VIOLATION OF RULES OF NATURAL JUSTICE BY ITSELF DOES NOT INVALIDATE PROCEEDINGS UNLESS PREJUDICE IS CAUSED

[Mr. M. GOVINDARAJAN]

Natural justice is at least as old as the first man created on earth – the biblical ‘Adam’. J.R. Lucas in his book ‘On Justice’ states (at page 86):

“Hence, when we are judging deeds, and may find that a man did wrong, there is a requirement of logic that we should allow the putative agent to correct misinterpretations or disavow the intention imputed to him or otherwise disown the action. God needed to ask Adam ‘Hast thou eaten of the tree whereof I commanded thee that thou shouldest not eat?’ Because it was essential that Adam should not be blamed or punished unless he had done exactly that deed. If the serpent had planted the evidence, or if he had beguiled Adam into eating it under the misapprehension that it came from another, non-forbidden tree, then Adam had not sinned and should not have been expelled from Eden. Only if the accused admits the charge, or, faced with the accusation, cannot explain his behavior convincingly in any other way, is we logically entitled to conclude that he did indeed do it.”

In ‘State of UP v. Sudhir Kumar Singh and others’ – 2020 (10) TMI 746 - SUPREME COURT,  UP State Warehousing Corporation (‘Corporation’ for short) issued a e-tender notice on 06.01.2018 which was cancelled on 16.01.2018.  Again on 01.04.2018 the Corporation floated the tender in same terms of the previous cancelled tender.  The tender was for the ‘appointment of Handling and Transport Contractor for food grain in FCI and alleged material etc.’ for its four depots at Mirzapur, Bhawanipur – PEG I, Bhawanipur – PEG II and Tendu (Sonbhadra).  Technical bids for these four centres were opened on 17.04.2018. Price bids of technically qualified bidders were then opened on 23.04.2018.   On 04.05.2018, the then Managing Director of the Corporation cancelled the aforesaid tender apparently on the ground that it was ‘impractical’ to go ahead with such tender.   On 01.06.2018, for the same region, the aforesaid tender was reissued for the same workable capacity and estimated annual value of the contract.  Each of the tender was for the period of two years.

Sudhir Kumar Singh, respondent No 1, was declared as the successful bidder for Bhwanipur – I Center.   On 13.07.2018, an agreement was entered into between the Corporation and Respondent No.1 for execution of the work under the tender.  In the meanwhile complaints were made to the Government on financial irregularities.  The said complaints were forwarded to the Managing Director of the Corporation with directions to give report within five days.  The Managing Director conducted an ex-party enquiry.  The Commissioner of Mirzapur also conducted an ex-party enquiry.  The Government considered that the role of the Managing Director and the Commission was doubtful.  The tenders were cancelled on 26.07.2019.  Disciplinary action was taken against these concerned officers.

In the meanwhile the first respondent filed a writ petition before the High Court, Allahabad,  challenging the ‘illegal and arbitrary’ termination of the contract with the Corporation after successful completion of over one year of a two-year term, and prayed for the setting aside of the Corporation’s cancellation order dated 26.07.2019 of the tender dated 01.06.2018.

           The High Court held that the Order impugned is basically based on the enquiry report prepared by the Managing Director himself and that the enquiry was conducted in the ex parte manner and the Managing Director failed to offer any opportunity of hearing to the petitioner before passing the order impugned which has the effect of terminating the agreement for no justifiable reason to hold that the petitioner was at fault at any point of time. Element of bias therefore, under the circumstances at the end of Managing Director, cannot be ruled out. The order impugned, therefore, terminating the agreement dated 26.7.2019 cannot be sustained in law.  The High Court quashed the order dated 26.7.2019 to the writ petition and the enquiry report dated 14.6.2019 submitted by the Managing Director as well as the order passed by the Special Secretary dated 16.7.2019.

Aggrieved against the order of High Court the Corporation filed an appeal before the Supreme Court.  The Corporation contended the following before the Supreme Court-

• The High Court had gone way beyond what was asked for.
• The Writ Petition only prayed for a quashing of the cancellation order dated 26.07.2019 of the second tender. The High Court went way beyond, and not only quashed the aforesaid cancellation, but also quashed the enquiry report of the Managing Director dated 14.06.2019, as well as the order passed by the Special Secretary dated 16.07.2019, and the consequential action taken, namely, the departmental proceedings against the delinquent officers, which was never the subject matter of challenge in the Writ Petition.
• Based upon the comparison between the rates that were received in the earlier tender dated 01.04.2018 that was cancelled.
• The rates in the 01.06.2018 tender, that the disparity was so great as to make it clear that the contracts for these four centres ought not to have been entered into at these rates at all.
• The High Court ought to have appreciated the huge financial loss that was caused as a result of awarding the contract at these rates, and ought not to have interfered with the cancellation of the tender, as it could not be characterized as arbitrary, given the huge increase in rates in such a short period for the same works.
• Even though natural justice may be breached in the facts of a given case, if otherwise such breach does not result in prejudice.

