restored by KMC henceforth. (2) The existing carriageway alongwith the surface and underground drainage would be maintained by KMC. The conservancy in and around the Eastern Bypass would also be maintained by KMC. (3) Subject to clearance from KMDA, KMC would issue NOC to all utility and service providers. The cost of road restoration from the charges to be levied is to be paid to KMC by all utility and service providers. (4) The right of collecting revenues from the advertisement displays will remain with KMDA. (5) All the structures, as the new or old Bridges, Culverts, FoBs etc. will be under the custody of KMDA. (6) All development activities along the road except for the Bridges, Culverts, FoBs etc. will be taken up by KMC. (7) KMC would remain custodian for illumination of the Bypass. (8) The green verge along the E.M. Bypass to be maintained by KMC. The order is issued in the interest of public service. Sd/- Principal Secretary to the Govt. of West Bengal

As per the aforesaid Order dated 01.12.2022, the maintenance and restoration of carriageway, structures, underground drainage and Digital Supreme Court Reports [2024] 7 S.C.R. 545 development activities of the E.M. Bypass Area was taken over by the KMC. However, the Order specifically, clarified that the right of collecting revenue from advertisements displayed would continue to remain with the KMDA.

Thereafter, in light of the aforesaid order, the Executive Engineer, KMDA under instructions issued by the competent authorities sent a notice dated 24.01.2023 to the appellant herein asking him to stop all work in respect of the maintenance of the two underpasses with immediate effect in view of the handing over of the maintenance of the E.M. Bypass to the KMC.

In response to the above, the appellant sent a letter dated 25.01.2023 inter-alia pointing out that as per the Urban Development and Municipal Affairs Department’s Order dated 01.12.2022, the custody and rights of revenue of all structures, bridges, culverts etc. including the concerned underpasses, continued to remain with the respondent, and requested to recall the notice dated 24.01.2023 asking him to stop the work.

However, on 07.02.2023, the respondent issued one another notice to the appellant stating that the tender for work of maintenance has been cancelled on account of a technical fault in the tender. It was stated therein that the tender was found to be ‘non-specific’ & ‘not well defined’ and that had created ambiguity resulting in financial losses to the respondent. The said Notice of Cancellation reads as under: -

Date: 07.02.2023 To,V.S. Advertising, 65/268, M.N. Sarkar Road, Siliguri, West Bengal 7340001 Sub: Cancellation of Work/Tender Sir, The cited tender is hereby cancelled by the Authority in KMDA. We would state with regret that the tender has been found having technical fault, non-specific and not well defined thus creating ambiguity for obvious reasons. By this, the Authority is incurring financial loss as well. Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 546 [2024] 7 S.C.R. We regret for the inconvenience caused to you and are ready to reimburse the cost you have so far incurred in the work. This has been decided that the license fee deposited by you and the cost incurred for construction activity and maintenance work would be refunded as per actual assessment by the divisional engineers based upon the approved drawing and execution. This is for your information with kind compliance please. Sd/- Chief Engineer-II (Bridge) Roads & Bridges Sector, KMDA

It is pertinent to note from the aforesaid that, no reference was made as regards handing over of the maintenance to KMC which was previously alluded to, for stopping all work pertaining to the tender. B. IMPUGNED ORDER

Aggrieved by the aforesaid, the appellant preferred a writ petition being WPA No. 3381 of 2023 before the High Court of Calcutta assailing the respondent’s Notice dated 07.02.2023 cancelling the tender for work of maintenance of the two underpasses.

The aforesaid writ petition referred to above came to be rejected by the High Court vide its order dated 24.04.2023, wherein the Ld. Single Judge held that the decision to cancel the tender had to be taken on account of the administrative exigencies and also due to the ‘change in policy’. It was further held that the decision to cancel the tender was not borne out of any ulterior motives on the part of the respondent. The decision of the learned Single Judge is based on two grounds: - (i) First, the High Court took the view that the decision to cancel the tender cannot be termed as an arbitrary action on the part of the respondent. The appellant was put to prior notice as regards the change of hands of the management of the concerned underpasses, much before the ultimate cancellation notice was issued. It further observed that, since the notice of cancellation dated 07.02.2023 specifically provided the reasons for cancelling the tender i.e., the technical faults found in the tender that Digital Supreme Court Reports [2024] 7 S.C.R. 547 was floated, there was no element of arbitrariness in the said action. The relevant observations read as under: - “11. [...] The effect of the administrative decision was reiterated in the stop-work request of 24.01.2023 where the reason given for the stop-work was also the “changed scenario” of handover of the maintenance work of E.M. Bypass to KMC from KMDA. Hence, the reason for the stop-work and the impugned cancellation is a change of policy for administrative convenience simpliciter.

In the present case, the impugned cancellation of 07.02.2023 cannot be described as a bolt from the blue since the petitioner was put on notice of the impending change in circumstance on 24.01.2023 where the reason for the change was also conveyed to the petitioner. The order dated 01.12.2022 of the Urban Development and Municipal Affairs Department stating that the maintenance of the E.M. Bypass would be handed over from the KMDA to KMC provides the rationale for the impugned cancellation. Seen in this backdrop, it cannot be said that the impugned letter of cancellation of the tender /work was issued with an ulterior motive or for extraneous considerations. In fact, the letter of cancellation provides further reasons, namely, that the tender has been found to be non-specific and having technical faults. This would also be borne out from clauses 10 and 14 of the Special Terms and Conditions of the tender document which give rise to conflicting interpretations on the placement of the signboards.

The above reasons persuade this Court to hold that the remedy available to the petitioner is in the realm of private law and not under Article· 226 of the Constitution which contemplates certain tests including that the dispute must Digital Supreme Court Reports [2024] 7 S.C.R. 549 have a public law element. The complaint of the petitioner is essentially for the specific performance of the contractual obligation of the respondent KMDA. Doubtless, the petitioner can avail of appropriate civil remedies for redress which would include damages for breach of the contractual terms. (Emphasis supplied)

Aggrieved with the aforesaid, the appellant went in appeal before a Division Bench of the High Court by way of M.A.T. No. 744 of 2023, wherein the appeal court finding no fault in the decision of the learned Single Judge, dismissed the appeal and thereby affirmed the judgment of the learned Single Judge referred to above.

In view of the aforesaid, the appellant is here before this Court with the present appeal. C. DEVELOPMENTS THAT OCCURRED DURING THE PENDENCY OF THE PRESENT APPEAL.

18. During the pendency of the present appeal, the appellant herein preferred a RTI seeking further information on the respondent’s internal note-file pertaining to the cancellation of the subject tender.

