SC Calls for Judicial Restraint in Review of Government Contracts

Athree-judge bench comprising the Chief Justice of India, N.V. Ramana, and Justices Vineet Saran, and Surya Kant, on Monday deprecated the phenomenon of ‘regime revenge’ – the practice of setting aside earlier contractual undertakings with the change of person in power, without any rhyme or reason.  “One cannot change the rules of the game once it has started,” the bench categorically held.

In the instant case, The Vice Chairman & Managing Director, City and Industrial Development Corporation of Maharashtra Ltd. (CIDCO) vs Shishir Realty Private Limited and others, the appellant had called for a tender for lease of land within its jurisdiction for purposes of development of necessary infrastructure such as hotels etc., around Navi Mumbai Airport.  In 2008, CIDCO issued a letter of allotment in favour of M/s Metropolis Hotels, being the highest bidder, for construction of a five-star hotel near the proposed airport.

In 2010, the newly appointed Vice-Chairman of CIDCO issued a show-cause notice to Metropolis Hotels and Shishir Realty Private Ltd. as to why the lease deeds executed in their favour should not be cancelled on account of breach of tender conditions by the latter.  In March 2011, CIDCO cancelled the lease deeds, pursuant to the enquiry.

The Bombay High Court quashed the cancellation order in December 2013, and held that the change of land use and sub-division of the plot had taken place with due authorisation of CIDCO.   The High Court also held that CIDCO  was not able to show any concrete violations which go to the root of the matter, and that CIDCO is precluded and estopped on the doctrine of promissory estoppel from cancelling the allotment.

The Supreme Court took note of the fact that the post-decisional hearing given to the respondent-lessee has been reduced to a lip-service, which cannot be upheld in the eyes of the law.  The CJI-led bench held that elements of party autonomy and commercial freedom while framing the contract are not within the purview of judicial review.

The bench reasoned that when a contract is being evaluated, the mere possibility of more money in the public coffers, does not in itself serve public interest.  A blanket claim of loss of public money cannot be used to forgo contractual obligations, especially when it is not based on any evidence or examination, the bench added. The larger public interest of upholding contracts and the fairness of public authorities is also in play, the bench held, while observing that courts need to have a broader understanding of public interest while reviewing such contracts.

More significantly, the bench  rejected the contention that with the change in the executive head in CIDCO, an enquiry was initiated against the allotment made in favour of the respondent during the tenure of the earlier executive head.  Even the inquiry, that was conducted against the respondents-lessees stood vitiated as no proper notice or hearing was given to them before passing the impugned order, the bench held.  It further observed that the practice clearly suggested the phenomenon of ‘regime-revenge’, which is clearly detrimental to the constitutional values and rule of law.

The bench agreed with the appellants that the Government cannot be compelled to perform its undertaking, but underlined that equity demands that the Government must place on record sufficient material to claim such exemption.  CIDCO sought to create an exception of public interest as a limit to promissory estoppel.

The Supreme Court pointed out that due to the ongoing dispute, no development of the land could take place for the past decade. “Equity demands that when the State failed to produce an iota of evidence of either financial loss or any other public interest that has been affected, it should be compelled to fulfil its promises,” the bench held.

The bench concluded that there is an element of abuse of bureaucratic power behind the 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 bench held, while dismissing CIDCO’s appeal against the Bombay High Court judgment.  The impugned order of CIDCO annulling the allotment on hyper-technical grounds cannot be sustained for being contrary to the doctrine of fairness; the reasons stated therein are perverse and based on extraneous considerations, the bench added.