Ramana - Dayaram - Shetty - Vs - International - Airport - Auts790048COM149655

MANU/SC/0048/1979
Equivalent Citation: AIR1979SC 1628, (1979)2C ompLJ112(SC ), (1979)IILLJ217SC , (1979)3SC C 489, [1979]3SC R1014
IN THE SUPREME COURT OF INDIA

Civil Appeal No. 895 of 1978
Decided On: 04.05.1979
Appellants:Ramana Dayaram Shetty
Vs.
Respondent:International Airport Authority of India and Ors.
Hon'ble Judges/Coram:
P.N. Bhagwati, R.S. Pathak and V.D. Tulzapurkar, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Ashok H. Desai, Y.S. Chitale, Jai Chinai, P.G. Gokhale
and B.R. Agarwala, Advs
For Respondents/Defendant: G.B. Pai, O.C. Mathur and D.N. Mishra, Advs.
Case Note:
Commercial - Tender procedure - 4th Respondent was awarded contract by 1st
Respondent state to run a IInd class Restaurant and two Snack bars -
However, 1st Respondent set aside requirement of 5 years experience and
proceeded with 4th Respondent - Appeal of Appellant was rejected by High
Court - Hence, this Appeal - Whether, State was entitled to deal with its
property in any manner it liked or award a contract to any person it chose,
without any constitutional limitations upon it - Held, when 1st Respondent
entertained tender of 4th Respondents despite their inexperience, then,
others were denied equality of opportunity - Thus, acceptance of tender of 4th
Respondents was, in circumstances invalid as being violative of equality
clause of Constitution as also of rule of administrative law inhibiting arbitrary
action - In view of peculiar facts and circumstances of case, it would not have
been appropriate to upset High Court's decision and void contract - Moreover,
Petition had been filed by Appellant after more than five months after tender
of 4th Respondents had been accepted - During this period, 4th Respondent
had incurred considerable expenditure in making arrangements for putting up
restaurant and snack bars - Hence, It would have been most inequitous to set
aside contracts of 4th Respondents at instance of Appellant - Appeal
dismissed.
Ratio Decidendi:
"Cause of action should be borne immediately after alleged grievance has
taken place."
JUDGMENT
1. This appeal by special leave raises interesting questions of law in the area of public
law. What are the constitutional obligations on the State when it takes action in exercise
of its statutory or executive power? Is the State entitled to deal with its property in any
manner it likes or award a contract to any person it chooses without any constitutional
limitations upon it? What are the parameters of its statutory or executive power in the
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matter of awarding a contract or dealing with its property? These questions fell in the
sphere of both administrative law and constitutional law and they assume special
significance in a modern welfare State which is committed to egalitarian values and
dedicated to the rule of law. But these questions cannot be decided in the abstract. They
can be determined only against the back-ground of facts and hence we shall proceed to
State the facts giving rise to the appeal.