The Public Information Officer, KMDA vide its reply dated 18.08.2023 provided the internal file-notings of the respondent on the aforesaid tender. In the internal file-notings of the respondent, the following entries / notes are relevant: - a) As per Note #91 dated 30.12.2022, the respondent in view of the maintenance of the concerned underpasses being handed over to KMC, was contemplating the possibility of cancelling the tender for work. The relevant noting reads as under: - “Note # 91 Recently maintenance of EM Bye pass has been handed over to KMC. Thus, in this changed scenario we may cancel the work order. 03/01/2023 11:51 AM FIRHAD HAKIM CHRMN (KMDA)” Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 550 [2024] 7 S.C.R. b) As per Note #95 dated 10.01.2023, the respondent instructed that the tender be cancelled in view of the maintenance of the concerned underpasses being handed over to KMC. However, since the respondent was in doubt as regards the legality & validity of such decision, it opined that the opinion of the Legal Department may be sought first before any action of cancellation is taken.

During the course of hearing of this appeal, it was brought to the notice of this Court that after the work order issued in favour of the appellant was cancelled, the respondent floated a fresh tender dated 15.05.2023 for the work of maintenance of the very same underpasses, the selection process for which stood completed and that the tender had been awarded along with the work order(s) to one another third-party agency.

21. This Court was further apprised of the order dated 16.09.2023 passed by the Urban Development and Municipal Affairs Department, Government of West Bengal, modifying its earlier order dated 01.12.2022 to the extent that both i) the operation & maintenance of 37 bridges, flyovers, underpasses, etc. including the concerned two underpasses along with ii) the right to collect revenue towards the advertisement rights for the said structures, shall be taken over by KMC from KMDA. The said letter reads as under: -

Government of West Bengal Urban Development and Municipal Affairs Department NAGARYAN, DF-8, Sector-I Salt Lake, Kolkata - 700 064 Memo No. 5271 – UDMA-22012(14)/11/2022 Date : 16.09.2023 Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 554 [2024] 7 S.C.R. ORDER In continuation with the order issued vide no. 5783-UDMA- 22012(14)/11/2022 dated 01.12.2022, it has been further decided that the operation and maintenance of the 37 bridges, flyovers, foot over bridges, under pass & culverts attached herewith to be taken over by KMC from KMDA. In that case the revenues earned from advertisements and displays erected on these assets (including the piers of the bridges) to be accrued to KMC. This order shall take immediate effect. Sd/- Principal Secretary to the Govt. of West Bengal

In view of the fact that a fresh tender had already been awarded to a third-party, coupled with the fact that the right to collect revenue from the advertisements for the concerned underpasses had been handed over to KMC, the counsel for the respondent submitted that the matter had since become infructuous. D. SUBMISSIONS ON BEHALF OF THE APPELLANT

Mr. Shyam Divan, the learned Senior Counsel appearing for the appellant submitted that the impugned notice of cancellation dated 07.02.2023 is manifestly arbitrary and tainted with extraneous considerations. He submitted that though the impugned notice purports to cancel the tender on the ground of being ambiguous and non-specific, but in reality the said action was at the behest of the concerned Minister-In-Charge who directed such cancellation without any justifiable cause. In this regard he placed strong reliance on the internal-file notings of the respondent.

He submitted that the reasons assigned for cancelling the tender in the impugned notice are not to be found in the entire file of notings maintained by the respondent. He further pointed out that the file of the internal notings indicate that, before the respondent could take a judicious call the concerned minister issued a specific direction on the basis of which the cancellation was undertaken & that to without any application of mind. Digital Supreme Court Reports [2024] 7 S.C.R. 555

Mr. Divan also submitted that no orders to stop the work could have been issued by the respondent on account of handing over of the maintenance to another authority, because even after the handover, the respondent continued to operate & maintain the underpasses including the licensing rights for advertisements.

He further submitted that, although the terms of the contract provided for assigning cogent grounds for termination, yet the same was not followed and instead the respondent arbitrarily proceeded to cancel the tender.

In the last, Mr Divan submitted that the contention as regards the financial losses being suffered is erroneous, as the respondent voluntarily accepted the bid that was submitted by the appellant, and even as per the notings in the file the tender was generating more revenue than earlier. E. SUBMISSIONS ON BEHALF OF THE RESPONDENT

Mr. Rakesh Dwivedi, the learned Senior Counsel appearing for the respondent submitted that the present matter being purely a contractual dispute was rightly not entertained by the High Court in exercise of its writ jurisdiction under Article 226 of the Constitution of India.

He further submitted, that the decision to cancel the tender was bona fide and had to be taken considering the technical faults in the same. He submitted, that there was ambiguity in the tender as regards whether it was lawful to put up advertisements at the places outside the underpasses, due to which, many interested bidders might not have participated in the tender. The respondent was of the view that a higher license fee could be fetched by rectifying such ambiguity.

Mr. Dwivedi also submitted that the decision to cancel the tender had to be taken to enable the respondent to float separate tenders, one for the maintenance of the underpasses and the other for the licensing advertisement rights. Thus, the decision was taken in public interest. He submitted that the decision to cancel the tender was on the basis of a change in the policy, and thus cannot be said to be arbitrary.

He further submitted that no reliance could have been placed on the notings in the file maintained by the respondent, as the file notings Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 556 [2024] 7 S.C.R. are only internal deliberations. Such notings cannot be construed as decisions of the respondent and thus, creates no right in favour of the appellant.

In the last, Mr Dwivedi submitted that since during the pendency of the present appeal, the operation, maintenance and the licensing rights for the advertisements have been taken over by a third party, the present appeal has been rendered infructuous. F. POINTS FOR DETERMINATION

Having heard the learned counsel appearing for the parties and having gone through the materials on record, the two pivotal questions that fall for our consideration are as under: - 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 herein in cancelling the tender vide its notice dated 07.02.2023 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 14 of the Constitution of India? G. ANALYSIS i. Scope of Judicial Review of the actions of the State in matters relating to Contract / Tender under Writ Jurisdiction. a. Earlier Position of Law and Misconception of the State as a Largesse.

Over the years, the scope of judicial review and the extent to which a Court can interfere in disputes arising out of contracts or tenders has seen a significant development, marked by a nuanced understanding of the critical role of administrative discretion. The judicial quest in administrative matters has always been to find a right balance between i) allowing leeway to the States in deciding the exercise of their administrative discretion in matters pertaining to policy and ii) the need to ensure fairness and propriety in such administrative actions.

Earlier, the position of law was that any dispute arising out of a contract entered into with the State or its instrumentalities could not Digital Supreme Court Reports [2024] 7 S.C.R. 557 be adjudicated by the court under its writ jurisdiction, as in all such cases, it could be said that the ‘real grievance’ was essentially only one being that of breach of a contract for which the appropriate remedy would be an ordinary suit and not a writ petition. One of the earliest judicial pronouncements in this regard is the decision of this Court in Radhakrishna Agarwal & Ors. v. State of Bihar & Ors. reported in (1977) 3 SCC 457 wherein the following relevant observations were made: -

19. [...] None of these cases lays down that, when the State or its officers purport to operate within the contractual field and the only grievance of the citizen could be that the contract between the parties is broken by the action complained of, the appropriate remedy is by way of a petition under Article 226 of the Constitution and not an ordinary suit. There is a formidable array of authority against any such a proposition. [...]

