Deftech And Greenindia Private Limited vs. State Of Chhattisgarh

Facts

Deftech And Greenindia Private Limited (petitioner) participated in a tender process initiated by the Director General of Police, State of Chhattisgarh (respondent No. 2) for the supply of 64 NVG Compatible Helipad Lights. The petitioner was declared the successful bidder, and a supply order was issued on February 27, 2023, for Rs. 31,01,713.92 inclusive of GST. An agreement was executed, and the petitioner deposited performance security. The petitioner delivered the goods on May 13, 2023. Despite representations for payment, the petitioner received no response. Subsequently, on December 16, 2024, the respondent No. 2 unilaterally cancelled the purchase order without affording the petitioner an opportunity of hearing. The petitioner filed a writ petition seeking to set aside the cancellation order and to direct the respondent to release payment.

Held

The Court held that the unilateral cancellation of the purchase order was in violation of the principles of natural justice and Clause 13 of the agreement dated February 27, 2023. Clause 13 explicitly states that if goods not of the approved specification/quality are supplied, they will be rejected and must be replaced within the period prescribed for completion of the order by the supplier without extra cost. The Court found that the respondent ought to have provided the petitioner an opportunity to replace the deficient goods before cancelling the purchase order. The Advocate General did not dispute that the purchase order was cancelled directly without providing such an opportunity. Therefore, the Court quashed the impugned cancellation order and directed the respondents to provide the petitioner an opportunity to rectify the mistake and correct the goods within the stipulated period as per Clause 13 of the agreement, and to take a fresh decision after providing an opportunity of hearing.

Key Issues

1. Whether the unilateral cancellation of the purchase order dated February 27, 2023, by the Director General of Police, State of Chhattisgarh, without providing an opportunity of hearing to the petitioner, is violative of the principles of natural justice and legitimate expectations, particularly in light of Clause 13 of the agreement? (Question of law and fact, turning on principles of natural justice and contract law). Petitioner's arguments: The cancellation was arbitrary and violative of natural justice as no opportunity to rectify discrepancies or present a defense was given. The respondents should have allowed for replacement of goods if any discrepancy was found, as per tender conditions. The action contravenes public policy and fair business practices, harming MSMEs. Respondent's arguments: The petitioner supplied goods not conforming to specifications (Rechargeable Li-ion Battery with only 300 charging cycles instead of specified capacity). Clause 3.3 of tender conditions allows disqualification for misleading representations, and Clause 3.4(ii) and (iv) stipulate payment only after satisfactory delivery of the entire quantity. Clause 11 allows forfeiture of security deposit or imposition of penalty for breach of terms. The cancellation was justified under Clause 11 of the agreement due to unsatisfactory goods.