Supreme Court Upholds Fairness in Tenders: CIDCO’s Land Allotment Cancellation Overturned (29 November 2021)

Introduction

Date of the Judgment: 29 November 2021

Citation: Not Available in Source

Judges: N. V. Ramana, CJI, Vineet Saran, J., and Surya Kant, J.

Can a government authority cancel a land allotment after accepting payment, citing minor technicalities and a change of policy? The Supreme Court of India recently addressed this question in a case involving the City and Industrial Development Corporation of Maharashtra (CIDCO). The court examined whether CIDCO could cancel a land allotment made to Shishir Realty Private Limited, after the allotment was made, and payment had been accepted. The bench comprised Chief Justice N.V. Ramana and Justices Vineet Saran and Surya Kant.

Case Background

On June 11, 2008, CIDCO issued a tender for the lease of land to develop infrastructure, including hotels, around the Navi Mumbai Airport. M/s Metropolis Hotels was one of the bidders. After scrutinizing the technical qualifications, CIDCO’s legal team approved M/s Metropolis Hotels on July 25, 2008. The financial bids were opened on the same day, with M/s Metropolis Hotels being the highest bidder at Rs. 60,085.10 per sq mtr.

M/s Indian Hotels Company Ltd., the second-highest bidder, objected to M/s Metropolis Hotels’ eligibility, claiming that one of its partners had also bid separately. CIDCO rejected these objections on August 4, 2008, and issued a letter of allotment to M/s Metropolis Hotels on August 7, 2008, for Plot No. 5, for constructing a five-star hotel.

On December 29, 2009, M/s Metropolis Hotels requested a change of user for 34,000 sq mtrs of the plot to commercial-cum-residential use. CIDCO permitted this for 23,000 sq mtrs on February 11, 2010. Subsequently, on March 11, 2010, M/s Metropolis Hotels requested a subdivision of Plot No. 5. CIDCO demarcated the plot into Plot No. 5 (24,000 sq mtrs for the hotel) and Plot No. 5A (22,999.08 sq mtrs for commercial-cum-residential use) on March 29, 2010. M/s Metropolis Hotels also requested the assignment of their rights for Plot No. 5A to M/s Shishir Realty Private Ltd., which CIDCO approved on March 30, 2010.

Two separate lease deeds were executed on March 30, 2010, for Plot No. 5 and Plot No. 5A. M/s Shishir Realty Private Ltd. mortgaged their plot and obtained a loan for development. However, following complaints about irregularities, the Principal Secretary of the Urban Development Department conducted a preliminary enquiry. A show-cause notice was issued on December 6, 2010, to M/s Metropolis Hotels and M/s Shishir Realty Private Ltd., questioning the lease deeds. On March 16, 2011, CIDCO cancelled the lease deeds, leading to the present legal challenge.

Timeline

Course of Proceedings

The High Court of Judicature at Bombay quashed the cancellation order passed by CIDCO, holding that the change of land use and subdivision of the plot were duly authorized by CIDCO. The High Court also held that CIDCO failed to show any concrete violations that went to the root of the matter and that CIDCO was estopped by the doctrine of promissory estoppel from canceling the allotment. Aggrieved by this, CIDCO and the PIL petitioner filed separate appeals before the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of contractual obligations in the context of public tenders and the applicability of the doctrine of promissory estoppel against government bodies. The relevant legal provisions include:

• Section 4 of the Indian Partnership Act, 1932: Defines ‘Partner’ and ‘Partnership’ as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

The Supreme Court also considered the principles of judicial review of administrative action, emphasizing that while the government has the freedom to contract, such decisions must be fair, reasonable, and not arbitrary. The court also referred to the principles of natural justice, which mandate that parties affected by a decision must be given a fair opportunity to be heard.

Arguments

Arguments by CIDCO (Appellants):

• The High Court’s judgment was unsustainable as it ignored the violations and illegalities committed during the tender process.

• M/s Metropolis Hotels’ bid was illegal as the firm was not registered at the time of bidding, violating clauses 4(c) and 8(b) of the tender document.

• M/s Metropolis Hotels expanded the usage of the land to residential-cum-commercial, violating the tender conditions. Subsequently, they subdivided the plot and executed a fresh lease in favor of Shishir Realty Pvt. Ltd., which was a breach of the original allotment letter.

• The respondents cannot claim relief based on promissory estoppel, as it is an equitable doctrine that must yield when equity requires. It would be inequitable to hold the government to its promise.

• Private interest must yield to public interest, and the irregularities committed by the respondents justify revoking the allotment.

Arguments by the State of Maharashtra (Appellants):

• Representations made through tender conditions and policies cannot be changed arbitrarily after the allotment.

• The rules of the game cannot be changed once the game is played.

Arguments by the PIL Petitioner (Appellant):

• The change of land use violated clause 15 of the letter of allotment, which mandated the land be used only for a five-star hotel.

• The change of land use and subdivision of plots were illegal and arbitrary.

Arguments by Shishir Realty Pvt. Ltd. (Respondent):

• M/s Metropolis Hotels was a partnership firm and had applied for registration. The enforcing committee was aware of the pending application and accepted the bid due to it being Rs. 23 crore higher than the next bid.

• The enquiry was conducted in abrogation of natural justice, with no notice issued to the respondents.

• CIDCO is bound by the principles of estoppel and has failed to prove any losses attributable to the respondent.

• CIDCO has raised bald allegations of collusion without any proof.

Arguments by M/s Metropolis Hotels (Respondent):

• The purpose of constructing a five-star hotel was frustrated due to the delay in the Navi Mumbai Airport project.