(Emphasis supplied)

It was further explained by this Court in Radhakrishna Agarwal (supra) that once the State or its instrumentalities enter into a contract, any dispute arising out of that contract cannot be decided in writ jurisdiction as their relations no longer remain governed by the constitutional provisions, and it is only the contract which thereafter determines the rights and obligations of the parties. 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 or if the agreement is in the nature of a statutory contract. The relevant observations read as under: - “10. [...] But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No question arises of violation of Article 14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 558 [2024] 7 S.C.R. and confers some special statutory power or obligation on the State in the contractual field which is apart from contract.

11. In the cases before us the contracts do not contain any statutory terms or obligations and no statutory power or obligation which could attract the application of Article 14 of the Constitution is involved here. Even in cases where the question is of choice or consideration of competing claims before an entry into the field of contract facts have to be investigated and found before the question of a violation of Article 14 could arise. If those facts are disputed and require assessment of evidence the correctness of which can only be tested satisfactorily by talking detailed evidence, involving examination and cross-examination of witnesses, the case could not be conveniently or satisfactorily decided in proceedings under Article 226 of the Constitution. Such proceedings are summary proceedings reserved for extraordinary cases where the exceptional and what are described as, perhaps not quite accurately, “prerogative” powers of the Court are invoked. We are certain that the cases before us are not such in which powers under Article 226 of the Constitution could be invoked.” (Emphasis supplied)

Similar view as above, was reiterated by this Court in Premji Bhai Parmar & Ors. v. Delhi Development & Ors. reported in (1980) 2 SCC 129 at para 8 and in Divisional Forest Officer v. Bishwanath Tea Co. Ltd. reported in (1981) 3 SCC 238 wherein it was held that any right to relief flowing from a breach of contract cannot be entertained under the extraordinary writ jurisdiction of the court, even if the action of the State or its instrumentality was unauthorized in law. The relevant observations read as under: - “9. Ordinarily, where a breach of contract is complained of, a party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed, or the party may sue for damages. Such a suit would ordinarily be cognizable by the civil Digital Supreme Court Reports [2024] 7 S.C.R. 559 court. The High Court in its extraordinary jurisdiction would not entertain a petition either for specific performance of contract or for recovering damages. A right to relief flowing from a contract has to be claimed in a civil court where a suit for specific performance of contract or for damages could be filed. This is so well-settled that no authority is needed.

10. In substance, this was a suit for refund of a royalty alleged to be unauthorisedly recovered and that could hardly be entertained in exercise of the writ jurisdiction of the High Court.” (Emphasis supplied)

We do not propose to dwell any further, on the position of law that existed earlier, and leave it at rest with one last reference to the decision of this Court in Bareilly Development Authority & Anr. v. Ajai Pal Singh & Ors. reported in (1989) 2 SCC 116, wherein this Court once again reiterated that no writ can be issued in contractual disputes between the State and an aggrieved party where the rights or claims arise or stem only from the terms of the contract. The relevant observations read as under: -

22. There is a line of decisions where the contract entered into between the State and the persons aggrieved is non- statutory and purely contractual and the rights are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India so as to compel the authorities to remedy a breach of contract pure and simple [...]

(Emphasis supplied)

Thus, for a period of time the courts recognized that there was a clear brightline distinction between when a State or its instrumentalities could be said to be acting in its executive capacity and when it could be said to be acting in its private capacity, with the existence of a ‘contractual relation’ inter-se the parties being the determinative factor. Wherever, there was a contract, the State’s relations and all its actions were said to be within the field of a contract i.e., within the realm of private law, and the courts would resile from interfering with the same under their writ jurisdiction or embarking upon a judicial review of such actions. Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 560 [2024] 7 S.C.R.

Such reluctance on the part of the courts stemmed from its understanding that State or any of its instrumentalities must have the flexibility or the discretion to take decisions that are in the best interest of the public and efficient governance. Government being the decision-maker of the State is said to be the best judge of when a contract or an agreement is in its interest and by its extension in the interest of the public, and as such the courts should not interfere in the State’s discretion to award or terminate contracts. One another reason why contractual disputes were precluded from being espoused under the writ jurisdiction of the courts was due to the summary nature of such proceedings, which do not allow for an exhaustive review unlike civil suits. [See: Radhakrishna Agarwal (supra) at para 11]

This simplistic approach of the courts in deeming every act and action of the State which was complained of as nothing more than a ‘contractual dispute’ or a case of ‘breach of contract’ often led to the State abusing its position and acting unfairly under the misconceived notion, that all its actions such as award of contracts or tenders were nothing but a ‘largess’ – a generosity bestowed upon its citizens, which it can at its own whims choose to deny, alter, modify, or take away without any consequences. This often led to a conflation of power with duty, and resulted in every arbitrary exercise of power by the State under the guise of a ‘contractual dispute’ to remain unchecked and undisputable before the courts and out of the reach of judicial review, undermining the rights of the citizen to have their interests safeguarded and protected. We may in this regard refer to M/s Indian Medicines Pharmaceuticals Corp Ltd. v. Kerala Ayurvedic Co- operative Society Ltd. reported in (2023) SCC OnLine SC 5 wherein this Court speaking eruditely through one of us, Dr. D.Y. Chandrachud, CJI made the following pertinent observations: - “11 The welfare State plays a crucial role in aiding the realisation of the socioeconomic rights which are recognised by the Constitution. Social welfare benefits provided by the State under the rubric of its constitutional obligations are commonly understood in the language of ‘largesse’, a term used to describe a generous donation. Terming all actions of government, ranging from social security benefits, jobs, occupational licenses, contracts and use of public resources – as government largesse results in doctrinal misconceptions. The reason is that this Digital Supreme Court Reports [2024] 7 S.C.R. 561 conflates the State’s power with duty. The Constitution recognises the pursuit of the well-being of citizens as a desirable goal. In doing this the Constitution entrusts the State with a duty to ensure the well-being of citizens. Government actions aimed at ensuring the well-being of citizens cannot be perceived through the lens of a ‘largess’. The use of such terminology belittles the sanctity of the social contract that the ‘people of India’ entered into with the State to protect and safeguard their interests.

