Business persons will be hesitant to invest if government bodies cancel contracts with change of person in power: Supreme Court

The Supreme Court has cautioned government bodies and agencies from backtracking on their undertakings or cancelling contracts with the change of person in power [CIDCO v. Shishir Realty Private Ltd]..Such an approach citing hyper technical grounds will result in business persons refraining from making investments or entering into contracts with the government, the Bench headed by Chief Justice of India NV Ramana said.“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 counter productive to the economy and the business environment in general,” the Court said.“Earlier undertakings by the authorities cannot be set aside with the change of person in power, without any rhyme or reason. After all one cannot change the rules of the game once it has started,” the Bench which also comprised Justices Vineet Saran and Surya Kant added..The Court was hearing an appeal filed by City and Industrial Development Corporation of Maharashtra (CIDCO) challenging a Bombay High Court verdict which had quashed CIDCO’s order cancelling lease deeds executed in favour of M/s. Metropolis Hotels and M/s. Shishir Realty Private Ltd.The case stemmed from certain complaints which were made regarding the leases, alleging irregularities in allotment of plots of land, change of user and deviation from the terms and conditions of the tender.A preliminary enquiry was held by the Principal Secretary, Urban Development Department as per the directions of the State Government of Maharashtra. Based on such enquiry, the newly appointed vice-chairman issued a show cause notice dated December 6, 2010 to Metropolis and Shishir Realty as to why the lease deeds which were executed in their favour should not be cancelled on account of breach of tender conditions..On March 16, 2011, the vice chairman, CIDCO, cancelled the lease deeds, pursuant to the enquiry.Aggrieved by the same, Metropolis Hotels and Shishir Realty challenged the order through two writ petitions before the Bombay High Court.The High Court, by an order dated December 6, 2013, quashed the cancellation order passed by CIDCO, holding that the change of land use and sub-division of the plot had taken place with due authorization of the CIDCO.Further, it held that the CIDCO was not able to show any concrete violations which go to the root of the matter. Finally, the High Court held that, without producing any pressing need on record, the CIDCO is precluded and estopped on the doctrine of promissory estoppel from cancelling the allotment.This led to the appeal by CIDCO before the Supreme CourtSenior Counsel Rakesh Dwivedi representing CIDCO, submitted that allowing sub-division of plots with change in land use, had caused substantive loss to the State largesse, as many people would have shown a proclivity to buy land with different land use..On the contrary, Senior Counsel Dr. Abhishek Manu Singhvi and Mukul Rohatgi representing the respondent-lessees, stated that the allotment, change in land use and transfer have taken place in accordance with law and there was no substantial deviation as sought to be projected by the appellant.CIDCO could not have walked out of the bargain merely because of the possibility of larger profits, it was contended.The Court noted that there was no substantial violation portrayed by the appellant with respect to allotment of the scheduled land. Further, the tender documents made it clear that the CIDCO had the power to change the land use, sub-divide and transfer the plots and accordingly, has been carried out in terms of the same.“Even, the High Court while passing the impugned judgment has correctly held that respondent-lessees have acted pursuant to the permission granted by CIDCO. Moreover, after getting the commencement certificate and other necessary clearances, the respondent-lessees borrowed a substantial sum of money from other financial institutions for the development of the plot,” the judgment said.Equity demands that when the State failed to produce an iota of evidence of either financial loss or any other public interest that has been affected, it should be compelled to fulfill its promises. In fact, it is respondent-lessees who shall be gravely prejudiced if the order of cancellation is upheld by after investing a significant amount and facing prolonged litigation.Before parting, the Court said governmental bodies being public authorities are expected to uphold fairness, equality and rule of law even while dealing with contractual matters."It is a settled principle that right to equality under Article 14 abhors arbitrariness. Public authorities have to ensure that no bias, favouritism or arbitrariness are shown during the bidding process. Fairness and the good faith standard ingrained in the contracts entered into by public authorities mandates such public authorities to conduct themselves in a nonarbitrary manner during the performance of their contractual obligations," the Court said..[Read Judgment]