Administrative Orders Cannot Override Terminated Contracts: Rajasthan High Court Affirms in Landmark Decision

Justice Dinesh Mehta emphasizes the need for transparency and adherence to legal procedures in public procurement.
The Rajasthan High Court at Jodhpur, in a landmark judgment, has declared the revival of a previously terminated contract by Rajasthan State Mines and Minerals Limited (RSMML) as unlawful. The judgment, delivered by Justice Dinesh Mehta, underscores the necessity for transparency and adherence to legal procedures in public procurement and contract management.
The dispute arose when RSMML, a public sector enterprise, issued an e-bid for the loading and transportation of limestone from its Sanu mines in Jaisalmer. United Coal Carrier (UCC) emerged as the lowest bidder (L1) and was awarded the contract, followed by the execution of a formal agreement. However, UCC failed to commence the work on time due to a law and order situation, leading to the termination of their contract on December 24, 2023, and their blacklisting for three years.
Following this, PMP Infratech Pvt. Ltd., the third lowest bidder (L3), was approached and subsequently issued a letter of acceptance for the contract. However, the very next day, on December 26, 2023, RSMML’s Chairman directed the Managing Director to keep both the termination order and the letter of acceptance in abeyance, effectively reviving UCC’s contract.
This decision was challenged by PMP Infratech Pvt. Ltd. And Adhunik Khanan Va Parivahan Theka Sahkari Samiti, who filed writ petitions arguing that the revival was arbitrary and lacked legal sanction.
Justice Dinesh Mehta emphasized that a contract, once legally terminated, cannot be revived through an administrative order. The court noted, “An administrative order, rather an executive fiat cannot set at naught, a duly considered decision or adjudicated order, which has bearing on civil or business rights of contracting parties.” This underscores the principle that legal procedures must be followed in public contract management.
The court observed that the abrupt decision to revive UCC’s contract lacked transparency and reasonableness. The Chairman’s telephonic directive to keep the termination order in abeyance was found to be arbitrary and unsupported by any recorded reasons or legal basis. “Such directions of the competent authority (Managing Director) were inscribed on the face of the letter dated 25.12.2023 and were forthwith carried out by the respondent Company,” the judgment stated, highlighting the opaque nature of the decision-making process.
Justice Mehta reiterated the importance of procedural fairness in the termination and revival of contracts. The court held that the Managing Director’s original decision to terminate UCC’s contract was taken after following due process, and any subsequent change needed to adhere to the same principles of fairness and transparency.
The court’s legal reasoning centered on the principles of contract law and administrative fairness. It relied on precedents set by the Supreme Court, particularly emphasizing that a terminated contract cannot be arbitrarily revived without legal justification. The court also underscored that the award and termination of public contracts must be transparent and adhere to statutory requirements.
The judgment cited key rulings, including the Supreme Court’s decision in the case of Subodh Kumar Singh Rathour vs. The Chief Executive Officers & Ors., which highlighted that the tender process cannot be cancelled without compelling reasons and must be free from arbitrariness.
Justice Mehta remarked, “The telephonic direction which had been given by the Chairman neither carries legal sanction nor does it record any reason. The same can normally not be revived even by the court, Appellate Authority or Arbitrator, let alone by the Managing Director itself or by the Chairman of the awardee company.”
The Rajasthan High Court’s judgment reaffirms the judiciary’s commitment to upholding principles of transparency and fairness in public procurement. By declaring the revival of UCC’s contract unlawful, the court has sent a strong message against arbitrary administrative actions. This decision is expected to have significant implications for future public procurement processes, ensuring that legal procedures are strictly followed.
 

Date of Decision: July 19, 2024