A) ABSTRACT / HEADNOTE

The judgment in State of U.P. v. Sudhir Kumar Singh and Ors. is a significant exposition on the doctrine of audi alteram partem and the evolving contours of judicial review in contractual matters involving the State. The Supreme Court examined whether cancellation of a concluded tender and contract by a State instrumentality, without affording a prior hearing to the successful bidder, could withstand constitutional scrutiny under Article 14 and Article 226 of the Constitution of India. The dispute arose from repeated cancellations and reissuance of e-tenders by the U.P. State Warehousing Corporation for handling and transportation contracts, culminating in cancellation of an already executed contract after one year of performance, solely on the basis of ex parte inquiries alleging financial irregularities.

The Court reconciled competing considerations of public interest, financial loss to the State, and procedural fairness owed to the contractor. It clarified that breach of natural justice itself may not always result in invalidity, unless prejudice is shown, but equally reaffirmed that prejudice is presumed where the affected party is kept completely in the dark. The judgment also authoritatively restated when writ jurisdiction under Article 226 is maintainable in contractual disputes involving State action, especially where allegations of arbitrariness and violation of natural justice are raised.

While partially setting aside the High Court’s judgment for exceeding the scope of relief sought, the Supreme Court upheld the core finding that the tender cancellation was vitiated by denial of natural justice. The ruling harmonizes administrative efficiency with constitutional fairness and serves as a doctrinal guide on the “prejudice test” in natural justice jurisprudence.

Keywords:
Natural Justice; Audi Alteram Partem; Public Law Element; Tender Cancellation; Article 226; Prejudice Test; State Contracts

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The controversy emanated from the administrative functioning of the U.P. State Warehousing Corporation, a State instrumentality entrusted with handling and transportation of foodgrains and fertilizers. The case lies at the intersection of administrative discretion, public procurement, and constitutional safeguards against arbitrariness. The repeated issuance and cancellation of tenders by the Corporation, followed by execution and subsequent termination of a contract, raised serious concerns regarding procedural fairness and transparency in State action.

The dispute assumed constitutional significance when the successful bidder, after executing the contract for more than one year, found the contract abruptly cancelled on the basis of internal inquiry reports conducted entirely ex parte. No notice, explanation, or opportunity of hearing was afforded before such cancellation. This administrative conduct compelled judicial scrutiny under Article 226, particularly on whether contractual disputes involving State entities are amenable to writ jurisdiction when allegations of arbitrary action and violation of natural justice are raised.

The Supreme Court was also called upon to clarify the scope of judicial interference in tender matters, especially where financial loss to the State is alleged. The judgment revisits foundational principles laid down in ABL International Ltd., Nawabkhan Abbaskhan, and S.L. Kapoor, and synthesizes them into a coherent framework governing natural justice and prejudice. The case thus serves as a doctrinal reaffirmation of fairness as a constitutional imperative even in contractual governance.

D) FACTS OF THE CASE

An e-tender dated 06.01.2018 was issued by the Corporation for handling and transportation work in the Vindhyachal region. The tender was cancelled within ten days for “administrative reasons”. A fresh e-tender dated 01.04.2018 was issued, which too was cancelled on 04.05.2018 on the ground that the rates were “impractical”. Subsequently, a third e-tender dated 01.06.2018 was floated for the same work and period of two years.

Respondent No.1, Sudhir Kumar Singh, emerged as the successful bidder for the Bhawanipur-I Centre at 341% ASOR. An agreement was executed on 13.07.2018, and the respondent performed the contract for over one year without any complaint regarding performance or violation of tender conditions.

In May 2019, complaints were submitted by a Truck Owners’ Association alleging serious financial irregularities in the tender process. Acting on these complaints, the Managing Director of the Corporation conducted an ex parte inquiry and submitted a report dated 14.06.2019, concluding that cancellation of the earlier tender was unjustified and that the subsequent tender resulted in exorbitant rates. A parallel ex parte inquiry was conducted by the Commissioner, Vindhyachal Mandal.

