Supreme Court Upholds State's Prerogative to Cancel Tenders for Fair Competition and Public Interest.


25 April 2025 Civil Appeals >> Civil & Consumer Law   |   Public Interest Litigation >> Constitution & Law Procedure   |   Environment Protection >> Environmental Law  

The Supreme Court of India has recently delivered a significant judgment in The Principal Chief of Forest & Ors. Vs Suresh Mathew & Ors., setting aside the order of the High Court of Kerala and affirming the right of the state government to cancel a tender process and initiate a fresh one under certain circumstances. The case, stemming from a dispute over a tree felling contract in the Konni Forest Division of Kerala, highlights the delicate balance between administrative discretion in contractual matters and the principles of fairness and non-arbitrariness.

The genesis of the legal battle lies in an order issued by the Divisional Forest Officer (DFO), Konni, on October 12, 2020, which cancelled an earlier e-tender notification dated May 25, 2020, for timber extraction work. The DFO decided to float a fresh tender, citing complaints from some contractors who claimed they were unable to participate in the initial tender due to COVID-19 related transportation restrictions.


 

 

The writ petitioners, who had participated in the first e-tender, challenged this cancellation, arguing it was arbitrary and illegal. Their initial registration as Class A contractors had faced renewal issues based on a circular issued by the Principal Conservator of Forests, which stipulated that contractors who hadn't participated in any timber extraction tenders in the previous financial year were ineligible for renewal. While the High Court's Single Judge had earlier allowed the petitioners' writ petitions challenging the non-renewal of their registration, finding the new condition imposed by the circular to be arbitrary, the subsequent cancellation of the tender by the DFO led to further litigation.

The Single Judge of the High Court then set aside the re-tender notification, directing the authorities to proceed with the original e-tender. The court reasoned that the cancellation would only cause delays and that the lowest bidder in the initial tender had quoted a reasonable amount. This decision was upheld by the Division Bench of the High Court, leading the aggrieved appellants (likely the Forest Department authorities) to approach the Supreme Court.

The Supreme Court, after hearing the arguments and perusing the records, overturned the High Court's judgment. The apex court emphasized the limited scope of judicial review in contractual matters, particularly those involving tenders. Drawing upon established precedents like Jagdish Mandal vs. State of Orissa and Others, the Court reiterated that judicial intervention is warranted only when the decision-making process is marred by mala fides, arbitrariness, irrationality, or an intent to favor someone, or if public interest is demonstrably affected negatively.

In its analysis, the Supreme Court noted that the DFO's order explicitly stated the reason for cancellation – the inability of some contractors to participate due to COVID-19 restrictions. The Court found that the subsequent re-tender aimed to provide a fair and equal opportunity to all interested bidders, ultimately benefiting the government through wider participation and potentially more competitive bids.

The Supreme Court also highlighted the fact that the tender notice itself, in Clause 3 and Clause 27 of the e-government procurement notice, explicitly reserved the right of the tendering authority to modify or cancel all bids without assigning any reason. The Court opined that setting aside the DFO's order without any finding of mala fide was erroneous.

Furthermore, the Supreme Court disagreed with the High Court's observation that the possibility of lower rates in subsequent tenders was not a justifiable ground for cancellation. Citing the principle that the government is the guardian of the state's finances, the apex court affirmed the government's right to cancel and re-tender if it believes it is in the financial interest of the state.

Ultimately, the Supreme Court concluded that the decision to re-tender, in this case, was not a mala fide act or an attempt to favor any particular party. Instead, it was a measure to ensure broader participation and fair competition, thus serving public interest.