Adverse contractual action by the State requires prior notice and opportunity of hearing.

The petitioner participated in Short Notice Inviting Tender No. RRSMP-04/2025-26 for road-related works under the Mukhya Mantri Gramin Sadak Yojana.

Although an objection was raised regarding its Annual Turnover Certificate, the petitioner was declared technically responsive and, upon opening of the financial bids on 26 July 2025, emerged as the L-1 bidder.

A Letter of Acceptance was issued on 22 August 2025, and thereafter an agreement bearing No. CMBD-14/2025-26 was executed on 11 September 2025.

Subsequently, by proceedings dated 25 September 2025, the Departmental Tender Committee directed cancellation of the work, re-tendering of the project, forfeiture of the earnest money deposit, and cancellation of the agreement, if already executed.

The petitioner challenged the decision on the ground that it was taken without notice or an opportunity of hearing.

The State conceded that no show-cause notice had been issued before the impugned decision.

Whether the respondents could cancel the awarded work, direct re-tendering, forfeit the earnest money deposit, and cancel the executed agreement without issuing a show-cause notice or affording the petitioner an opportunity of hearing.

Whether the impugned decision dated 25 September 2025 was vitiated for violation of the principles of natural justice and Article 14 of the Constitution.

The Court applied the principle that State action in contractual matters must be fair, reasonable, and non-arbitrary under Article 14 of the Constitution, particularly where it produces civil consequences.

Relying on Erusian Equipment & Chemicals Ltd. v. State of West Bengal, (1975) 1 SCC 70, the Court held that adverse governmental action affecting a person’s ability to contract with the State requires an opportunity to represent his case.

Under Gorkha Security Services v. Government (NCT of Delhi), (2014) 9 SCC 105, a proper show-cause notice and opportunity to respond are essential where serious civil consequences are contemplated.

The Court also relied on Kulja Industries Ltd. v. Chief General Manager, BSNL, (2014) 14 SCC 731, which established that adverse contractual decisions by State authorities are subject to judicial review on the grounds of natural justice, fairness, reasonableness, and proportionality.

The Court found that the impugned decision was not merely an administrative decision concerning an ongoing tender process; it adversely affected the petitioner’s contractual rights arising from the Letter of Acceptance and executed agreement.

Cancellation of the work, re-tendering, proposed forfeiture of the earnest money deposit, and cancellation of the agreement carried serious civil and commercial consequences.

Since the respondents admittedly issued neither a show-cause notice nor an opportunity of hearing, the petitioner was denied a meaningful opportunity to explain its position before adverse action was taken.

The Court therefore held that the decision-making process violated the principles of natural justice and could not be sustained, without expressing any opinion on the merits of the underlying allegations.

The matter was remanded to the competent authority to proceed afresh by issuing a detailed show-cause notice, indicating the proposed grounds and date and time of appearance, furnishing relied-upon documents or materials if requested, granting the petitioner a personal hearing, and passing a fresh reasoned order in accordance with law.

All questions on the merits were left open for independent determination by the competent authority.