Based on these reports, the Special Secretary, Government of U.P., issued a letter dated 16.07.2019 directing cancellation of the tenders, initiation of disciplinary proceedings, and recovery of financial loss. Acting on this directive, the Corporation cancelled the respondent’s contract on 26.07.2019 without issuing any notice or granting a hearing.

Aggrieved, the respondent filed a writ petition before the Allahabad High Court, which allowed the petition and quashed the cancellation as well as the inquiry reports. This led to the present appeals before the Supreme Court.

E) LEGAL ISSUES RAISED

i. Whether cancellation of a concluded tender without notice violates the audi alteram partem rule?
ii. Whether a writ petition under Article 226 is maintainable in contractual disputes involving State action?
iii. Whether breach of natural justice automatically vitiates administrative action without proof of prejudice?
iv. Whether the High Court exceeded its jurisdiction by quashing inquiry reports not specifically challenged?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the appellants submitted that the High Court exceeded the scope of the writ petition by quashing the inquiry reports and governmental directions when no such relief was sought. It was contended that the tender cancellation was justified due to huge financial loss caused to the Corporation, as evidenced by comparative rate analysis. Reliance was placed on precedents holding that natural justice is not an inflexible doctrine and that courts should not issue futile writs where no prejudice is caused. It was further argued that contractual disputes ought to be relegated to civil courts, particularly when the contract period had already expired.

G) RESPONDENT’S ARGUMENTS

The counsels for the respondent submitted that the cancellation was arbitrary, ex parte, and violative of Article 14. It was emphasized that no allegation of misconduct or breach of tender conditions was ever made against the respondent. The respondent highlighted serious prejudice caused by premature termination, including loss of one year of contract period and risk of three-year debarment. Reliance was placed on ABL International Ltd. to assert maintainability of the writ petition due to the presence of a public law element.

H) RELATED LEGAL PROVISIONS

i. Article 14, Constitution of India
ii. Article 226, Constitution of India
iii. Doctrine of Audi Alteram Partem

I) JUDGMENT

The Supreme Court partially allowed the appeals. It held that the High Court erred in quashing the Managing Director’s report dated 14.06.2019 and the Special Secretary’s order dated 16.07.2019, as no relief was sought against them. However, the Court upheld the High Court’s finding that cancellation of the respondent’s contract was vitiated by complete denial of natural justice.

The Court reaffirmed that whenever a plea of breach of natural justice is raised against the State, such plea attracts Article 14 as arbitrary State action. It was held that the respondent was kept entirely in the dark regarding the proceedings leading to cancellation, thereby causing real and demonstrable prejudice. The Court rejected the argument of futility, observing that this was not a case of admitted facts leading to an inevitable conclusion.

The Court directed refund of earnest money and security deposit and upheld maintainability of the writ petition due to the public law element involved. The judgment harmonized administrative accountability with constitutional fairness.

a) RATIO DECIDENDI

The ratio of the judgment lies in the principle that where State action results in civil consequences and is taken without affording a hearing, prejudice is presumed unless facts are admitted and only one conclusion is possible. The Court crystallized the prejudice test and clarified that the authority denying natural justice cannot itself decide absence of prejudice. Judicial determination is mandatory.

b) OBITER DICTA

The Court observed that natural justice is a flexible tool and not every infraction results in invalidity. However, fairness must be contextually applied. Observations on comparative tender rates and administrative vigilance were advisory in nature.

c) GUIDELINES

i. Breach of natural justice does not automatically invalidate action unless prejudice is shown.
ii. Courts will not issue futile writs where facts are admitted.
iii. Determination of prejudice lies with courts, not authorities.
iv. Writ jurisdiction is maintainable where State action is arbitrary even in contractual matters.

J) REFERENCES

a) Important Cases Referred

i. ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., [2004] 3 SCC 553
ii. Nawabkhan Abbaskhan v. State of Gujarat, [1974] 3 SCR 427
iii. S.L. Kapoor v. Jagmohan, [1981] 1 SCR 746

b) Important Statutes Referred

i. Constitution of India, 1950