SC Upholds Sanctity of Public Tenders: A Landmark Judgment on Arbitrary Cancellations

In a significant ruling, the Supreme Court of India has reinforced the principle of upholding the sanctity of contracts in public tenders. The case of Subodh Kumar Singh Rathour v. The Chief Executive Officer & Ors., (2024 SCC OnLine SC 1682), dated July 9, 2024, highlights the judicial stance against arbitrary cancellation of public tenders and emphasizes the importance of maintaining fairness and transparency in state contracts.

The appellant, Subodh Kumar Singh Rathour, was awarded a tender by the Kolkata Metropolitan Development Authority (KMDA) for the maintenance and operation of two underpasses on the Eastern Metropolitan Bypass, including advertising rights. The appellant submitted the highest bid and was subsequently issued Letters of Intent and Work Order. However, subsequent administrative changes led the Urban Development and Municipal Affairs Department of West Bengal to transfer the maintenance responsibility for the underpasses from KMDA to the Kolkata Municipal Corporation (KMC), while KMDA retained advertisement revenue rights. Following this order, KMDA issued a stop-work notice to the appellant, followed by a cancellation of tender notice citing technical faults and financial losses.

The appellant challenged the cancellation in the Hon’ble High Court of Calcutta. The Single Judge dismissed the writ petition, citing administrative exigencies and changes in policy as justifications for the cancellation. The Division Bench upheld this decision, prompting the appellant to appeal to the Hon’ble Supreme Court of India.

The Hon’ble Supreme Court of India ruled that the cancellation of tender was arbitrary and influenced by extraneous factors. It noted that the decision lacked bona fide considerations and was not based on real and palpable public interest, as required by law. It further emphasized that public tenders are designed to provide a level playing field for all bidders, and that contracts create legitimate expectations for private players that must be honored by the State. Arbitrary cancellations undermine these expectations and erode trust in public procurement processes. In addition, vested rights in this case would continue to operate notwithstanding any change in the control and maintenance of the underpasses. The Court reaffirmed that while disputes purely arising from contracts are generally not subject to writ jurisdiction, the State’s contractual decisions involving public interest are amenable to judicial review if they are arbitrary or made in bad faith. The ruling marks a shift in the judicial approach, allowing greater scrutiny of the State’s contracting decisions to ensure fairness and transparency.