Patna High Court on Arbitrary Cancellation of Tourism Hotel Tender, 2022

The Patna High Court, in a writ petition arising out of a dispute between a private joint venture company (petitioner) and the Bihar State Tourism Development Corporation Ltd. (respondent corporation), set aside the cancellation of a successfully concluded tender concerning the operation and maintenance of “Hotel Lichhavi Vihar, Muzaffarpur.” The judgment, delivered on 17 August 2022 by Hon’ble Mr. Justice Mohit Kumar Shah, is a clear reaffirmation that once a public authority completes the tender process, declares a successful bidder, receives the full licence fee and security deposit, and creates a legitimate expectation of contract execution, it cannot abruptly cancel the tender by issuing a bald, non-speaking letter citing only “unavoidable reasons.”

In this case, the petitioner had participated in a tender issued by the respondent corporation for operating various tourism properties. The petitioner was declared successful for the Muzaffarpur property. By letter dated 23.02.2021, the corporation itself confirmed that the petitioner had been awarded the work for 10 years and was required to deposit the first year’s licence fee of ₹1,23,96,550 (with GST) and an equivalent security in the form of NSC/FD/Bank Guarantee of ₹1,05,05,551. The petitioner complied by 01.03.2021 and 03.03.2021. After this, instead of executing the agreement, the corporation kept silent, and ultimately, on 19.06.2021, it issued a cancellation letter saying the tender was scrapped due to “unavoidable reasons” and that even the earlier letter of 23.02.2021 stood cancelled.

The High Court found this approach impermissible in law. First, the cancellation letter did not disclose any reason. Second, in the counter affidavit before the Court, the corporation attempted to justify the cancellation by saying that (i) the petitioner had not enclosed a labour licence, and (ii) the petitioner had left the column regarding “no pending litigation” blank. However, the Court held that an administrative order must stand on the reasons contained in it and cannot be supplemented with fresh reasons through an affidavit later — relying on the settled principle in Mohinder Singh Gill v. Chief Election Commissioner (1978) 1 SCC 405. Since the cancellation letter itself contained no reason, the order was vitiated on that ground alone.

The Court also noticed that the tourism department’s Principal Secretary had directed cancellation of the tender to “remove doubts” about transparency. But the tender document itself (clause 3.16) reserved the power to accept or reject bids to the corporation, not to the administrative department. Therefore, cancellation on the dictate of an external authority — and not on an independent evaluation by the tendering agency — was also bad.

Importantly, the Court found that all other 13 properties tendered under the same notice were finalized and agreements were executed with other successful bidders. Only this one tender, in which the petitioner was successful, was cancelled. That differential treatment, without reasons, created an element of arbitrariness.

On the question of non-furnishing of labour licence and a declaration about “no pending litigation,” the Court agreed with the petitioner’s submission that these were not essential eligibility conditions, but directory stipulations — especially when the petitioner was a newly formed joint venture and the corporation itself, at the first stage, had treated those omissions as condonable. The Court referred to the line of cases (including Poddar Steel Corporation v. Ganesh Engineering Works (1991) 3 SCC 273) that allow the tendering authority to overlook minor, non-essential deviations. Once the corporation had initially treated the conditions as directory, it could not later take a hyper-technical stand to cancel the entire tender.

The Court further held that cancellation of a concluded tender after the bidder has deposited huge sums and after a letter of acceptance has been issued, certainly visits the bidder with “civil and/or evil consequences.” Therefore, before taking such an adverse decision, a show cause notice and an opportunity of hearing were required, as per settled principles in Dharampal Satyapal Ltd. v. Dy. Commissioner of Central Excise (2015) 8 SCC 519. Since no hearing was given, there was a clear violation of natural justice.

Ultimately, the Patna High Court quashed the cancellation letter dated 19.06.2021 and allowed the writ petition, holding that the action of the corporation was unsustainable in law.