2. On or about 3rd January, 1977 a notice inviting tenders for putting up and funning a
second class restaurant and two Snack bars at the International Airport at Bombay was
issued by the 1st respondent which is a corporate body constituted under the
International Airport Authority Act, 43 of 1971. The notice stated in the clearest terms in
paragraph (1) that "Sealed tenders in the prescribed form are hereby invited from
Registered IInd Class Hoteliers having at least 5 years' experience for putting up and
running a IInd Glass Restaurant and two Snack bars at this Airport for a period of 3
years". The 'latest point of time upto which the tenders could be submitted to the 1st
respondent was stipulated in Paragraph 7 of the notice to be 12 p.m. on 25th January,
1977 and it was provided that the tenders would be opened on the same date at 12.30
hours. Paragraph (8) of the notice made it clear that "the acceptance of the tender will
rest with the Airport Director who does not bind himself to accept any tender and
reserves to himself the right to reject all or any of the tenders received without
assigning any reasons therefore." There were six tenders received by the 1st respondent
in response to the notice and one of them was from the 4th respondents of offering a
licence fee of Rs. 6666.66 per month, and the others were from Cafe Mahim, Central
Catering Service, one A.S. Irani, Cafe Seaside and Cafe Excelsior offering progressively
decreasing licence fee very much lower than that offered by the 4th respondents. The
tenders were opened in the office of the Airport Director at 12.30 p.m. on 25th January,
1977 and at that time the 4th respondents were represented by their sole proprietor
Kurnaria. A.S. Irani was present on behalf of himself, Cafe Mahim, Cafe Seaside and
Cafe Excelsior and there was one representative of Central Catering Service. The tenders
of Cafe Mahim, Central Catering Service, Cafe Seaside and Cafe Excelsior were not
complete since they were not accompanied by the respective income tax certificates,
affidavits of immovable property and solvency certificates, as required by Clause (9) of
the terms and conditions of the tender form. The tender of A.S. Irani was also not
complete as it was not accompanied by an affidavit of immovable property held by him
and solvency certificates. The only tender which was complete and fully complied with
the terms and conditions of the tender form was that of the 4th respondents and the
offer contained in that tender was also the highest amongst all the tenders. Now it is
necessary to point out at this stage that while submitting their tender the 4th
respondents had pointed out in their letter dated 24th January, 1977 addressed to the
Airport Director that they had 10 years' experience in catering to reputed commercial
houses, training centers, banks and factories and that they were also doing considerable
outdoor catering work for various institutions. This letter showed that the 4th
respondents had experience only of running canteens and not restaurants and it
appeared that they did not satisfy the description of "registered IInd Class Hotelier
having at least 5 years' experience" as set out in paragraph (1) of the notice inviting
tenders. The Airport Officer, therefore, by his letter dated 15th February, 1977
requested the 4th respondents to inform by return of post whether they were a
"registered IInd Class Hotelier having at least 5 years experience" and to produce
documentary evidence in this respect within 7 days. The 4th respondents pointed out to
the Airport Officer by their letter dated 22nd February, 1977 that they had, in addition
to what was set out in their earlier letter dated 24th January, 1977, experience of
running canteens for Phillips India Ltd. and Indian Oil Corporation and moreover, they
held Eating House Licence granted by the Bombay Municipal Corporation since 1973 and

had thus experience of 10 years in the catering line. It appears that before this letter of
the 4th respondents could reach Airport Officer, another letter dated 22nd February, 197
7 was addressed by the Airport Officer once again requesting the 4th respondents to
produce documentary evidence to show if they were "a registered IInd Class Hotelier
having at least 5 years experience". The 4th respondents thereupon addressed another
letter dated 26th February, 1977 to the Director pointing out that they had considerable
experience of catering for various reputed commercial houses, clubs, messes and banks
and they also held an Eating House Catering Establishment (Canteen) Licence, as also a
licence issued under the Prevention of Food Adulteration Act. The 4th respondents
stated that their sole proprietor Kumaria had started his career in catering line in the
year 1962 at Hotel Janpath, Delhi and gradually risen to his present position and that he
had accordingly "experience equivalent to that of a IInd Class or even 1st Class
hotelier." This position was reiterated by the 4th respondents in a further letter dated
3rd March, 1977 addressed to the Director. This information given by the 4th
respondents appeared to satisfy the 1st respondent and by a letter dated 19th April,
1977 the 1st respondent accepted the tender of the 4th respondents on the terms and
conditions set out in that letter. The 4th respondents accepted these terms and
conditions by their letter dated 23rd April, 1977 and deposited with the 1st respondent
by way of security a sum of Rs. 39,999.96 in the form of fixed Deposit Receipts in
favour of the 1st respondent and paid to the 1st respondent a sum of Rs. 6666.66
representing licence fee for one month and other amounts representing water, electricity
and conservancy charges. The 4th respondents thereafter executed and handed over to
the 1st respondent an agreement in the form attached to the tender on 1st May, 1977.
