Rule Of Law Is A Constitutional Pillar, Allowing State To Breach Contracts Would Make It Ineffective: P&H High Court

The Punjab & Haryana High Court said that if state authorities are allowed to breach contracts, then the rule of law, which is a constitutional pillar, will become ineffective.

Justice Sureshwar Thakur and Justice Vikas Suri said, "if there is yet an endowment of permissibility to 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, therebys the basis of a welfare state, besides the basis of the rule of law, which is the pillar of the Constitution, but would become ineffective."

Referring to Article 299, the Court said, "Since the said provision becomes embodied in the Constitution of India, which but is the prime enforceable document, therebys 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 theretos constitutional sanctity becomes assigned. Moreover, when therebys all the assurances made there unders to the vendees or the promisees, are also constitutionally assured to become meted the utmost deference."

The Court highlighted that, any contract entered into by the State of Haryana, State of Punjab and or by their respectively created instrumentalities or agency(ies) and or by the corporate entities established under the State legislations concerned, thus become covered within the ambit of Article 299 of the Constitution of India.

The Court was hearing a plea seeking quashing of the letter vide which the execution of the agreement to sell and the bid contract in respect of Nursing Home Site, was unilaterally cancelled by the Chandigarh Administration, after the depositing of the entire sale consideration by the petitioner by the Bedi Hospital.

Senior counsel for the petitioner contended that there is no authority with the Chandigarh Administration to either review or cancel the bid and review can only be done before the acceptance of the bid.

After hearing the submissions, the Court said that the power of cancellation of the auction is to be exercised by the respondents prior to the confirmation of the bid and not subsequent to the confirmation.

The Court noted that the petitioner discharged all the obligation casted upon him yet the respondents failed to execute the bid in his favour. Therefore, it is failure on the part of the respondent to fulfil their contractual obligation.

The court explained and applied the concept of promissory estopple and legitimate expectation and held that both the principles were breached in this case.

 It added that, the principles, "(i) the doctrine of promissory estoppel and the doctrine of legitimate expectancy, are grooved in equity, and, do not predominate either public interest or public policy. (ii) Contrarily, both public interest and public policy eclipse the efficacy of supra equitable doctrines."

"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 theretos, thus public interests and public policies," said the Court.

In the light of the above, the bench held that the Court is empowered here to issue mandamus on the respondents to execute the registered deed on conveyance favour of the petitioner and issue the allotment letter.

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

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