Businessmen Will Be Hesitant To Enter Govt Contracts If Undertakings Are Altered On Mere Change Of Person In Power : Supreme Court

The Supreme Court has cautioned against the public authorities changing the undertakings in government contracts merely due to the change of person in power. The Court said that if previous undertakings are violated by the successor authority without any proper grounds of public interests, businessmen will be hesitant to enter into government contracts.Such a situation will be counter-productive to the economy and the business environment, the Court warned.A bench comprising Chief Justice of India NV Ramana, Justice Vineet Saran and Justice Surya Kant disapproved the actions of City and Industrial Development Corporation of Maharashtra ("CIDCO"), a Maharashtra government instrumentality, in altering the conditions in a lease deed with a private entity. "...it is pertinent to remember that, by merely using grounds of public interest or loss to the treasury, the successor public authority cannot undo the work undertaken by the previous authority. Such a claim must be proven using material facts, evidence and figures. If it were otherwise, then there will remain no sanctity in the words and undertaking of the Government. Businessmen will be hesitant to enter Government contract or make any investment in furtherance of the same. Such a practice is counterproductive to the economy and the business environment in general", the Court observed.Factual Background On 11.06.2008, City and Industrial Development Corporation of Maharashtra ("CIDCO") called for a tender to lease out land for development of necessary infrastructure around the Navi Mumbai Airport. On 25.07.2008, upon scrutiny of the technical qualification of the bidders by the legal team of CIDCO, the bids were opened. M/s. Metropolis Hotels (Respondent No. 1) emerged as the highest bidder and on the same day its eligibility was objected to, by another bidder i.e. M/s. Indian Hotels Company Ltd. Examining the contention, the officer of CIDCO rejected the objection and subsequently on 07.08.2008 a letter of allotment was issued in favour of Metropolis for construction of a five-star hotel near the proposed Airport. Thereafter, Metropolis applied for change of use of a portion of the allotted land to commercial-cum-residential use. CIDCO accepted the application, but for a reduced area of land. Next, a subdivision of the plots for five star hotel and the comercial-cum-residential project was sought and it was accepted by CIDCO. Metropolis further requested for assignment of their rights with respect to the comercial-cum-residental plot to M/s. Shishir Realty Private Ltd. (Respondent No. 2). CIDCO approved the assignment referring to Shishir as one of the partners in the original allotment. In order to obtain a loan for its project at the Airport, Shishir was permitted by CIDCO to mortgage the plot assigned to it. On receiving complaints pertaining to irregularities in allotment of plots of land, change of use and deviation from the terms and conditions of the tender, the Government of Maharashtra directed the Principal Secretary, Urban Development Department to conduct a preliminary enquiry. Based on the same, the Vice-Chairman, CIDCO issued a show cause notice to the Respondents on 06.12.2010 and finally on 16.03.2011, it cancelled the lease deeds of the Respondents. Challenging the said order, the Respondents filed two writ petitions before the Bombay High Court. A PIL was also filed challenging the allotment, change of land use and subdivision of the plot. The High Court quashed the cancellation order passed by CIDCO, mainly on three counts: The change of land use and sub-division of plot was duly authorised by CIDCO;CIDCO failed to show any material violation;CIDCO estopped to cancel allotment based on the doctrine of promissory estoppel Contentions raised by CIDCO Senior Advocate, Mr. Rakesh Dwivedi appearing on behalf of CIDCO argued that the High Court erred in not considering the blatant violations and irregularities committed by the respondents in the tender process. It was averred that Metropolis, which was then an unregistered partnership had placed a bid in violation of clause 4(c) and 8(b) of the tender document, which mandated registration at the time of the bid. CIDCO contended that Metropolis had gone beyond the scope of the allotment letter, by subsequent change in land use and subdivision of the plot. It was further argued that the benefit of estoppel cannot be extended to the Respondents considering that the cancellation of allotment was in public interest. Contentions raised by State of Maharashtra Senior Advocate, Mr. Atmaram Nadkarni appearing on behalf of the State of Maharashtra largely supporting the submissions made by CIDCO, asserted that terms of the tender cannot be changed after allotment. Contentions raised by Petitioner in PIL Advocate Mr. Harinder Toor, appearing on behalf of Petitioner, a social activist involved in construction services, ...

Businessmen Will Be Hesitant To Enter Govt Contracts If Undertakings Are Altered On Mere Change Of Person In Power : Supreme Court

Sohini Chowdhury

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