Heaven Techno System Private Limited vs. The State Of Madhya Pradesh

Held

The Court held that the action of the respondents in cancelling the work order was not a transparent decision and was malafide, as it was not based on any violation of the contract's terms and conditions. The grounds for cancellation – that the contract was not concluded, funds were reduced, and the Managing Director's approval was not taken – were found to be non-existent in view of the material on record. The Court reasoned that the cancellation of a work order based on a contract presupposes the existence of a contract. As per Clauses vi and vii of the buyer's responsibilities on GeM, the contract was awarded only after ensuring financial status, approval, and administrative approval by the competent authority. Therefore, the respondents could not argue that the contract was non-executable on these grounds. The Court found that judicial review is permissible when the action of the respondents is not transparent and is the result of malafides. The Court also held that the availability of an alternative remedy of arbitration is not an absolute bar when the termination of a contract is arbitrary, unjustified, and suffers from malafide, citing *Sky Power Southeast Solar India Pvt. Ltd. Vs. M.P. Power Management Co.Ltd.* (2020 SCC OnLine 3017) and *Union of India and others Vs. Tantia Construction Pvt. Ltd.* (2011) 5 SCC 697. The impugned orders dated March 19, 2024, and April 5, 2024, were quashed.

Facts

The petitioner, Heaven Techno System Private Ltd., filed a writ petition challenging an order dated March 19, 2024, and a subsequent order dated April 5, 2024, both passed by Respondent No. 3. The petitioner sought to quash these orders and restore a contract awarded to them on March 6, 2024, for the supply, installation, configuration, operation, and maintenance of CCTV surveillance across 137 Mandis in Madhya Pradesh and the establishment of command and monitoring centers. The contract was awarded through the Government E Marketplace (GeM) Portal after the petitioner was found to be the L-I bidder. The petitioner fulfilled eligibility criteria, deposited transaction charges of Rs. 37,87,328/-, placed purchase orders worth Rs. 53,11,33,606/-, and submitted a performance security in the form of a bank guarantee. The contract was sought to be cancelled by the Mandi Board due to revocation of financial approval, reduction in Mandi Board income, and lack of sanction from the Director.

Key Issues

1. Whether the cancellation of the contract by the respondents, based on grounds that the contract was not concluded, reduction in Mandi Board income, and lack of competent authority approval, is arbitrary and unjustified, thereby violating the principles of fairness and legitimate expectation under public law? (Question of law) Petitioner's arguments: The petitioner contended that the contract was duly executed on March 6, 2024, and they had complied with its terms by depositing transaction charges and submitting performance security. They argued that the grounds for cancellation cited by the respondents were contrary to the record, as the contract's award on GeM presupposed necessary administrative and financial sanctions and availability of funds, as per Clauses vi and vii of the buyer's responsibilities. They relied on the doctrine of legitimate expectation as expounded in *Shiva Nandan CT and others Vs. High Court of Kerala* (2024) 3 SCC 799, asserting that the cancellation was not based on any breach of contract terms. Respondents' arguments: The respondents argued that the cancellation of the work order was on valid grounds, including public interest, and relied on *Subodh Kumar Singh Rathore (supra)*, citing specific paragraphs related to the cancellation of work orders in public interest.