The 4th respondents also got prepared furniture, counters and showcases as also
uniforms for the staff, purchased inter alia deep freezers, water coolers, electrical
appliances, ice cream cabinets, espre ings and also engaged the necessary staff for the
purpose of running the restaurant and the two Snack bars. But the 1st respondent could
not hand over possession of the requisite sites to the 4th respondents, since A.S. Irani
was running his restaurant and snack bars on these sites under a previous contract with
the 1st respondent and though that contract had come to an end, A.S. Irani did not
deliver possession of these sites to the 1st respondent. The 4th respondents repeatedly
requested the 1st respondent and the Airport Director who is the 2nd respondent in the
appeal, to hand over possession of the sites and pointed out to them that the 4th
respondents were incurring losses by reason of delay in delivery of possession, but on
account of the intransigence of A.S. Irani the 1st respondent could not arrange to hand
over possession of the sites to the 4th respondents.
3 . Meanwhile one K.S. Irani who owned Cafe Excelsior filed Suit No. 6544 of 1977 in
the City civil Court, Bombay against the respondents challenging the decision of the 1st
respondent to accept the tender of the 4th respondents and took out a notice of motion
for restraining the 1st respondent from taking any further steps pursuant to the
acceptance of the tender. K.S. Irani obtained an ad-interim injunction against the
respondents but after hearing the respondents, the City civil Court vacated the ad-
interim injunction and dismissed the notice of motion by an order dated 10th October,
1977. An appeal was preferred by K.S. Irani against this order, but the appeal was
dismissed by the High Court on 19th October, 1977. Immediately thereafter, on the
same day, the 1st respondent handed over possession of two sites to the 4th
respondents and the 4th respondents proceeded to set up snack bars on the two sites
and started business of catering at the two snack bars. These two sites handed over to
the 4th respondents were different from the sites occupied by A.S. Irani, because A.S.
Irani refused to vacate the sites in his occupation. So far as the site for the restaurant
was concerned, the 1st respondent could not hand over the possession of it to the 4th
respondents presumably because there was no other appropriate site available other

than the one occupied by A.S. Irani. Since A.S. Irani refused to hand over possession of
the sites occupied by him to the 1st respondent, even though his contract had come to
an end, and continued to carry on the business of running the restaurant and the snack
bars on these sites, the 1st respondent was constrained to file suit No. 8032 of 1977
against A.S. Irani in the City civil Court at Bombay and in that suit, an injunction was
obtained by the 1st respondent restraining A.S. Irani from running or conducting the
restaurant and the snack bars or from entering the premises save and except for
winding up the restaurant and der granting the injunction, but the appeal was rejected
and ultimately a petition for special leave to appeal to this Court was also turned down
on 31st July, 1978.
4. This was, however, not to be the end of the travails of the 4th respondents, for, as
soon as the appeal preferred by K.S. Irani against the order dismissing his notice of
motion was rejected by the High Court on 19th October, 1977, A.S. Irani filed another
suit being suit No. 8161 of 1977 in the City civil Court, Bombay on 24th October, 1977
seeking mandatory injunction for removal of the two snack bars put up by the 4th
respondents. This was one more attempt by A.S. Irani to prevent the 4th respondents
from obtaining the benefit of the contract awarded to them by the 1st respondent. He,
however, did not succeed in obtaining ad-interim injunction and we are told that the
notice of motion taken out by him is still pending in the City civil Court.