Significance or Implication of the Judgment

This judgment is important for at least four reasons:

1. Protection of successful bidders: It sends a strong message to government corporations, public sector undertakings, and state instrumentalities that they cannot arbitrarily withdraw concluded tenders after collecting substantial licence fees or securities from successful participants. This promotes business confidence in public tenders in Bihar.
2. Reaffirmation of “reasoned orders”: The Court has reiterated that government decisions affecting rights, interests, or legitimate expectations must be reasoned, speaking orders. A bald statement like “due to unavoidable reasons” is not enough when public money and private investment are involved.
3. No external dictate in contractual decisions: The judgment underscores that where the tender document vests the discretion in a particular authority (here, the corporation), another administrative authority (here, the Principal Secretary) cannot override it informally. This is vital for maintaining autonomy and transparency in public procurement.
4. Natural justice in tender administration: Even in contractual or commercial decisions of the State, if the action has civil consequences — such as forfeiture, cancellation after deposit, or denial of a vested opportunity — principles of natural justice must be followed.

Legal Issue(s) Decided and the Court’s Decision with Reasoning

• Whether the corporation could cancel a concluded tender by a non-speaking letter citing only “unavoidable reasons.”
  • Decision: No. The Court held that an order must contain its own reasons; such reasons cannot be supplied later through affidavits. The impugned letter dated 19.06.2021 was therefore vitiated.
• Whether non-submission of labour licence and non-filling of “no pending litigation” column were fatal defects.
  • Decision: No. The corporation itself had earlier treated these conditions as directory and not mandatory. Minor or ancillary deviations, especially in commercial tenders, can be condoned. The Court relied on the principle in Poddar Steel that tender conditions fall into essential and non-essential categories, and non-essential ones can be relaxed.
• Whether the cancellation could be based on the direction of the Principal Secretary, Tourism Department, when the tender document vested power in the corporation.
  • Decision: No. The corporation had to take an independent decision. Cancellation on the dictate of a higher administrative authority, without statutory backing, is bad.
• Whether principles of natural justice applied before cancelling such tender.
  • Decision: Yes. Since the petitioner had already deposited substantial money and had a legitimate expectation of contract execution, cancellation without notice or hearing violated audi alteram partem.
• Whether reasons can be supplemented in court through a counter affidavit.
  • Decision: No. Following Mohinder Singh Gill v. CEC (1978) 1 SCC 405, the validity of an order must be tested only on the reasons stated in the order itself.

Judgments Referred by Parties (with citations)

• State of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti, (2018) 9 SCC 472 — cited to show that conditions without penal consequences are generally directory.
• Poddar Steel Corporation v. Ganesh Engineering Works & Ors., (1991) 3 SCC 273 — cited to distinguish between essential and ancillary tender conditions.
• Dharampal Satyapal Ltd. v. Deputy Commissioner of Central Excise, Guwahati & Ors., (2015) 8 SCC 519 — cited on the necessity of hearing and flexibility of natural justice.
• Tata Cellular v. Union of India, (1994) 6 SCC 651 — cited to show that courts can judicially review the decision-making process in tender matters.

Judgments Relied Upon or Cited by Court (with citations)

• Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405 — for the rule that an administrative order must stand or fall on the reasons it contains.
• The Court also adopted the reasoning line from Dharampal Satyapal Ltd. v. Deputy Commissioner of Central Excise, (2015) 8 SCC 519, on the requirement of natural justice in administrative actions having civil consequences.
• Poddar Steel Corporation v. Ganesh Engineering Works, (1991) 3 SCC 273 — for classifying tender terms into essential and non-essential.
• The Court also relied on the general principles of judicial review in contractual/tender matters as propounded in Tata Cellular v. Union of India, (1994) 6 SCC 651.

Case Title

• Yash Raj, Dhrublok (J.V.) v. Bihar State Tourism Development Corporation Ltd. & Ors.
  (For publication purposes, please refer to the parties as “petitioner” and “respondent corporation” and avoid personal names.)

Case Number

• Civil Writ Jurisdiction Case No. 11974 of 2021

Citation(s)

2023 (1) PLJR 35

Coram and Names of Judges

• Hon’ble Mr. Justice Mohit Kumar Shah

Names of Advocates and who they appeared for

• For the petitioner: Mr. P.K. Shahi, Senior Advocate; Mr. Satyam Shivam Sundaram, Advocate
• For the respondent corporation: Ms. Anukriti Jaipuriyar, Advocate
• For the intervener: Mr. Ranjeet Kumar Singh, Advocate

Link to Judgment

MTUjMTE5NzQjMjAyMSMxI04=-1P9inFa2nhQ=

If you found this explanation helpful and wish to stay informed about how legal developments may affect your rights in Bihar, you may consider following Samvida Law Associates for more updates.