Rule of Law Is a Constitutional Pillar ; Allowing State to Breach Contracts Would Make It Ineffective: P&H High Court Quashes Chandigarh Administration’s Cancellation of Auctioned Land Deal
Isabella Mariam
The High Court of Punjab and Haryana Division Bench of Justices Sureshwar Thakur and Vikas Suri quashed the cancellation of a bid contract and agreement to sell executed by the Chandigarh Administration concerning a nursing home site. The Court held that once the sale was concluded, consideration fully paid, and a valid agreement to sell executed, the State could not unilaterally annul the contract. It directed that the cancellation letters issued by the respondent authorities be set aside, holding that such actions required civil court intervention.
The matter arose following an e-auction conducted by the Chandigarh Administration for commercial and nursing home sites on a freehold basis. A notice dated 31 August 2022 invited bidders, later modified to extend deadlines for Earnest Money Deposit (EMD) submission and documentation. Two nursing home sites in Sector 33-C, Chandigarh—Site No. 3 and Site No. 4—were offered for bidding, each having an identical area of 744.44 square yards and a reserve price of ₹6,91,75,598.
The petitioner participated in the auction, placing a successful bid of ₹12,58,75,598 for Site No. 4. This bid was confirmed by the Chandigarh Administration on 20 October 2022, followed by an official intimation via email on 21 October 2022. The petitioner paid 25% of the bid amount, i.e., ₹3,05,16,488, and having already deposited ₹13,83,512 as advance EMD, the total payment stood at ₹3.19 crore. The remaining 75%, amounting to ₹9,39,75,598, was paid on 16 November 2022—well ahead of the stipulated deadline of 15 December 2022.
Subsequently, on 28 October 2022, the petitioner and the Administration entered into a formal agreement to sell. As per Clause VI(4) of the general auction terms, the Estate Officer was required to issue an allotment letter and call upon the purchaser to execute a conveyance deed upon full payment.
Despite confirmation and full payment, no allotment letter was issued. The petitioner made representations, including a request dated 12 January 2023, seeking issuance of the required letter. However, on 27 January 2023, the Administration issued a letter stating that the bid contract was being cancelled due to a significant price discrepancy—over ₹6 crore—between Site No. 4 and the adjacent Site No. 3, which fetched ₹18,25,75,598. A subsequent letter dated 9 February 2023 formally cancelled the agreement to sell.
The Administration cited Clause 4 of the agreement, asserting its authority to cancel the contract in cases related to public order, State security, or change in public policy. It also invoked a general clause from the auction terms stating that the Estate Officer could accept or reject any offer or cancel the e-auction without assigning reasons.
The petitioner challenged the unilateral cancellation, asserting that after bid confirmation, full payment, and execution of the agreement, the Administration had no legal authority to annul the contract. The petitioner argued that such cancellation post-execution could only occur through a civil court order and that public interest concerns were not applicable in this instance. The petition also referenced Rule 5(vi) of the Chandigarh Estate Rules, requiring issuance of an allotment letter after full payment.
The respondents contended that the cancellation was justified due to potential financial loss and that the petitioner lacked standing due to being an unregistered partnership firm. It was further argued that the petitioner’s remedy lay in civil proceedings, not a writ petition, as disputed facts were involved.
The Court noted that the general terms empowering the Estate Officer to cancel auctions applied prior to bid confirmation, not afterward. It stated: “The embodiment of sub-clause (i) of clause (1) of the General Terms and Conditions... is an empowerment which was to be exercised prior to the confirmation of the bid.”
It also observed that the agreement to sell constituted a binding contract following full payment by the petitioner: “Since the petitioner fully discharged the apposite contractual obligation cast upon it, whereas, the respondent(s) concerned, failed to discharge the contractual obligations... the failure... to discharge its/their contractual obligation... favourably attracts... the principles of legitimate expectation, and, of promissory estoppel.”
Citing precedent from Vice Chairman and Managing Director, City and Industrial Development Cooperation Maharashtra v. Shishir Reality Pvt. Ltd., the Court stated:
“A blanket claim by the State claiming loss of public money cannot be used to forgo contractual obligations, especially when it is not based on any evidence or examination.”
On the respondent’s reference to Clause 4 of the agreement, the Court stated that it was inapplicable as the cancellation was not for reasons of public order, State security, or change in policy. It held: “...the jurisdiction to annul the agreement to sell becomes solitarily vested in the Civil Court of competent jurisdiction.”
The Court further recorded: “In the face of an evident breach being made to an inviolable contract executed by the State... and the respondent concerned, omitting to discharge the contractual obligation... this Court does not become coaxed to direct the petitioner to file a suit for specific performance.”
It upheld the constitutional sanctity of State contracts under Article 299 of the Constitution:
“...any contract entered into by the State... are required to become meted the declared constitutional sanctity...”
Accordingly, this Court finds merit in the instant petition and is constrained to allow it. Consequently, the instant petition is allowed. The impugned annexures are quashed and set aside.
The miscellaneous application(s), if any, is/are also disposed of.
Advocates Representing the Parties:
For the Petitioners: Mr. Puneet Bali, Senior Advocate with Mr. Piyush Aggarwal, Advocate, Mr. Aakash Sharma, Advocate, and Mr. Anmol Chandan, Advocate
For the Respondents: Mr. Amit Jhanji, Senior Standing Counsel with Mr. Sumeet Jain, Additional Standing Counsel and Ms. Eliza Gupta, Advocate
For the Applicants–Respondents No. 3 to 6: Mr. Kanwaljit Singh, Senior Advocate with Mr. Munish Kapila, Advocate
Case Title: M/s Bedi Hospital v. Chandigarh Administration and another
Neutral Citation: 2025: PHHC:046087-DB
Case Number: CWP No. 2811 of 2023 (O&M)
Bench: Justice Sureshwar Thakur and Justice Vikas Suri
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