S.Karan Vs the Commissioner

Prayer: calling for the records relating to the proceedings in Na.Ka. No. J4/1069/2021 dated 19.12.2024 on the file of the respondent herein, and to quash the same.

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For Petitioner(s): M/s.Ajoy Kumar Gnanam

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For Respondent(s): M/s.N.Devi Standing Counsel

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O R D E R

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The petitioner challenges the order of the respondent reducing the period

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of lease already granted in his favour for a period of five years to three years.

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The petitioner participated in a Tender for collection of entrance fee to

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Anna Park in Salem. The respondent is covered by a Smart City Scheme evolved by the Union of India on 25.06.2015. Amongst the several projects

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under the Smart City Scheme was the development of a park called Anna Park, in Salem.

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The respondent called for a Tender for collection of fee. The petitioner participated in the open Tender, that was held on 09.12.2021. His bid of Rs.15,15,002/- was the highest. This offer of the petitioner was placed before the Council meeting of the respondent. After consideration of the proposal as well as the offer made by the petitioner, the Council decided to accept the offer. The period of contract was from 04.03.2022 to 03.03.2027. This contract had a further condition, that a 5% increase would have to be paid by the petitioner over the amount of the previous year, during the course of execution of the contract..

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On the basis of the Resolution, an order was passed to the following

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effect. The same is scanned and extracted hereunder:-

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It is not in dispute that the petitioner has been paying the amounts in terms of the order issued on 04.03.2022. As per the contract awarded, the petitioner is entitled to collect the amounts till 03.03.2027.

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During the course of execution of the contract, the petitioner was served with an impugned order. By this order, the respondent reduced the lease period from five years to three years. The reason for such reduction is that, the Government had issued G.O. Ms. No. 78, Municipal Administration and Drinking Water Supply Department, dated 25.05.2009, and an another order in G.O. Ms. No. 45 of the very same department, dated 12.04.2023, which fixed a limit on the period for granting a licence/ lease. The respondent had stated that, during the course of the audit, certain objections were raised and, consequently, the impugned order came to be passed.

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This Court entertained the writ petition, and issued a notice. The

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impugned order was also kept in abeyance through an interim order of stay.

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Ms.Devi has entered appearance for the respondent and she has moved a vacate stay application.

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9.With the consent of the parties, the main writ petition itself was taken up for hearing.

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I heard Mr.Ajoy Kumar Gnanam for the petitioner and Ms.Devi for the respondent.

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The facts have been set forth above. The admitted facts that can be culled from the same are, Salem City falls under the Smart City Scheme. In pursuance thereof, Tenders were called for the collection of fees from users of Anna Park for the period from 04.03.2022 to 03.03.2027. The petitioner was successful in the tender, a contract was entered into and the petitioner is executing the same. The petitioner also has been paying the amounts as per the order of the respondent dated 04.03.2022. It is only on account of the audit objection, that the impugned order came to be passed.

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It is not as if the respondent has not applied its mind prior to fixing the period of lease. The order extracted above would show that, since it was an initial effort by the Salem Corporation under the Smart City Scheme and also since they were facing certain teething problems in developing the Park, they decided that, the contract should be for a period of five years. G.O. Ms. No. 78, dated 25.05.2009, was very much in force, when the tender blossomed into a

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concluded contract. The respondent had, therefore, taken a conscious decision to the award a contract for a period of five years. Solely on account of audit objection, a concluded contract cannot be varied. This is because, the petitioner is vested with certain rights, which cannot be varied unilaterally.

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The petitioner would have changed his position on the basis of the concluded contract, and would have made arrangements for a period of five years. If the Executive was faced with an audit objection, it ought to have addressed the audit objection on the basis of the special reason, for which it had granted the contract for five years. Instead of facing the audit objection, to take a knee-jerk reaction to unilaterally vary the period of the contract itself. This in the view of this Court is arbitrary. As pointed out by Pardiwala, J. (Speaking for himself), Dr.D.Y.Chandrachud, C.J., and Manoj Misra, J., it is the duty of the Court to interfere in contractual matters that have fallen prey to arbitrary action of the authorities in the guise of technical faults, policy changes, or public interest etc. This is because, the sanctity of contract is a functional Principle that underpins the stability and predictability of legal and commercial relationships. In Subodh Kumar Singh Rathour -vs- Chief Executive Officer and others reported in (2024) 15 SCC 461 , it is held as follows:-

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“ 125. Before we close this judgment, we must also address one very important aspect as regards the importance of maintaining the sanctity of tenders in public private procurement processes.

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126. Public tenders are a cornerstone of governmental procurement processes, ensuring transparency, competition, and fairness in the allocation of public resources. It emanates from the Doctrine of Public Trust which lays down that all natural resources and public use amenities and structures are intended for the benefit and enjoyment of the public. The State is not the absolute owner of such resources and rather owns it in trust and as such it cannot utilise these resources as it pleases. As a trustee of the public resources, the State owes: (i) a duty to ensure that community resources are put to fair and proper use that enures to the benefit of the public as well as; (ii) an obligation to not indulge in any favouritism or discrimination with these resources. The State with whatever free play it has in its joints decides to award a contract, to hold up the matter or to interfere with the same should be accompanied by a careful consideration of the harm to public interest.

