Tender Cancellation Clause Can't Be Used To Record Findings Of Forgery Without Hearing Bidder: Patna High Court

A Division Bench of Justice Sudhir Singh and Justice Ranjan Kumar Jha set aside proceedings whereby the Bihar authorities had cancelled a tender after recording adverse findings against the petitioner and directed initiation of departmental action.

The petitioner, M/s Narotam Kumar, was awarded a work order under Tender No. 02/2021-22 for the Keshopur Payne Jeernodhar Scheme. A dispute subsequently arose regarding an alleged merger of the petitioner's firm with M/s Yuvraj Engicon Pvt. Ltd. on the basis of a Memorandum of Association (MOA). In an earlier writ petition, the High Court had directed the competent authority to verify the authenticity of the MOA. Pursuant thereto, the Chief Engineer concluded that the MOA relied upon by M/s Yuvraj Engicon Pvt. Ltd. was forged and fabricated.

Thereafter, the authorities cancelled the tender, directed re-tendering of the work and resolved to initiate proceedings against the petitioner. A show cause notice proposing blacklisting was subsequently issued.

The petitioner contended that before recording adverse findings, cancelling the tender and directing initiation of proceedings, no show cause notice or opportunity of hearing had been afforded. The State, on the other hand, relied upon Clause 39 of the Notice Inviting Tender, which reserved to the employer the right to cancel the tender process without assigning any reason.

The High Court observed that there was no dispute regarding the existence of the contractual power to cancel the tender. However, it emphasised that the issue before it was different. The Bench observed:

“A clear distinction exists between a decision cancelling a tender in exercise of contractual powers and a decision which proceeds on a finding that a bidder has indulged in forgery, fraud or other misconduct. While the former may fall within the realm of contractual discretion reserved under the tender conditions, the latter undoubtedly visits the affected person with adverse civil consequences and carries an element of stigma.”

The Court noted that the committee had not merely decided to cancel the tender. Rather, it had concluded that the petitioner had submitted forged and fabricated documents in connection with the tender process and, on that basis, resolved to initiate departmental action.

Referring to the Supreme Court's decision in Gorkha Security Services v. Government (NCT of Delhi), the Bench reiterated that where an action entails civil consequences or adversely affects a person's rights or reputation, compliance with the principles of natural justice is an indispensable requirement.

The Court held that once the authority proceeded on the premise that the petitioner had submitted forged documents, the matter travelled beyond the confines of a simple contractual decision. Consequently, observance of the rule of audi alteram partem “was not a matter of discretion but a mandatory requirement.”

Holding that the proceedings dated 4 February 2025 stood vitiated on account of violation of the principles of natural justice, the Division Bench set them aside and remitted the matter to the competent authority for fresh consideration.

Case Title: M/s Narotam Kumar v. State of Bihar and Others

Case Number: Civil Writ Jurisdiction Case No. 10591 of 2025

Appearance: Mr. Siddharth Prasad and Mr. Nitesh Kumar for the Petitioner. Mr. AC to SC-11 for the Respondent.