13. In the early 1950s’, judicial review of the process of concluding contracts by government was limited. The courts allowed the State due deference on the ground of governmental policy. In C.K Achuthan v. State of Kerala, AIR 1959 SC 490 a Constitution Bench of this Court held that it is open to the Government ‘to choose a person to their liking, to fulfil contracts which they wish to be performed.’ The Court observed that when one party is chosen over another, the aggrieved party cannot claim the protection of Article 14 since the government has the discretion to choose with whom it will contract.” (Emphasis supplied)

Before proceeding further to discuss how the scope of judicial review came to be evolved, we would like to refer to the observations made by this Court in M.C. Mehta v. Union of India reported in (1987) 1 SCC 395 which are significant, and read as under: -

31. [...] Law has to grow in order to satisfy the needs of the fast changing society and keep abreast with the economic developments taking place in the country. As new situations arise the law has to be evolved in order to meet the challenge of such new situations. Law cannot afford to remain static. We have to evolve new principles and lay down new norms which would adequately deal with the new problems which arise in a highly industrialised economy. [...]

(Emphasis supplied) Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 562 [2024] 7 S.C.R. b. Concept of ‘Public Law’ Element: Scope of Judicial Review in Contractual Matters.

Over a period of time the courts recognized the crucial role of judicial oversight in preventing the abuse of power and maintaining public confidence in the administrative process. Courts developed various doctrines and principles to guide their review, such as the principles of natural justice, reasonableness and proportionality. These principles ensured that the administrative actions are not arbitrary, discriminatory or capricious. By enforcing such standards, the courts also ensured that the rule of law was maintained and the individual rights were protected.

The interplay between judicial review and administrative discretion has been a dynamic process. As new challenges and complexities kept on arising before the courts as regards the State’s actions and governance, it continued to refine its approach. This ongoing dialogue between the courts and the executive branch contributed to the development of a more accountable and transparent administrative framework, paving the way for the exercise of judicial review even in the realm of contractual disputes to achieve a fine balance between efficiency and fairness in policy decisions on the one hand and the rights of individuals and overall public interest on the other.

In Mahabir Auto Stores & Ors. v. Indian Oil Corporation reported in (1990) 3 SCC 752, this Court expressed doubts over the correctness of the earlier position of law, that actions of the State in the private contractual field cannot be questioned in writ jurisdiction. This Court further held that even if the inter-se relation of parties with the State is governed purely by a contract, the method, motive and decision of the State would be subject to judicial review on the grounds of relevance and reasonableness, fair play, natural justice, equality and non-discrimination. The relevant observations read as under: - “12. [...] It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject Digital Supreme Court Reports [2024] 7 S.C.R. 563 to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non- discrimination in the type of the transactions and nature of the dealing as in the present case.

13. The existence of the power of judicial review however depends upon the nature and right involved in the facts and circumstances of the particular case. It is well settled that there can be “malice in law”. Existence of such “malice in law” is part of the critical apparatus of a particular action in administrative law. Indeed “malice in law” is part of the dimension of the rule of relevance and reason as well as the rule of fair play in action.

20. [...] we are of the opinion that it would be appropriate to state that in cases where the instrumentality of the state enters the contractual field, it should be governed by the incidence of the contract. It is true that it may not be necessary to give reasons but, in our opinion, in the field of this nature fairness must be there to the parties concerned, and having regard to the large number or the long period and the nature of the dealings between the parties, the appellant should have been taken into confidence. Equality and fairness at least demands this much from an instrumentality of the State dealing with a right of the State not to treat the contract as subsisting. We must, however, evolve such process which will work.” (Emphasis supplied) [See also: Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay : (1989) 3 SCC 293 at para 27.]

In LIC v. Consumer Education & Research Centre reported in (1995) 5 SCC 482, the Court held that the law as it stood earlier that a State or its instrumentality whose action is hedged with public element cannot be called into question because such action was in the field of private law is no longer a good law. The relevant observations read as under: - “23. Every action of the public authority or the person acting in public interest or any act that gives rise to public element, Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 564 [2024] 7 S.C.R. should be guided by public interest. It is the exercise of the public power or action hedged with public element (sic that) becomes open to challenge. If it is shown that the exercise of the power is arbitrary, unjust and unfair, it should be no answer for the State, its instrumentality, public authority or person whose acts have the insignia of public element to say that their actions are in the field of private law and they are free to prescribe any conditions or limitations in their actions as private citizens, simpliciter do in the field of private law. Its actions must be based on some rational and relevant principles. It must not be guided by irrational or irrelevant considerations. Every administrative decision must be hedged by reasons. [...]

26. This Court has rejected the contention of an instrumentality or the State that its action is in the private law field and would be immuned from satisfying the tests laid under Article 14. The dichotomy between public law and private law rights and remedies, though may not be obliterated by any strait-jacket formula, it would depend upon the factual matrix. The adjudication of the dispute arising out of a contract would, therefore, depend upon facts and circumstances in a given case. The distinction between public law remedy and private law field cannot be demarcated with precision. Each case will be examined on its facts and circumstances to find out the nature of the activity, scope and nature of the controversy. The distinction between public law and private law remedy has now become too thin and practicably obliterated.” (Emphasis supplied)

This Court in Consumer Education & Research Centre (supra) further held that the writ jurisdiction of the courts cannot be shackled by technicalities and that any action of the State which has a public law element or a public character, such actions by their nature are required to be just, fair, reasonable & in the interest of public, and as such they would be amenable to judicial review. As to what is meant by actions bearing insignia of public law element, this Court held that wherever the action of a State or its instrumentality in the sphere of Digital Supreme Court Reports [2024] 7 S.C.R. 565 contractual relations is enjoined with a duty or an obligation to the public, such actions could be said to bear the insignia of a public element. The relevant observation reads as under: - “27. In the sphere of contractual relations the State, its instrumentality, public authorities or those whose acts bear insignia of public element, action to public duty or obligation are enjoined to act in a manner i.e. fair, just and equitable, after taking objectively all the relevant options into consideration and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest and it must not take any irrelevant or irrational factors into consideration or appear arbitrary in its decision. Duty to act fairly is part of fair procedure envisaged under Articles 14 and 21. Every activity of the public authority or those under public duty or obligation must be informed by reason and guided by the public interest.

29. [...] The arms of the High Court are not shackled with technical rules or procedure. The actions of the State, its instrumentality, any public authority or person whose actions bear insignia of public law element or public character are amenable to judicial review and the validity of such an action would be tested on the anvil of Article 14. While exercising the power under Article 226 the Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case. The distinction between the public law remedy and private law field cannot be demarcated with precision. Each case has to be examined on its own facts and circumstances to find out the nature of the activity or scope and nature of the controversy. The distinction between public law and private law remedy is now narrowed down. [...]” (Emphasis supplied)

In another decision of this Court in Shrilekha Vidyarthi (Kumari) v. State of U.P. reported in (1991) 1 SCC 212 it was held that every Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 566 [2024] 7 S.C.R. 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 the dispute falls within the domain of contractual obligations. It was further held, that it is the nature of a government body’s personality which characterizes the action as having a public law element, and not the field of law where such action is taken. The relevant observation reads as under: - “22. There is an obvious difference in the contracts between private parties and contracts to which the State is a party. Private parties are concerned only with their personal interest whereas the State while exercising its powers and discharging its functions, acts indubitably, as is expected of it, for public good and in public interest. The impact of every State action is also on public interest. This factor alone is sufficient to import at least the minimal requirements of public law obligations and impress with this character the contracts made by the State or its instrumentality. It is a different matter that the scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned act is arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non-arbitrariness at the hands of the State in any of its actions.