5 . It will thus be seen that A.S. Irani failed in his attempts to prevent the 4th
respondents from obtaining the contract and enjoying its benefit. The 4th respondents
put up two snack bars on the sites provided by the 1st respondent and started running
the two snack bars from 19th October, 1977. The restaurant however, could not be put
up on account of the inability of the 1st respondent to provide appropriate site to the
4th respondents and, therefore, the licence fee for the two snack bars had to be settled
and it was fixed at Rs. 4,500/- per month by mutual agreement between the parties. But
it seems that the 4th respondents were not destined to be left in peace to run the two
snack bars and soon after the dismissal of the appeal of A.S. Irani on 19th October,
1977 and the failure of A.S. Irani to obtain an ad-interim mandatory injunction in the
suit filed by him against the 1st and the 4th respondents, the appellant filed writ
petition No. 1582 of 1977 in the High Court of Bombay challenging the decision of the
1st respondent to accept the tender of the 4th respondents. The writ petition was moved
before a Single Judge of the High Court on 8th November, 1977 after giving prior notice
to the respondents and after hearing the parties, the learned Single Judge summarily
rejected the writ petition. The appellant preferred an appeal to the Division Bench of the
High Court against the order rejecting the writ petition and on notice being issued by
the Division Bench, the 1st and the 4th respondents filed their respective affidavits in
reply showing cause against the admission of the appeal. The Division Bench after
considering the affidavits and hearing the parties rejected the appeal in limine on 21st
February, 1978. The appellant thereupon filed a petition for special leave to appeal to
this Court and since it was felt that the questions raised in the appeal were of seminal
importance, this Court granted special leave and decided to hear the appeal at an early
date after giving a further opp. parties to file their respective affidavits. That is how the
appeal has now come before us for final hearing with full and adequate material placed
before us on behalf of both the parties.
6 . The main contention urged on behalf of the appellant was that in paragraph (1) of
the notice inviting tenders the 1st respondent had stipulated a condition of eligibility by
providing that a person submitting a tender must be a "registered IInd class Hotelier
having at least 5 years experience." This was a condition of eligibility to be satisfied by
every person submitting a tender and if in case of toy person, this condition was not

satisfied, his tender was ineligible for being considered. The 1st respondent, being a
State within the meaning of Article 12 of the Constitution or in any event a public
authority, was bound to give effect to the condition of eligibility set up by it and was
not entitled to depart from it at its own sweet will without rational justification. The 4th
respondents had experience of catering only in canteens and did not have 5 years'
experience of running a IInd class hotel or restaurant and hence they did not satisfy the
condition of eligibility and yet the 1st respondent accepted the tender submitted by
them. This was clearly in violation of the standard or norm of eligibility set up by the
1st respondent and the action of the 1st respondent in accepting the tender of the 4th
respondents was clearly invalid. Such a departure from the standard or norm of
eligibility had the effect of denying equal opportunity to the appellant and others of
submitting their tenders and being considered for entering into contract for putting up
and running the restaurant and two snack bars. The appellant too was not a registered
2nd class hotelier with 5 years' experience and was in the same position as the 4th
respondents vis-a-vis this condition of eligibility and he also could have submitted his
tender and entered the field of consideration for award of the contract, but he did not
do so because of this condition of eligibility which he admittedly did not satisfy. The
action of the 1st respondent in accepting the tender of the 4th respondents had,
therefore, opportunity in the matter of consideration for award of the contract and
hence it was unconstitutional as being in violation of the equality clause. This
contention of the appellant was sought to be met by a threefold argument on behalf of
the 1st and the 4th Respondents. The first head of the argument was that grading is
given by the Bombay City Municipal Corporation only to hotels or restaurants and not
persons running them and hence there can be a 2nd grade hotel or restaurant but not a
2nd grade hotelier and the requirement in paragraph (1) of the notice that a tenderer
must be a registered 2nd grade hotelier was therefore a meaningless requirement and it
could not be regarded as laying down any condition of eligibility. It was also urged that
in any event what paragraph (1) of the notice required was not that a person tendering
must have 5 years' experience of running a 2nd grade hotel, but he should have
sufficient experience to be able to run a 2nd grade hotel and the 4th respondents were
fully qualified in this respect since they had over 10 years' experience in catering to
canteens of well known companies, clubs and banks. It was further contended in the
alternative that paragraph (8) of the notice clearly provided that the acceptance of the
tender would rest with the Airport Director who did not bind himself to accept any
tender and reserved to himself the right to reject all or any of the tenders without
assigning any reasons therefore and it was, therefore, competent to the 1st respondent
to reject all the tenders and to negotiate with any person it considered fit to enter into a
contract and this is in effect and substance what the 1st respondent did when he
accepted the tender of the 4th respondents. The second head of argument was that
paragraph (1) of the notice setting out the condition of eligibility had no statutory force
nor was it issued under any administrative rules and, therefore, even if there was any
departure from the standard or norm of eligibility set out in that paragr justiciable and
did not furnish any cause of action to the appellant. It was competent to the 1st
respondent to give the contract to any one it thought fit and it was not bound by the
standard or norm of eligibility set out in paragraph (1) of the notice. It was submitted
that in any event the appellant had no right to complain that the 1st respondent had
given the contract to the 4th respondents in breach of the condition of eligibility laid
down in paragraph (1) of the notice. And lastly, under the third head of argument, it
was submitted on behalf of the 1st and the 4th respondents that in any view of the
matter, the writ petition of the appellant was liable to be rejected in the exercise of its
discretion by the Court, since the appellant had no real interest but was merely a
nominee of A.S. Irani who had been putting up one person after another to start

litigation with a view to preventing the award of the contract to the 4th respondents.
