The Punjab and Haryana High Court has made a critical observation regarding the rule of law, particularly in the context of state agencies breaching contracts. In a landmark judgment, the court stated that permitting state authorities to breach contracts would weaken the foundational principle of rule of law, a key pillar of the Indian Constitution. The bench, consisting of Justice Sureshwar Thakur and Justice Vikas Suri, expressed concerns about the potential implications of allowing state agencies to back out from their contractual promises.
The judges clarified that if the state or its agencies were given the liberty to disregard their contractual obligations, it would lead to the erosion of the welfare state concept and ultimately make the rule of law ineffective. Justice Thakur and Justice Suri stated:
"If there is yet an endowment of permissibility to the State or its agencies to renege from the apposite contractual promises, or if the State agencies are not estopped from the mandate of the supra constitutional provisions, from thus making breaches vis-a-vis their contractual obligations cast upon them, thereby the basis of a welfare state, besides the basis of the rule of law, which is the pillar of the Constitution, would become ineffective."
Referring to Article 299 of the Constitution of India, the court underlined that all contracts entered into by the Union or any state agency are constitutionally sanctified. The court pointed out that contracts entered by the Union in the name of the President of India, or by the states in the name of their Governors, carry constitutional weight. This provision, as per the court, ensures that all promises made by the state under these contracts are binding and should be honored with the utmost respect.
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"Since the said provision becomes embodied in the Constitution of India, which is the prime enforceable document, thereby when contracts entered into by the Union of India in the name of the President of India, or by any of the federal units concerned, in the name of the Governors of such federal units, thus thereto constitutional sanctity becomes assigned."
The case in question involved the cancellation of a bid by the Chandigarh Administration, despite the petitioner, Bedi Hospital, having paid the full sale consideration for a nursing home site. Senior counsel for the petitioner argued that the Chandigarh Administration did not have the authority to cancel the bid after the payment was made, and such a review could only be done before the bid’s acceptance.
The High Court, after hearing the arguments, agreed with the petitioner’s contention. It emphasized that the cancellation of the auction could only be done before confirming the bid, not after. The bench remarked that the petitioner had fulfilled all their obligations, yet the Chandigarh Administration failed to execute the bid in the petitioner’s favor.
The court invoked two crucial legal doctrines — promissory estoppel and legitimate expectation — in this case. It explained that these principles are rooted in equity, but they are subject to public interest and policy considerations.
"The constitutional Courts are required to be thus balancing the endowment of the doctrine of promissory estoppel to the petitioner vis-a-vis the predominant thereto, thus public interests and public policies."
The court ruled that the failure of the Chandigarh Administration to honor the bid violated these equitable doctrines and the petitioner’s legitimate expectations.
Ultimately, the court held that the Chandigarh Administration was at fault for not executing the agreement after the petitioner had fulfilled all the necessary conditions. As a result, the bench ordered the respondents to execute the registered deed in favor of the petitioner and issue the required allotment letter, compelling the state to fulfill its contractual obligations.
Consequently, the plea was allowed.
Mr. Puneet Bali, Senior Advocate with Mr. Piyush Aggarwal, Advocate,
Mr. Aakash Sharma, Advocate and Mr. Anmol Chandan, Advocate for the petitioner.
Mr. Amit Jhanji, Sr. Standing Counsel with Mr. Sumeet Jain, Addl. Standing Counsel and Ms. Eliza Gupta, Advocate for respondents No. 1 and 2.
Mr. Kanwaljit Singh, Senior Advocate with Mr. Munish Kapila, Advocate for applicants-respondents No. 3 to 6.
Title: M/s Bedi Hospital v. Chandigarh Administration and another
