Administrative Arbitrariness in Rejecting Curable Defects in Bank Guarantees Hits Article 14 and Principles of Natural Justice

The petitioner, a Government enterprise, participated in an EPC tender by North Eastern Railway (NER) valued at INR 262.12 Crores.

In an earlier round of litigation (Writ C No. 5810 of 2026), the court held that an alleged deficiency in stamp duty on the petitioner’s Bank Guarantee (BG) was a curable defect.

Following the court's order dated 29.05.2026, the petitioner submitted an adequately stamped BG.

On 08.06.2026, NER rejected the bid via WhatsApp, citing an "incorrect beneficiary name" in the BG.

When the petitioner submitted a corrected BG on 19.06.2026, NER rejected it as "belated".

The petitioner challenged these rejections as mala fide attempts to eliminate the lowest bidder.

The court applied the principle of non-arbitrariness and fairness in state action under Article 12 and 14 of the Constitution of India.

It relied on Meerut Development Authority v. Assn. of Management Studies (2009) 6 SCC 171, which establishes that while the state is not bound to accept the L1 bidder, its actions must be free from arbitrariness, favoritism, and hidden agendas.

The court further applied the doctrine of "curable defects" in tender processes, distinguishing between essential conditions and ancillary procedural requirements.

The court observed that the respondent-authorities engaged in "hide and seek" by raising new objections (incorrect beneficiary name) only after the previous objection (stamp duty) was overruled by the court.

The court highlighted a systemic inconsistency: another arm of the same organization, "Southern Railway, Chennai," had previously allowed the same petitioner to correct a beneficiary name in a BG after the issuance of a Letter of Award, proving the defect is admittebdly curable.

The court reasoned that the failure of NER to point out all defects in the first instance, coupled with the rejection of the corrected BG as "belated," demonstrated a "fixation" or mala fide intent to oust a legitimate L1 bidder.

Such "whimsical" and "discriminatory" conduct by a state instrumentality violates the principles of natural justice and the duty to act as a model employer.

The court quashed the impugned letter dated 08.06.2026.

The Respondent No. 2 was directed to accept the corrected Bank Guarantee and evaluate the petitioner's financial bid in compliance with the previous order dated 29.05.2026 within three working days.

The court concluded that the authorities' actions amounted to impermissible harassment.