The appellant was also guilty of laches and delay in filing the writ petition and the High
Court was justified in rejecting the writ petition in limine particularly in view of the fact
that during the period between the date of acceptance of the tender and the date of
filing of the writ petition, the 4th respondents had spent an aggregate sum of about Rs.
1,25,000/- in making arrangements for putting up the restaurant and two snack bars.
These were the rival contentions urged on behalf of the parties and we shall now
proceed to discuss them in the order in which we have set them out.
7. Now it is clear from paragraph (1) of the notice that tenders were invited only from
"registered 2nd Class hoteliers having at least 5 years' experience". It is only if a person
was a registered 2nd Class hotelier having at least 5 years' experience that he could, on
the terms of paragraph (1) of the notice, submit a tender. Paragraph (1) of the notice
prescribed a condition, of eligibility which had to be satisfied by every person
submitting a tender and if, in a given case, a person submitting a tender did not satisfy
this condition, his tender was not eligible to be considered. Now it is true that the terms
and conditions of the tender form did not prescribe that the tenderer must be a
registered IInd Class hotelier having at least 5 years' experience nor was any such
stipulation to be found in the form of the agreement annexed to the tender but the
notice inviting tenders published in the newspapers clearly stipulated that tenders may
be submitted only by registered IInd Class hoteliers having at least 5 years' experience
and this tender notice was also included amongst the documents handed over to
prospective tenderers when they applied for tender forms. Now the question is, what is
the meaning of the expression "registered IInd Class hotelier", what category of persons
fall within the meaning of this description? This is a necessary enquiry in order to
determine whether the 4th respondents were eligible to submit a tender. It is clear from
the affidavits and indeed there was no dispute about it that different grades are given
by the Bombay City Municipal Corporation to hotels and restaurants and, therefore,
there may be a registered Und Class Hotel but no such grades are given to persons
running hotels and restaurants and hence it would be inappropriate to speak of a person
as a registered IInd Class hotelier. But on that account would it be right to reject the
expression "registered IInd Class hotelier" as meaningless and deprive such a view
would be justified by any canon of construction. It is a well settled rule of interpretation
applicable alike to documents as to statutes that, save for compelling necessity, the
court should not be prompt to ascribe superfluity to the language of a document "and
should be rather at the outset inclined to suppose every word intended to have some
effect or be of some use". To reject words as insensible should be the last resort of
judicial interpretation, for it is an elementary rule based on common sense that no
author of a formal document intended to be acted upon by the others should be
presumed to use words without a meaning. The court must, as far as possible, avoid a
construction which would render the words used by the author of the document
meaningless and futile or reduce to silence any part of the document and make it
altogether inapplicable. Now, here the expression used in paragraph (1) of the notice
was "registered IInd Class hotelier" and there can be no doubt that by using this
expression the 1st respondent intended to delineate a certain category of persons who
alone should be eligible to submit a tender. The 1st respondent was not acting
aimlessly or insensibly in insisting upon this requirement nor was it indulging in a
meaningless and futile exercise. It had a definite purpose in view when it laid down,
this condition of eligibility in paragraph (1) of the notice. It is true that the phraseology
used by the 1st respondent to express its intention was rather inapt but it is obvious
from the context that the expression "registered IInd Class hotelier" was loosely used to
denote a person conducting or running a IInd Class hotel or restaurant. It may be
ungrammatical but it does not offend common-sense to describe a person running a

registered IInd grade hotel as a registered IInd grade hotelier. This meaning is quite
reasonable and does not do any violence to the language and makes sense of the
provision contained in paragraph (1) of the notice. We must, in the circumstances , on a
proper construction, what paragraph (1) of the notice required was that only a person