24. The State cannot be attributed the split personality of Dr Jekyll and Mr Hyde in the contractual field so as to impress on it all the characteristics of the State at the Digital Supreme Court Reports [2024] 7 S.C.R. 567 threshold while making a contract requiring it to fulfil the obligation of Article 14 of the Constitution and thereafter permitting it to cast off its garb of State to adorn the new robe of a private body during the subsistence of the contract enabling it to act arbitrarily subject only to the contractual obligations and remedies flowing from it. It is really the nature of its personality as State which is significant and must characterize all its actions, in whatever field, and not the nature of function, contractual or otherwise, which is decisive of the nature of scrutiny permitted for examining the validity of its act. The requirement of Article 14 being the duty to act fairly, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act, even in contractual matters. There is a basic difference between the acts of the State which must invariably be in pubic interest and those of a private individual, engaged in similar activities, being primarily for personal gain, which may or may not promote public interest. Viewed in this manner, in which we find no conceptual difficulty or anachronism, we find no reason why the requirement of Article 14 should not extend even in the sphere of contractual matters for regulating the conduct of the State activity.

28. Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Article 14 and permit judicial review, we have no hesitation in saying that the ultimate impact of all actions of the State or a public body being undoubtedly on public interest, the requisite public element for this purpose is present also in contractual matters. We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of judicial review to test its validity on the anvil of Article 14.” (Emphasis supplied)

In Verigamto Naveen v. Govt. of A.P. & Ors. reported in (2001) 8 SCC 344 this Court held that where a breach of contract involves Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 568 [2024] 7 S.C.R. the decision-making authority exceeding its power or violating the principles of nature justice or its decision being borne out of perversity, then such cancellation of contract can certainly be scrutinized under the writ jurisdiction. This is because such an exercise of power by the authority is apart from the contract. The relevant observation reads as under: -

21. [...] Though there is one set of cases rendered by this Court of the type arising in Radhakrishna Agarwal case [(1977) 3 SCC 457 : AIR 1977 SC 1496] much water has flown in the stream of judicial review in contractual field. In cases where the decision-making authority exceeded its statutory power or committed breach of rules or principles of natural justice in exercise of such power or its decision is perverse or passed an irrational order, this Court has interceded even after the contract was entered into between the parties and the Government and its agencies. [...] Where the breach of contract involves breach of statutory obligation when the order complained of was made in exercise of statutory power by a statutory authority, though cause of action arises out of or pertains to contract, brings it within the sphere of public law because the power exercised is apart from contract. The freedom of the Government to enter into business with anybody it likes is subject to the condition of reasonableness and fair play as well as public interest. After entering into a contract, in cancelling the contract which is subject to terms of the statutory provisions, as in the present case, it cannot be said that the matter falls purely in a contractual field. Therefore, we do not think it would be appropriate to suggest that the case on hand is a matter arising purely out of a contract and, therefore, interference under Article 226 of the Constitution is not called for. This contention also stands rejected.

(Emphasis supplied)

Similarly in Binny Ltd. & Anr. v. Sadasivan & Ors. reported in (2005) 6 SCC 657 this Court in view of the increasing trend of the State and its instrumentalities to use contracts as a means for dispensing their regulatory functions, held that whenever a contract is used for Digital Supreme Court Reports [2024] 7 S.C.R. 569 a public purpose, it will be amenable to judicial review. The relevant observations read as under: -

30. A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body. But nevertheless, it may be noticed that the Government or government authorities at all levels are increasingly employing contractual techniques to achieve their regulatory aims. It cannot be said that the exercise of those powers are free from the zone of judicial review and that there would be no limits to the exercise of such powers, but in normal circumstances, judicial review principles cannot be used to enforce contractual obligations. When that contractual power is being used for public purpose, it is certainly amenable to judicial review. The power must be used for lawful purposes and not unreasonably.

(Emphasis supplied)

The decision of this Court in ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. reported in (2004) 3 SCC 553 is significant and was the turning point in the scope of judicial review in contractual matters. In this landmark ruling, this Court decisively laid down and approved that a relief against a State or its instrumentalities in matters related to contractual obligations can be sought under the writ jurisdiction. The relevant observations read as under: - “23. It is clear from the above observations of this Court, once the State or an instrumentality of the State is a party of the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. Therefore, if by the impugned repudiation of the claim of the appellants the first respondent as an instrumentality of the State has acted in contravention of the abovesaid requirement of Article 14, then we have no hesitation in holding that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent. Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 570 [2024] 7 S.C.R.

27. From the above discussion of ours, the following legal principles emerge as to the maintainability of a writ petition: (a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable. (b) Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule. (c) A writ petition involving a consequential relief of monetary claim is also maintainable.” (Emphasis supplied)

At the same time, this Court in ABL (supra) cautioned that the power to issue writs under Article 226 being discretionary and plenary, the same should only be exercised to set right the arbitrary actions of the State or its instrumentality in matters related to contractual obligations. The relevant observations read as under: -

28. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks) And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction.

(Emphasis supplied) Digital Supreme Court Reports [2024] 7 S.C.R. 571

In Noble Resources Ltd. v. State of Orissa reported in (2006) 10 SCC 236 this Court for the purposes of judicial review of contractual disputes recognized a distinction between a matter where the contract is at the threshold and at the stage of breach. It held that at the threshold, the court’s scrutiny is more intrusive & expansive while at the stage of breach it is discretionary except where the action is found to be arbitrary or unreasonable. The relevant observations read as under: -

15. It is trite that if an action on the part of the State is violative of the equality clause contained in Article 14 of the Constitution of India, a writ petition would be maintainable even in the contractual field. A distinction indisputably must be made between a matter which is at the threshold of a contract and a breach of contract; whereas in the former the court’s scrutiny would be more intrusive, in the latter the court may not ordinarily exercise its discretionary jurisdiction of judicial review, unless it is found to be violative of Article 14 of the Constitution. While exercising contractual powers also, the government bodies may be subjected to judicial review in order to prevent arbitrariness or favouritism on their part. Indisputably, inherent limitations exist, but it would not be correct to opine that under no circumstances a writ will lie only because it involves a contractual matter.