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127. Public tenders are designed to provide a level playing field for all potential bidders, fostering an environment where competition thrives, and the best value is obtained for public funds. The integrity of this process ensures that public projects and services are delivered efficiently and effectively, benefitting society at large. The principles of transparency and fairness embedded in public tender processes also help to prevent corruption and misuse of public resources. In this regard we may refer to the observations made by this Court in Nagar Nigam, Meerut v. Al Faheem Meat Exports (P) Ltd. [Nagar Nigam, Meerut v. Al Faheem Meat Exports (P) Ltd., (2006) 13 SCC 382] , which reads as under: (SCC p. 395, para 16) “16. The law is well settled that contracts by the State, its corporations, instrumentalities and agencies must be normally granted through public auction/public tender by inviting tenders from eligible persons and the notification of the public auction or

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inviting tenders should be advertised in well-known dailies having wide circulation in the locality with all relevant details such as date, time and place of auction, subject-matter of auction, technical specifications, estimated cost, earnest money deposit, etc. The award of government contracts through public auction/public tender is to ensure transparency in the public procurement, to maximise economy and efficiency in government procurement, to promote healthy competition among the tenderers, to provide for fair and equitable treatment of all tenderers, and to eliminate irregularities, interference and corrupt practices by the authorities concerned. This is required by Article 14 of the Constitution.”

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(emphasis supplied)

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128. The sanctity of public tenders lies in their role in upholding the principles of equal opportunity and fairness. Once a contract has come into existence through a valid tendering process, its termination must adhere strictly to the terms of the contract, with the executive powers to be exercised only in exceptional cases by the public authorities and that too in loathe. The courts are duty bound to zealously protect the sanctity of any tender that has been duly conducted and concluded by ensuring that the larger public interest of upholding bindingness of contracts are not sidelined by a capricious or arbitrary exercise of power by the State. It is the duty of the courts to interfere in contractual matters that have fallen prey to an arbitrary action of the authorities in the guise of technical faults, policy change or public interest, etc.

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129. The sanctity of contracts is a fundamental principle that underpins the stability and predictability of legal and commercial relationships. When public authorities enter into contracts, they create legitimate expectations that the State will honour its obligations. Arbitrary or unreasonable terminations undermine these expectations and erode the trust of private players from the public procurement processes and tenders. Once a contract is entered, there is a legitimate expectation, that the obligations arising

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from the contract will be honoured and that the rights arising from it will not be arbitrarily divested except for a breach or noncompliance of the terms agreed thereunder. In this regard we may make a reference to the decision of this Court in Sivanandan C.T. v. High Court of Kerala [Sivanandan C.T. v. High Court of Kerala, (2024) 3 SCC 799 : (2024) 1 SCC (L&S) 67] wherein it was held that a promise made by a public authority will give rise to a legitimate expectation that it will adhere to its assurances. The relevant portion reads as under: (SCC pp. 812 & 822, paras 18 & 45)

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“18. The basis of the doctrine of legitimate expectation in public law is founded on the principles of fairness and nonarbitrariness in Government dealings with individuals. It recognises that a public authority's promise or past conduct will give rise to a legitimate expectation. The doctrine is premised on the notion that public authorities, while performing their public duties, ought to honour their promises or past practices. The legitimacy of an expectation can be inferred if it is rooted in law, custom, or established procedure. [Salemi v. MacKeller (No. 2), 1977 HCA 26 : (1977) 137 CLR 396]

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45. The underlying basis for the application of the doctrine of legitimate expectation has expanded and evolved to include the principles of good administration. Since citizens repose their trust in the State, the actions and policies of the State give rise to legitimate expectations that the State will adhere to its assurance or past practice by acting in a consistent, transparent, and predictable manner. The principles of good administration require that the decisions of public authorities must withstand the test of consistency, transparency, and predictability to avoid being regarded as arbitrary and therefore violative of Article 14.”

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(emphasis supplied)

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The Government order passed subsequent to the grant of contract cannot have the effect of nullifying the vested rights in the writ petitioner. The order in G.O. Ms. No. 78 dated 25.05.2009 that was in the force, when the contract was entered for a period of five years. This Court had already pointed out that a conscious decision was taken to enter into a contract for a period of five years, despite the existence of the said G.O.

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To refer to a Government order passed, nearly a year and a few months after contract was granted, in order to vary the period of contract, does not pass muster. The contract of lease commenced on 04.03.2022, and the Government passed an order subsequently on 12.04.2023. A Government order cannot be given a retrospective operation as it is an act of the Executive. Even legislative enactments while given retrospective effect would have to bow down to the vested rights that has been farmed out to a citizen.

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Since the contract has been awarded till 03.03.2027, the attempt of the impugned order to restrict the contract by a period of two years requires interference. Accordingly, the same is interfered with.

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