running a registered IInd Class hotel or restaurant and having at least 5 years'
experience as such should be eligible to submit a tender. This was a condition of
eligibility and it is difficult to see how this condition could be said to be satisfied by any
person who did not have five years' experience of running a IInd Class hotel or
restaurant. The test of eligibility laid down was an objective test and not a subjective
one. What the condition of eligibility required was that the person submitting a tender
must have 5 years' experience of running a II Class hotel, as this would ensure by an
objective test that he was capable of running a II Class restaurant and it should not be
left to the 1st respondent to decide in its subjective discretion that the person tendering
was capable of running such a restaurant. If, therefore, a person submitting a tender
did not have at least 5 years' experience of running a II Class hotel, he was not eligible
to submit the tender and it would not avail him to say that though he did not satisfy this
condition, he was otherwise capable of running a IInd Class restaurant and should,
therefore, be considered. This was in fact how the 1st respondent itself understood this
condition of eligibility. When the 4th respondents submitted their tender along with
their letter dated 24th January, 1977, it appeared from the documents submitted by the
4th respondents that they did not have 5 years' experience of running a II Class
restaurant. The 1st respondent by its letter dated 15th February 1977 required the 4th
respondents to produce documentary evidence to show that they were "registered II
Class hotelier having at least 5 years' experience." The 1st respondent did not regard
this requirement of eligibility as meaningless or unnecessary and wanted to be satisfied
that the 4th respondent did fulfil this requirement. Now, unfortunately for running
canteens, but at the date when they submitted their tender, they were not running a II
grade hotel or, restaurant nor did they have 5 years' experience of running such a hotel
or restaurant. Even if the experience of the 4th respondents in the catering line were
taken into account from 1962 onwards, it would not cover a total period of more than 4
years 2 months so far as catering experience in IInd Grade hotels and restaurants is
concerned. The 4th respondents thus did not satisfy the condition of eligibility laid
down in paragraph (1) of the notice and in fact this was impliedly conceded by the 4th
respondents in their letter dated 26th February, 1977 where they stated that they had
"experience equivalent to that of a 2nd class or even 1st class hotelier." The 4th
respondents were, accordingly, not eligible for submitting a tender and the action of the
1st respondent in accepting their tender was in contravention of paragraph (1) of the
notice.
8. It was suggested on behalf of the 1st and the 4th respondents that there was nothing
wrong in the 1st respondent giving the contract to the 4th respondents since it was
competent to the 1st respondent to reject all the tenders received by it and to negotiate
directly with the 4th respondents for giving them the contract and it made no difference
that instead of following this procedure, which perhaps might have resulted in the 4th
respondents offering a smaller licence fee and the 1st respondent suffering a loss in the
process, the 1st respondent accepted the tender of the 4th respondents. We do not
think there is any force in this argument. It is true that there was no statutory or
administrative rule requiring the 1st respondent to give a contract only by inviting
tenders and hence the 1st respondent was entitled to reject all the tenders and, subject
to the constitutional norm laid down in Article 14, negotiate directly for entering into a
contract. Paragraph (8) of the notice also made it clear that the 1st respondent was not
bound to accept any tender and could reject all the tenders received by it. But here the
1st respondent did not reject the tenders outright and enter into direct negotiations with

the 4th respondents for awarding the contract. The process of awarding a contract by
inviting tenders was not terminated or abandoned by the 1st respondent by rejecting all
the tenders but in furtherance of the process, the tender of the 4th respondents was
accepted by the 1st respondent. The contract was not given to the 4th respondents as a
result of direct negotiations. Tenders were invited and out of the tenders received, the
one submitted by the 4th respondents was accepted and the contract was given to them.
