In Brief
The U.P. State Warehousing Corporation cancelled a tender award and contract with Sudhir Kumar Singh after he had performed work for over one year, based on ex parte enquiries claiming financial irregularities due to high rates. The Supreme Court held that while the state can challenge contracts where arbitrary action is shown, it must follow the principles of natural justice. Here, the Managing Director conducted a complete ex parte enquiry and cancelled the tender without giving Singh any hearing or opportunity to respond. This was a total breach of the audi alteram partem rule, causing real prejudice (loss of one year's contract and three-year debarment from bidding). The Court upheld the High Court's decision quashing the cancellation order, though it set aside the High Court's quashing of disciplinary proceedings which were not challenged in the petition. The Court ordered return of Singh's earnest money and security deposits.
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