In a notable judgment, the Chhattisgarh High Court emphasized the need for government actions to align with the principles of rationality and equality, while adjudicating a dispute concerning the termination of a rate contract by the Chhattisgarh Medical Services Corporation Limited (CGMSCL). The court, presided over by Chief Justice Ramesh Sinha and Justice Amitendra Kishore Prasad, ruled on a series of petitions filed by M/s Mokshit Corporation, a pharmaceutical manufacturing firm, challenging the state’s actions.
Background of the Case
The dispute arose when CGMSCL terminated a rate contract awarded to M/s Mokshit Corporation for the supply of medical reagents and consumables. The company had previously entered into a Memorandum of Understanding (MoU) with the state government in December 2020 to establish a pharmaceutical manufacturing unit with an investment of ₹15.65 crores. The MoU promised incentives under the state’s industrial policy.
Subsequent to the establishment of the manufacturing unit in 2022, the firm was awarded a tender, and a rate contract was executed with CGMSCL. The contract stipulated that prices for reagents would remain fixed for eight years. However, citing a new procurement policy mandating the use of the Government e-Marketplace (GeM) portal, CGMSCL terminated the rate contract in August 2024, invoking a “termination for convenience” clause.
Key Legal Issues
1. Legitimate Expectation and Promissory Estoppel:
The petitioner argued that the state’s sudden policy shift violated its legitimate expectation of continued benefits and constituted a breach of promissory estoppel. The firm contended that it had invested heavily based on assurances from the state government.
2. Rationality and Equality:
The petitioner alleged that the termination was arbitrary and lacked procedural fairness, violating Articles 14 (equality before the law) and 21 (protection of life and liberty) of the Constitution.
3. Retrospective Application of Policy:
The petitioner challenged the retrospective application of the new procurement rules to existing contracts, arguing it was unjust and legally untenable.
4. Public Interest vs. Contractual Rights:
The state countered that the termination was essential for ensuring transparency and cost-effectiveness in public procurement, thereby serving public interest.
Observations and Decision
The court, in a detailed judgment, struck a balance between the petitioner’s rights and the state’s policy objectives. Quoting constitutional principles, the bench noted, “State actions must align with rationality and equality; arbitrary decisions corrode the rule of law and undermine public trust.”
While acknowledging the importance of public interest, the court highlighted that adherence to established procedures and fairness in decision-making are paramount. The court found that:
1. Violation of Natural Justice:
The termination lacked due process, as the petitioner was not afforded an opportunity to be heard.
2. Unreasonable Policy Implementation:
The court remarked that applying new procurement rules retrospectively to invalidate an existing valid contract was “manifestly arbitrary” and failed the test of reasonableness.
3. Failure to Justify Convenience Clause Use:
The state’s reliance on the convenience clause lacked sufficient justification and appeared to have been invoked without considering the financial and operational impact on the petitioner.
The High Court set aside the termination of the rate contract and directed the state to adhere to its obligations under the contract. It also urged the state to ensure that future policy changes are implemented prospectively to avoid disrupting legitimate commercial expectations.