• The bidding process was conducted during a recession, and the tender attracted M/s Metropolis Hotels due to the promise of the airport and a Special Economic Zone. However, these promises were not fulfilled.

• There was no violation of tender conditions regarding the subdivision of plots.

• The respondents have complied with due procedure and paid the requisite fees. Canceling the allotment after 13 years is inequitable and will cause grave prejudice.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the following issues were considered:

1. Whether M/s Metropolis Hotels was disqualified from participating in the bidding process.
2. Whether the change of land use was valid.
3. Whether the sub-division of plots and subsequent transfer of rights were legal.
4. Whether there was any illegality or unfairness in the transaction.
5. Whether the doctrine of promissory estoppel applies in this case.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court relied on several authorities to support its reasoning:

• Council of Civil Service Unions v. Minister for the Civil Service: Used to establish the grounds for judicial review of administrative decisions.
• M/s Star Enterprises v. City and Industrial Development Corporation of Maharashtra Ltd. [CITATION]: Used to emphasize the necessity of judicial review in commercial transactions undertaken by the State.
• Tata Cellular v. Union of India [CITATION]: Used to highlight the principles of judicial restraint in administrative action.
• Municipal Corporation, Ujjain v. BVG India Ltd.: Used to support the idea of providing sufficient discretion to administrative authorities.
• B. S. N Joshi & sons Ltd. v. Nair Coal Services Ltd.: Used to clarify that judicial review should not be used to provide a second chance to unsuccessful tenderers.
• Mohinder Singh Gill v. Chief Election Commissioner, New Delhi: Used to emphasize that the validity of an order must be judged by the reasons mentioned in the order itself.
• CIDCO Maharashtra Ltd. v. M/s. Shree Ambica Developers [CITATION]: Used to support the permissibility of changing land use as per the General Development Control Regulations.
• Ramana Dayaram Shetty v. International Airport Authority of India: Used to emphasize the need to interpret contradictory clauses in a contract to eliminate absurdity.
• Jagdish Mandal v. State of Orissa: Used to emphasize that courts should resist attempts by unsuccessful tenderers to challenge tender processes on minor grounds.
• Andhra Pradesh Dairy Development Corporation Federation v. B. Narasimha Reddy: Used to emphasize that a succeeding government is duty-bound to continue the work of the previous government.
• Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [CITATION]: Used to establish the applicability of promissory estoppel against the government.
• Union of India v. Godfrey Philips India Ltd. [CITATION]: Used to reinforce the applicability of promissory estoppel against the government.
• Vasantkumar Radhakisan Vora (Dead) by His LRs. v. Board of Trustees of the Port of Bombay: Used to emphasize that the government must provide material evidence to resile from a promise.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

• The court found that CIDCO’s actions were not based on any substantial violation of law or tender conditions.
• The court emphasized that CIDCO had failed to prove any losses suffered due to the allotment, change of land use, or subdivision of plots.
• The court noted that the respondents had acted on the assurances given by the authorities, obtained financial assistance, and paid the requisite fees.
• The court highlighted that the change of land use and subdivision of plots were within the statutory limitations.
• The court found that the cancellation order was based on hyper-technical grounds and extraneous considerations.
• The court noted that the enquiry against the respondents was vitiated due to lack of natural justice.
• The court found that the PIL petitioner’s motives were doubtful.

Sentiment Analysis Ranking

Fact:Law Ratio

Logical Reasoning

Final Order

The Supreme Court dismissed the appeals filed by CIDCO and the PIL petitioner. The court upheld the judgment of the High Court of Judicature at Bombay, which had quashed CIDCO’s cancellation order. The court directed CIDCO to adhere to the terms of the lease deeds executed with M/s Shishir Realty Private Limited and M/s Metropolis Hotels.

Implications

This judgment has significant implications for contract law, public procurement, and land allotment in India:

• Promissory Estoppel: The judgment reinforces the applicability of the doctrine of promissory estoppel against government bodies. It highlights that the government cannot arbitrarily resile from its promises after the other party has acted upon them.
• Fairness in Tenders: The judgment emphasizes the need for fairness and transparency in public tenders. It underscores that government authorities cannot cancel allotments based on minor technicalities after the process has been completed and payments have been made.
• Judicial Review: The judgment reaffirms the importance of judicial review in ensuring that administrative actions are fair, reasonable, and not arbitrary. It emphasizes that the courts will not hesitate to intervene when government authorities act unfairly or unreasonably.
• Public Interest: The judgment clarifies that while public interest is paramount, it cannot be used as a ground to justify arbitrary or unfair actions. The government must demonstrate how public interest is served by resiling from a promise.
• Consistency in Policy: The judgment highlights the importance of consistency in government policies. It suggests that government authorities cannot change the rules of the game after the game has been played.
• Natural Justice: The judgment highlights the importance of following principles of natural justice in administrative actions. It emphasizes that parties affected by a decision must be given a fair opportunity to be heard.

Conclusion

The Supreme Court’s judgment in this case is a significant victory for fairness and transparency in public procurement. The court’s decision sends a strong message that government authorities cannot act arbitrarily and must uphold their commitments. The judgment reinforces the doctrine of promissory estoppel and emphasizes the importance of following principles of natural justice. It serves as a reminder that public authorities must act fairly and reasonably, and that the courts will not hesitate to intervene when they fail to do so. The judgment also underscores that the possibility of more money in the public coffers does not, in itself, serve public interest, and that the government must demonstrate how public interest is served by resiling from a promise. This case will serve as a guiding principle for future cases involving public tenders and land allotment.