It is, therefore, not possible to justify the action of the 1st respondent on the ground
that the 1st respondent could have achieved the same result by rejecting all the tenders
and entering into direct negotiations with the 4th respondents.
9 . That takes us to the next question whether the acceptance of the tender of the 4th
respondents was invalid and liable to be set aside at the instance of the appellant. It
was contended on behalf of the 1st and the 4th respondents that the appellant had no
locus to maintain the writ petition since no tender was submitted by him and he was a
mere stranger. The argument was that if the appellant did not enter the field of
competition by submitting a tender, what did it matter to him whose tender was
accepted; what grievance could he have if the tender of the 4th respondents was
wrongly accepted. A person whose tender was rejected might very well complain that
the tender of someone else was wrongly accepted, but it was submitted, how could a
person who never tendered and who was at no time in the field, put forward such a
complaint? This argument, in our opinion, is misconceived and cannot be sustained for
a moment. The grievance of the appellant, it may be noted, was not that his tender was
rejected as a result of improper acceptance of the tender of the 4th respondents, but
that he was differentially treated and denied equality of opportunity with the 4th
respondents in submitting a tender. His complaint was that if it were known that non-
fulfilment of the condition of eligibility would be no bar to consideration of a tender, he
also would have submitted a tender and competed for obtaining a contract. But he was
precluded from submitting a tender and entering the field of consideration by reason of
the condition of eligibility, while so far as the 4th respondents were concerned, their
tender was entertained and accepted even though they did not satisfy the condition of
eligibility and this resulted in inequality of treatment which was constitutionally
impermissible. This was the grievance made by the appellant in the writ petition and
there can be no doubt that if this grievance were well founded, the appellant would be
entitled to maintain the writ petition. The question is whether this is in law and the
acceptance of the tender of the 4th respondents was vitiated by any legal infirmity.
10. Now, there can be no doubt that what paragraph (1) of the notice prescribed was a
condition of eligibility which was required to be satisfied by every person submitting a
tender. The condition of eligibility was that the person submitting a tender must be
conducting or running a registered 2nd class hotel or restaurant and he must have at
least 5 years' experience as such and if he did not satisfy this condition of eligibility his
tender would not be eligible for consideration. This was the standard or norm of
eligibility laid down by the 1st respondent and since the 4th respondents did not satisfy
this standard or norm, it was not competent to the 1st respondent to entertain the
tender of the 4th respondents. It is a well settled rule of administrative law that an
executive authority must be rigorously held to the standards by which it professes its
actions to be judged and it must scrupulously observe those standards on pain of
invalidation of an act in violation of them. This rule was enunciated by Mr. Justice
Frankfurter in Viteralli v. Seton 359 U.S. 535 : 3 L.Ed. 1012 where the learned Judge
said:
An executive agency must be rigorously held to the standards by which it
professes its action to be judged. Accordingly, if dismissal from employment is

based on a defined procedure, even though generous beyond the requirements
that bind such agency, that procedure must be scrupulously observed. This
judicially evolved rule of administrative law is now firmly established and, if I
may add, rightly so. He that takes the procedural sword shall perish with the
sword.