(Emphasis supplied)

The law on the subject with which we are dealing was laid down exhaustively by this Court in its decision in Joshi Technologies International Inc. v. Union of India & Ors. reported in (2015) 7 SCC 728, and the position was summarised as under: - “69. The position thus summarised in the aforesaid principles has to be understood in the context of discussion that preceded which we have pointed out above. As per this, no doubt, there is no absolute bar to the maintainability of the writ petition even in contractual matters or where there are disputed questions of fact or even when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, it can refuse to exercise. It also follows that under the following Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 572 [2024] 7 S.C.R. circumstances, “normally”, the Court would not exercise such a discretion:

69.1. The Court may not examine the issue unless the action has some public law character attached to it.

69.2. Whenever a particular mode of settlement of dispute is provided in the contract, the High Court would refuse to exercise its discretion under Article 226 of the Constitution and relegate the party to the said mode of settlement, particularly when settlement of disputes is to be resorted to through the means of arbitration.

69.3. If there are very serious disputed questions of fact which are of complex nature and require oral evidence for their determination.

69.4. Money claims per se particularly arising out of contractual obligations are normally not to be entertained except in exceptional circumstances.

Further, the legal position which emerges from various judgments of this Court dealing with different situations/ aspects relating to contracts entered into by the State/ public authority with private parties, can be summarised as under:

70.1. At the stage of entering into a contract, the State acts purely in its executive capacity and is bound by the obligations of fairness.

70.2. State in its executive capacity, even in the contractual field, is under obligation to act fairly and cannot practise some discriminations.

70.3. Even in cases where question is of choice or consideration of competing claims before entering into the field of contract, facts have to be investigated and found before the question of a violation of Article 14 of the Constitution could arise. If those facts are disputed and require assessment of evidence the correctness of which can only be tested satisfactorily by taking detailed evidence, involving examination and cross-examination of witnesses, the case could not be conveniently or satisfactorily decided Digital Supreme Court Reports [2024] 7 S.C.R. 573 in proceedings under Article 226 of the Constitution. In such cases the Court can direct the aggrieved party to resort to alternate remedy of civil suit, etc.

70.4. Writ jurisdiction of the High Court under Article 226 of the Constitution was not intended to facilitate avoidance of obligation voluntarily incurred.

70.5. Writ petition was not maintainable to avoid contractual obligation. Occurrence of commercial difficulty, inconvenience or hardship in performance of the conditions agreed to in the contract can provide no justification in not complying with the terms of contract which the parties had accepted with open eyes. It cannot ever be that a licensee can work out the licence if he finds it profitable to do so: and he can challenge the conditions under which he agreed to take the licence, if he finds it commercially inexpedient to conduct his business.

70.6. Ordinarily, where a breach of contract is complained of, the party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed. Otherwise, the party may sue for damages.

70.7. Writ can be issued where there is executive action unsupported by law or even in respect of a corporation there is denial of equality before law or equal protection of law or if it can be shown that action of the public authorities was without giving any hearing and violation of principles of natural justice after holding that action could not have been taken without observing principles of natural justice.

70.8. If the contract between private party and the State/ instrumentality and/or agency of the State is under the realm of a private law and there is no element of public law, the normal course for the aggrieved party, is to invoke the remedies provided under ordinary civil law rather than approaching the High Court under Article 226 of the Constitution of India and invoking its extraordinary jurisdiction.

70.9. The distinction between public law and private law element in the contract with the State is getting blurred. Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 574 [2024] 7 S.C.R. However, it has not been totally obliterated and where the matter falls purely in private field of contract, this Court has maintained the position that writ petition is not maintainable. The dichotomy between public law and private law rights and remedies would depend on the factual matrix of each case and the distinction between the public law remedies and private law field, cannot be demarcated with precision. In fact, each case has to be examined, on its facts whether the contractual relations between the parties bear insignia of public element. Once on the facts of a particular case it is found that nature of the activity or controversy involves public law element, then the matter can be examined by the High Court in writ petitions under Article 226 of the Constitution of India to see whether action of the State and/or instrumentality or agency of the State is fair, just and equitable or that relevant factors are taken into consideration and irrelevant factors have not gone into the decision making process or that the decision is not arbitrary.

70.10. Mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirements of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness.

70.11. The scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes.” (Emphasis supplied)

Thereafter, this Court in its decision in M.P. Power Management Co. Ltd., Jabalpur v. Sky Power Southeast Solar India Pvt. Ltd. & Ors. reported in (2023) 2 SCC 703 exhaustively delineated the scope of judicial review of the courts in contractual disputes concerning public authorities. The aforesaid decision is in the following parts: - Digital Supreme Court Reports [2024] 7 S.C.R. 575 i. Scope of Judicial Review in matters pertaining to Contractual Disputes: - This Court held that the earlier position of law that all rights against any action of the State in a non-statutory contract would be governed by the contract alone and thus not amenable to the writ jurisdiction of the courts is no longer a good law in view of the subsequent rulings. Although writ jurisdiction is a public law remedy, yet a relief would still lie under it if it is sought against an arbitrary action or inaction of the State, even if they arise from a non-statutory contract.

What can be discerned from the above is that there has been a considerable shift in the scope of judicial review of the court when it Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 582 [2024] 7 S.C.R. comes to contractual disputes where one of the parties is the State or its instrumentalities. In view of the law laid down by this Court in ABL (supra), Joshi Technologies (supra) and in M.P. Power (supra), it is difficult to accept the contention of the respondent that the writ petition filed by the appellant before the High Court was not maintainable and the relief prayed for was rightly declined by the High Court in exercise of its Writ jurisdiction. Where State action is challenged on the ground of being arbitrary, unfair or unreasonable, the State would be under an obligation to comply with the basic requirements of Article 14 of the Constitution and not act in an arbitrary, unfair and unreasonable manner. This is the constitutional limit of their authority. There is a jural postulate of good faith in business relations and undertakings which is given effect to by preventing arbitrary exercise of powers by the public functionaries in contractual matters with private individuals. With the rise of the Social Service State more and more public-private partnerships continue to emerge, which makes it all the more imperative for the courts to protect the sanctity of such relations. It is needless to state that in matters concerning specific modalities of the contract — such as required work, execution methods, material quality, timeframe, supervision standards, and other aspects impacting the tender’s purpose — the court usually refrains from interference. State authorities, like private individuals, have a consensual element in contract formation. The stipulations or terms in the underlying contract purpose are part of the consensual aspect, which need not be entertained by the courts in writ jurisdiction and the parties may be relegated to ordinary private law remedy. Judicial review does not extend to fixing contract stipulations but ensures that the public authorities act within their authority to prevent arbitrariness.

