State of U.P. v. Sudhir Kumar and Ors, 2020 SC

STATE OF U.P. V. SUDHIR KUMAR AND ORS.

ISSUE:

Whether the ex parte enquiry held by Managing Director of the Corporation into the matter was in violation of natural justice?
Whether the Managing Director was justified in cancelling the written agreement with the petitioner after a lapse of a year, without putting him to notice?

RULE:

The court applied principles of natural justice, emphasizing that parties must be given a fair opportunity to present their case, particularly in administrative decisions that affect their rights.
No prejudice must be caused to the person who is alleging the breach of Principles of natural justice which includes the rule of audi alteram partem.
The doctrine of proportionality was considered, where actions taken must be appropriate and not excessive in relation to the objectives sought.
The court also examined the distinction between public law and private law, determining that cases involving public elements can be adjudicated under public law principles.

FACTS:

An e-tender notice was issued by the U.P. State Warehousing Corporation and 10 days later the tender was cancelled due to administrative reasons.
An e-tender was again published on the same terms. Price bids of technically qualified bidders were then opened.
Then the Managing Director of the Corporation cancelled the aforesaid tender apparently on the ground that it was ‘impractical’ to go ahead with such tender.
The tender was reissued for the same workable capacity and estimated annual value of the contract.
Sudhir Kumar Singh, Respondent no 1 was declared as the successful bidder for the Bhawanipur centre.
An agreement was entered into between the Corporation and Respondent for execution of the work under the tender, which began on and from that day, and continued for a period of over one year.
Meanwhile, two complaints were made by one Shri Pramod Kumar Singh of the Purvanchal Trucker Owner’s Association to the Principal Secretary of the State of U.P. regarding financial irregularities that occurred in the issuance of the e-tender.
As a result of this letter, the Managing Director of the Corporation held an ex parte enquiry into the matter, and insofar as Respondent No.1 was concerned, the Managing Director went into the cancellation of the previous tender.
Meanwhile, Respondent No.1 filed Writ Petition before the High Court of Judicature at Allahabad, in which he challenged the ‘illegal and arbitrary’ termination of the contract with the Corporation after successful completion of over one year of a two-year term, and prayed for the setting aside of the Corporation’s cancellation order.
The High Court concluded that since the entire proceedings were conducted behind the back of Respondent No.1, and considering that the tender notice had never been challenged by anybody in a court of law, an ex parte appraisal of the complaints received was done in a hurry by the Managing Director of the Corporation, the order and was liable to be set aside on several grounds, the single most important being the breach of natural justice.

HELD:

The Supreme Court upheld the impugned judgment of the High Court on the ground that natural justice had been breached, and that prejudice had indeed been caused.
The court observed that the tender proceedings had already been concluded with the execution of the agreement.
The Managing Director failed to offer any opportunity of hearing to the petitioner before passing the order impugned which terminated the agreement for no justifiable reason. Therefore, element of bias cannot be ruled out.
The court held that order terminating the agreement cannot be sustained in law.
The court also revealed that natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more, lead to the conclusion that prejudice is thereby caused. T
he “prejudice” exception must be more than a mere apprehension or even a reasonable suspicion of a litigant. It should exist as a matter of fact, or be based upon a definite inference of likelihood of prejudice flowing from the non-observance of natural justice.
Therefore, the court judged by the touchstone of these tests, held that petitioner had been completely kept in the dark with regard to cancellation of the award of tender, the audi alteram partem rule having been breached in its entirety and thus, upheld the judgment of the High Court.