The Supreme Court cautioned that businesses will be hesitant to enter into government contracts or make investments on promises made by a government if a public authority arbitrarily goes about undoing agreements of its predecessor, merely citing public interest or loss to treasury without proving the same with evidence.
A bench of Chief Justice of India N V Ramana and Justices Vineet Saran and Surya Kant on Monday noted, “…merely using grounds of public interest or loss to the treasury, the successor public authority cannot undo the work undertaken by the previous authority. Such a claim must be proven using material facts, evidence and figures. If it were otherwise, then there will remain no sanctity in the words and undertaking of the Government. Businessmen will be hesitant to enter Government contracts or make any investment in furtherance of the same.”
The CJI, writing for the bench, said “such a practice is counter-productive to the economy and the business environment in general.”
The court also dismissed appeals by the City and Industrial Development Corporation of Maharashtra (CIDCO) challenging the December 2013 Bombay High Court verdict which quashed the corporation’s order cancelling the allotment of land to M/s Metropolis Hotels for construction of a five star hotel near a proposed airport site in Navi Mumbai.
The SC called CIDCO’s action an “abuse of bureaucratic power” and “disproportionate”.
The court, which went into the facts of the case, said, “From a consideration of the…facts and circumstances, it is clear that there is an element of abuse of bureaucratic power behind subsequent change in the tender allotment. After conducting a tender process and receiving money, the Government backtracked which led to this present prolonged litigation. The impugned order of CIDCO, inter alia, annulling the allotment on hyper-technical grounds cannot be sustained for being contrary to the doctrine of fairness. The reasons stated in the aforesaid order are perverse and per-se based on extraneous considerations.”
The bench said it is “not able to identify any substantive violation of law or tender conditions, which mandate annulling the allotment and subsequent arrangements, thereby proving the conduct of the appellant authority to be disproportionate.”
CIDCO had invited bids on June 11, 2008 to lease out land for development of infrastructure around the Navi Mumbai Airport. M/s. Metropolis Hotels emerged as the highest bidder and the same was accepted after due scrutiny.
Although the initial allotment was for construction of a five-star hotel, CIDCO, on an application made by Metropolis, subsequently allowed change of use of a portion of the land to commercial-cum-residential use.
The corporation also allowed a subdivision of the plots for five star hotel and the commercial-cum-residential project and assignment of the rights of Metropolis with respect to the commercial-cum-residential plot to M/s Shishir Realty Private Ltd. With sanction from CIDCO, Shishir also mortgaged the plot assigned to it to obtain a loan for the project.
Subsequently, on directions of the state government, the Principal Secretary, Urban Development Department held a preliminary enquiry into complaints regarding irregularities in allotment of plots of land, change of user and deviation from the terms and conditions of the tender.
Based on the enquiry, the newly-appointed Vice Chairman issued a notice to Metropolis and Shishir asking them to show cause why the lease should not be cancelled for breach of tender conditions by Metropolis. By an order dated March 16, 2001, the Vice Chairman cancelled the lease deeds, pursuant to the enquiry.
Upholding the High Court verdict which reversed the CIDCO action, the apex court said, “Fairness and the good faith standard ingrained in the contracts entered into by public authorities mandates such public authorities to conduct themselves in a non-arbitrary manner during the performance of their contractual obligations.”