Thus, the demarcation between a private law element and public law element in the context of contractual disputes if any, may be assessed by ascertaining whether the dispute or the controversy pertains to the consensual aspect of the contract or tender in question or not. Judicial review is permissible to prevent arbitrariness of public authorities and to ensure that they do not exceed or abuse their powers in contractual transactions and requires overseeing the administrative power of public authorities to award or cancel contracts or any of its stipulations. Digital Supreme Court Reports [2024] 7 S.C.R. 583

Therefore, what can be culled out from the above is that although disputes arising purely out of contracts are not amenable to writ jurisdiction yet keeping in mind the obligation of the State to act fairly and not arbitrarily or capriciously, it is now well settled that when contractual power is being used for public purpose, it is certainly amenable to judicial review.

Now coming to the facts of the case at hand, the appellant has challenged the cancellation of the tender at the instance of the respondent on the ground of being manifestly arbitrary and influenced by extraneous considerations. It is evident from the notice of cancellation dated 07.02.2023, that the tender was not terminated pursuant to any terms of the contract subsisting between the parties, rather, the respondent ‘cancelled’ the tender saying that there was technical fault in the tender that was floated.

Thus, the respondent could be said to have exercised powers in its executive capacity as the action to cancel the tender falls outside the purview of the terms of the contract. Hence, it cannot be said that the present matter is purely a contractual dispute. It is also not a breach of contract, as no such breach has been imputed to the appellant in terms of the contract, but rather a plain and simple exercise of the executive powers.

Thus, the present dispute even if related to a tender, cannot be termed as a pure contractual dispute, as the dispute involves a public law element. Although there is no discharge of a public function by the respondent towards the appellant yet there is a right to public law action vested in him against the respondent in terms of Article 14 of the Constitution. This is because the exercise of the executive power by it in the contractual domain i.e., the cancelling of the tender carries a corresponding public duty to act in a reasonable and rationale manner. Thus, we find that the writ petition filed by the respondent was maintainable and the relief prayed for could have been considered by the High Court in exercise of its writ jurisdiction. c. Meaning and True Import of Arbitrariness of State Actions in Contractual Disputes.

In Ramana Dauaram Shetty v. The International Airport Authority of India & Ors. reported in AIR 1979 SC 1628 this Court held that the actions of the State in contractual matters must conform Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 584 [2024] 7 S.C.R. to some standard or norms which is rational, non-discriminatory and not guided by extraneous considerations, otherwise the same would be in violation of Article 14 of the Constitution. The relevant observations read as under: -

This rule also flows directly from the doctrine of equality embodied in Article 14. It is now well settled as a result of the decisions of this Court in E.P. Royappa v. State of Tamil Nadu, A.I.R. 1974 S.C. 555 and Maneka Gandhi v. Union of India, A.I.R. 1978 S.C. 597 that Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. It requires that State action must not be arbitrary but must be based on some rational and relevant principle which is non discriminatory; it must not be guided by any extraneous or irrelevant consideration, because that would be denial of equality. The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Article 14 and it must characterise every State action, whether it be under authority of law or in exercise of executive power without making of law. The State cannot, therefore, act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational and non-discriminatory.

(Emphasis supplied)

In Dwarkadas Marfatia & Sons (supra) this Court speaking through Sabyasachi Mukherji, CJ. (as the learned Chief Justice then was) held that every action of the State or an instrumentality of the State must be informed by reason......actions uninformed by reason may be questioned as arbitrary. The relevant observations read as under: -

22. [...] every action of the State or as instrumentality of the State, must be informed by reason. Indubitably, the respondent is an organ of the State under Article 12 of the Constitution. In appropriate cases, as was observed in the last mentioned decision, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. But it has to be remembered that Article 14 cannot be construed as a Digital Supreme Court Reports [2024] 7 S.C.R. 585 charter for judicial review of State action, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions.

(Emphasis supplied)

The meaning and true import of arbitrariness is more easily visualized than precisely stated or defined. The question, whether an impugned action is arbitrary or not, is ultimately to be answered on the facts and in the circumstances of a given case. An obvious test to apply is to see whether there is any discernible principle emerging from the impugned act and if so, does it satisfy the test of reasonableness. Where a mode is prescribed for doing an act and there is no impediment in following that procedure, the performance of the act otherwise and in a manner which does not disclose any discernible principle which is reasonable, may itself attract the vice of arbitrariness. Every State action must be informed by reason and it follows that an act uninformed by reason, is arbitrary. Rule of law contemplates governance by laws and not by humour, whims or caprices of the men to whom the governance is entrusted for the time being. It is trite that be you ever so high, the laws are above you.

Control of administrative discretion is an important concern in the development of Rule of Law. According to Wade and Forsyth, the Rule of Law has four meanings, and one of them is that “government should be conducted within a framework of recognized rules and principles which restrict discretionary power”.

To enthuse efficiency in administration, a balance between accountability and autonomy of action should be carefully maintained. Overemphasis on either would impinge upon public efficiency. But undermining the accountability would give immunity or carte blanche power to act as it pleases with the public at whim or vagary. Whether the public authority acted bona fide would be gauged from the impugned action and attending circumstances. The authority should justify the action assailed on the touchstone of justness, fairness and reasonableness. Test of reasonableness is more strict. The public authorities should be duty conscious rather than power charged. Its actions and decisions which touch the common man have to be tested on the touchstone of fairness and justice. That which is not fair and just is unreasonable. And what is unreasonable is arbitrary. An arbitrary action is ultra vires. It does not become bona fide and in Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 586 [2024] 7 S.C.R. good faith merely because no personal gain or benefit to the person exercising discretion has been established. An action is mala fide if it is contrary to the purpose for which it was authorised to be exercised. Dishonesty in discharge of duty vitiates the action without anything more. An action is bad even without proof of motive of dishonesty, if the authority is found to have acted contrary to reason. [See: Mahesh Chandra v. Regional Manager, U.P. Financial Corporation & Ors. : (1993) 2 SCC 279]

The dictum as laid in Tata Cellular v. UOI reported in (1994) 6 SCC 651 is that the judicial power of review is exercised to rein in any unbridled executive functioning. It was observed that the restraint has two contemporary manifestations viz. one is the ambit of judicial intervention and the other covers the scope of the court’s ability to quash an administrative decision on its merits. These restraints bear the hallmarks of judicial control over administrative action. It was held that the principle of judicial review is concerned with reviewing not the merits of the decision in support of which the application for judicial review is made, but the decision-making process itself. It was held that the principle of judicial review would apply to the exercise of contractual powers by the Government bodies in order to prevent arbitrariness or favouritism. It was held that the duty of the court is to confine itself to the question of legality and its concern should be whether a decision-making authority exceeded its powers; whether it committed an error of law or committed a breach of the rules of natural justice or reached a decision which no reasonable tribunal would have reached or, abused its powers.