The first respondent Sudhir Kumar Singh submitted the following before the Supreme Court-

• The High Court judgment ought not to be interfered with, inasmuch as the petition  had pumped in a lot of money, and had worked the contract for a period of over one year successfully and without any complaint whatsoever from the Corporation.
• Had the authorities bothered to give his client a hearing, the petitioner could have pointed out that in other nearby divisions, tenders were awarded at roughly the same rates, all of which contracts had been worked out, and none of which have been cancelled.
• Had a hearing been given, the petitioner would also have demonstrated that the rates that were awarded could not be characterized as unreasonable, given the magnitude of the contract in his favor.
• The action of termination by the Corporation was without an independent application of mind, and was purely at the instruction of the Special Secretary of the Government of U.P.
• The High Court is having no jurisdiction to entertain the present writ petition and it is to be dismissed.

The Supreme Court heard the submissions made by both the parties.  The Supreme Court observed that the petitioner had not asked for any relief qua the delinquent officers.  The Supreme Court observed that the present case is a case which involves a ‘public law element’ in that the petitioner (Respondent No.1) who knocked at the doors of the writ court alleged breach of the audi alteram partem rule, as the entire proceedings leading to cancellation of the tender, together with the cancellation itself, were done on an ex parte appraisal of the facts behind his back.  However the Supreme Court observed that before entertaining such writ petitions and passing interim orders, the writ court must be very careful to weigh conflicting public interests, and should intervene only when there is an overwhelming public interest in entertaining the writ petition.

The Supreme Court relied on various judgments in this regard.  It observed that the principles of natural justice, as noticed hereinbefore, have undergone a sea change.  It cannot be put in a straitjacket formula. 

• Whether a particular principle of natural justice has been violated or not has to be judged in the background of the nature of charges, the nature of the investigation conducted in the background of any statutory or relevant rules governing such enquiries. 
•  What is important to note is that it is the Court or Tribunal which must determine whether or not prejudice has been caused, and not the authority on an ex parte appraisal of the facts.
• Even if it is found by the court that there is a violation of principles of natural justice, the courts have held that it may not be necessary to strike down the action and refer the matter back to the authorities to take fresh decision after complying with the procedural requirement in those cases where non-grant of hearing has not caused any prejudice to the person against whom the action is taken. Therefore, every violation of a facet of natural justice may not lead to the conclusion that the order passed is always null and void. The validity of the order has to be decided on the touchstone of ‘prejudice’. The ultimate test is always the same viz. the test of prejudice or the test of fair hearing.
• It was not open for the authority to dispense with the requirement of principles of natural justice on the presumption that no prejudice is going to be caused to the petitioner. 
• At the same time, it cannot be denied that as far as courts are concerned, they are empowered to consider as to whether any purpose would be served in remanding the case keeping in mind whether any prejudice is caused to the person against whom the action is taken.
• Prejudice must not merely be the apprehension of a litigant, but should be a definite inference of the likelihood of prejudice flowing from the refusal to follow natural justice,

• If there is an infraction of principles of natural justice, we have to address a further question as to whether any purpose would be served in remitting the case to the authority to make fresh demand of amount recoverable, only after issuing notice to show cause to the appellant.

On the basis of the findings of the relied judgments, the Supreme Court held that the various judgments reveal that-

• Natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more, lead to the conclusion that prejudice is thereby caused.

• Where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is  conceived not only in individual interest, but also in public  interest.

• No prejudice is caused to the person complaining of the breach of natural justice where such person does not dispute the case against him or it. This can happen by reason of estoppel, acquiescence, waiver and by way of non-challenge or non-denial or admission of facts, in cases in which the Court finds on facts that no real prejudice can therefore be said to have been caused to the person complaining of the breach of natural justice.

• In cases where facts can be stated to be admitted or indisputable, and only one conclusion is possible, the Court does not pass futile orders of setting aside or remand when there is, in fact, no prejudice caused. This conclusion must be drawn by the Court on an appraisal of the facts of a case, and not by the authority who denies natural justice to a person.

• The ‘prejudice’ exception must be more than a mere apprehension or even a reasonable suspicion of a litigant. It should exist as a matter of fact, or be based upon a definite inference of likelihood of prejudice flowing from the non-observance of natural justice.

The Supreme Court held that it is clear that Respondent No.1 has been completely in the dark so far as the cancellation of the award of tender in his favor is concerned, the audi alteram partem rule having been breached in its entirety.  Prejudice has indeed been caused to respondent no. 1, not only from the fact that one year of the contract period has been taken away, but also that, if the impugned High Court judgment is to be set aside, the respondent No. 1 will be debarred from bidding for any of the Corporation’s tenders for a period of three years.

The Supreme Court upheld that impugned judgment of the High Court on the ground that natural justice has indeed been breached in the facts of the present case, not being a case of admitted facts leading to the grant of a futile writ, and that prejudice has indeed been caused to Respondent No.1.  The Supreme Court partially allowed the appeal filed by the Corporation.