To ascertain whether an act is arbitrary or not, the court must carefully attend to the facts and the circumstances of the case. It should find out whether the impugned decision is based on any principle. If not, it may unerringly point to arbitrariness. If the act betrays caprice or the mere exhibition of the whim of the authority it would sufficiently bear the insignia of arbitrariness. In this regard supporting an order with a rationale which in the circumstances is found to be reasonable will go a long way to repel a challenge to State action. No doubt the reasons need not in every case be part of the order as such. If there is absence of good faith and the action is actuated with an oblique motive, it could be characterised as being arbitrary. A total non-application of mind without due regard to the rights of the parties and public interest may be a clear indicator of arbitrary action.

70. One another way, to assess whether an action complained of could be termed as arbitrary is by way of scrutinizing the reasons that have been assigned to such an action. It involves overseeing whether the reasons which have been cited if at all genuinely formed part of the decision-making process or whether they are merely a ruse. All decisions that are taken must earnestly be in lieu of the reasons and considerations that have been assigned to it. The Court must be mindful of the fact that it is not supposed to delve into every minute details of the reasoning assigned, it need not to go into a detailed exercise of assessing the pros and cons of the reasons itself, but should only see whether the reasons were earnest, genuine and had a rationale with the ultimate decision. What is under scrutiny in judicial review of an action is the decision-making process and whether there is any element of arbitrariness or mala fide.

Thus, the question to be answered in such situations is whether the decision was based on valid considerations. This is undertaken to ensure that the reasons assigned were the true motivations behind the action and it involves checking for the presence of any ulterior Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 588 [2024] 7 S.C.R. motives or irrelevant considerations that might have influenced the decision. The approach of the court must be to respect the expertise and discretion of administrative authorities while still protecting against arbitrary and capricious actions. Thus, now the only question that remains to be considered is whether the action of the respondent to cancel the tender could be termed as arbitrary? ii. Whether the action of cancelling the tender is arbitrary or unfair and in consequence of violation of Article 14 of the Constitution?

The principal contention of the appellant is that the notice of cancellation dated 07.02.2023 that was issued by the respondent is manifestly arbitrary, unreasonable and influenced by mala fide and extraneous considerations.

Before we proceed to determine whether the cancellation of tender could be termed as arbitrary, it is necessary to understand the stance of the respondent in the present litigation, as discernible from their pleadings, which has left us quite perplexed. The argument of the respondent is two-fold: - (i) First, that the tender had to be cancelled as there was a technical fault. The tender was found to be ‘non-specific’ & ‘not well defined’ as a result it created ambiguity resulting in financial losses to the respondent. (ii) Secondly, the cancellation was also on account of a change in policy whereby, the operation & maintenance of the concerned underpasses had been handed over to another authority.

The primary thrust of the respondent’s contention is that the decision to cancel the tender was taken in view of the technical faults in the same, more particularly the ambiguity as to whether the advertisement boards could be put up beyond the area of the concerned underpasses.

The learned Single Judge of the High Court in its order dated 24.04.2023 observed that there was an ambiguity in the Special Terms & Conditions of the Memorandum of Tender more particularly clauses 10 and 14 respectively which gave rise to a conflicting interpretation as to the placement of the signboards. This in the opinion of the High Court was a technical fault, which the respondent sought to Digital Supreme Court Reports [2024] 7 S.C.R. 589 rectify by way of cancelling the tender. The relevant observations read as under: -

18. [...] In fact, the letter of cancellation provides further reasons, namely, that the tender has been found to be non-specific and having technical faults. This would also be borne out from clauses 10 and 14 of the Special Terms and Conditions of the tender document which give rise to conflicting interpretations on the placement of the signboards. Hence, besides the administrative decision to hand over the maintenance of E.M. Bypass from KMDA to KMC, the respondent KMDA as the tendering authority, has a right to rectify the ambiguities in the bid document by cancelling the same.

(Emphasis supplied)

However, interestingly, the Notice of Cancellation dated 07.02.2023 that came to be issued by the respondent makes no mention of any such lacuna. In fact, there is no reference to the aforementioned clauses or any conflict in their interpretation. The aforesaid notice only states that the tender was found to be ‘non-specific’ and ‘not well defined’ which created ambiguity due to which the respondent is incurring losses, and nothing is stated either about the ambiguity in putting up the advertisement boards or for that matter which aspect of the tender is non-specific.

It is also apposite to mention that just a month prior to cancelling the tender, the respondent on 24.01.2023 issued a notice to the appellant, asking him to stop all work in respect of the tender. Remarkably, in the said notice, there is no whisper about there being any of the aforementioned technical faults in the tender floated by the respondent. In fact, a close reading of the aforesaid notice would reveal that the orders to stop the work had been issued for an altogether different reason – i.e., handing over of the operation & maintenance of the concerned underpasses to another authority i.e., KMC. a. Scrutiny of Internal File-Notings and Deliberations of the State.

The appellant has in particular placed reliance on various notings made in the internal file of the respondent in respect of the tender to Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors. 590 [2024] 7 S.C.R. contend that the cancellation of the same was arbitrary and influenced by extraneous considerations. The respondent on the other hand submitted that the internal file-notings cannot be used or relied upon to impute any ill-motives to the decision of cancelling the tender as they only reflect the opinion of a particular individual and cannot be construed or interpreted as the decision of the respondent. In this regard, reliance has been placed on the following decisions: - i. Pimpri Chinchwad New Township Development Authority v. Vishnudev Coop. Housing Society : (2018) 8 SCC 215. ii. Shanti Sports Club v. Union of India : (2009) 15 SCC 705.

This Court in its decision in Bachhittar Singh v. State of Punjab & Anr. reported in AIR 1963 SC 395 held that merely because something was written in the internal files and notesheet does not amount to an order, it at best is an expression of opinion which may be changed, and it only becomes an order when such opinion is formally made into a decision. The relevant observations read as under: - “9. The question, therefore, is whether he did in fact make such an order. Merely writing something on the file does not amount to an order. Before something amounts to an order of the State Government two things are necessary. The order has to be expressed in the name of the Governor as required by clause (1) of Article 166 and then it has to be communicated. As already indicated, no formal order modifying the decision of the Revenue Secretary was ever made. Until such an order is drawn up the State Government cannot, in our opinion, be regarded as bound by what was stated in the file. [...]

10. The business of State is a complicated one and has necessarily to be conducted through the agency of a large number of officials and authorities. The Constitution, therefore, requires and so did the Rules of Business framed by the Rajpramukh of PEPSU provide, that the action must be taken by the authority concerned in the name of the Rajpramukh. It is not till this formality is observed that the action can be regarded as that of the State or here, by the Rajpramukh. [...] Indeed, it is possible that after expressing one opinion about a particular matter at Digital Supreme Court Reports [2024] 7 S.C.R. 591 a particular stage a Minister or the Council of Ministers may express quite a different opinion, one which may be completely opposed to the earlier opinion. Which of them can be regarded as the “order” of the State Government? Therefore, to make the opinion amount to a decision of the Government it must be communicated to the person concerned.” (Emphasis supplied)