This Court accepted the rule as valid and applicable in India in A.S. Ahluwalia v. Punjab
MANU/SC/0363/1974 : (1975)ILL J228SC and in subsequent decision given in Sukhdev
v. Bhagatram MANU/SC/0667/1975 : (1975)ILL J399SC Mathew, J., quoted the above-
referred observations of Mr. Justice Frankfurter with approval. It may be noted that this
rule, though supportable also as emanation from Article 14, does not rest merely on
that article. It has an independent existence apart from Article 14. It is a rule of
administrative law which has been judicially evolved as a check against exercise of
arbitrary power by the executive authority. If we turn to the judgment of Mr. Justice
Frankfurter and examine it, we find that he has not sought to draw support for the rule
from the equality clause of the United States Constitution, but evolved it purely as a
rule of administrative law. Even in England, the recent trend in administrative law is in
that direction as is evident from what is stated at pages 540-41 in Prof. Waders
Administrative Law 4th edition. There is no reason why we should hesitate to adopt this
rule as a part of our continually expanding administrative law. Today with tremendous
expansion of welfare and social service functions, increasing control of material and
economic resources and large scale assumption of industrial and commercial activities
by the State, the power of the executive Government to affect the lives of the people is
steadily growing. The attainment of socio-economic justice being a conscious end of
State policy, there is a vast and inevitable increase in the frequency with which ordinary
citizens come into relationship of direct encounter with State power-holders. This
renders it necessary to structure and restrict the power of the executive Government so
as to prevent its arbitrary application or exercise.
Whatever be the concept of the rule of law, whether it be the meaning given by Dicey in
his "The Law of the Constitution" or the definition given by Hayek in his "Road to
Serfdom" and "Constitution of liberty" or the exposition set-forth by Harry Jones in his
"The Rule of Law and the Welfare State", there is, as pointed out by Mathew, J., in his
article on "The Welfare State, Rule of Law and Natural Justice" in "Democracy, Equality
and Freedom," "substantial agreement is in juristic thought that the great purpose of the
rule of law notion is the protection of the individual against arbitrary exercise of power,
wherever it is found". It is indeed unthinkable that in a democracy governed by the rule
of law the executive Government or any of its officers should possess arbitrary power
over the interests of the individual. Every action of the executive Government must be
informed with reason and should be free from arbitrariness. That is the very essence of
the rule of law and its bare minimal requirement. And to the application of this principle
it makes not difference whether the exercise of the power involves affection of some
right or denial of some privilege.
11. To-day the Government, is a welfare State, is the regulator and dispenser of special
services and provider of a large number of benefits, including jobs contracts, licences,
quotas, mineral rights etc. The Government pours forth wealth, money, benefits,
services, contracts, quotas and licences. The valuables dispensed by Government take
many forms, but they all share one characteristic. They are steadily taking the place of
traditional forms of wealth. These valuables which derive from relationships to
Government are of many kinds. They comprise social security benefits, cash grants for
political sufferers and the whole scheme of State and local welfare. Then again,
thousands of people are employed in the State and the Central Governments and local

authorities. Licences are required before one can engage in many kinds of business or
work. The power of giving licences means power to withhold them and this gives
control to the Government or to the agents of Government on the lives of many people.
Many individuals and many more businesses enjoy largess in the form of Government
contracts. These contracts often resemble subsidies. It is virtually impossible to lose
money on them and many enterprises are set up primarily to do business with
Government. Government owns and controls hundreds of acres of public land valuable
for mining and other purposes. These resources are available for utilisation by private
corporations and individuals by way of lease or licence. All these mean growth in the
Government largess and with the increasing magnitude and range of governmental
functions as we move closer to a welfare State, more and more of our wealth consists
of these new forms. Some of these forms of wealth may be in the nature of legal rights
but the large majority of them are in the nature of privileges. But on that account, can it
be said that they do not enjoy any legal protection? Can they be regarded as gratuity
furnished by the State so that the State may withhold, grant or revoke it at its pleasure?
Is the position of the Government in this respect the same as that of a private giver? We
do not think so. The law has not been slow to recognise the importance of this new kind
of wealth and the need to protect individual interest in it and with that end in view, it
has developed new forms of protection. Some interests in Government largess, formerly
regarded as privileges, have been recognised as rights while others have been given
legal protection not only by forging procedural safeguards but also by
confining/structuring and checking Government discretion in the matter of grant of such
largess. The discretion of the Government has been held to be not unlimited in that the
Government cannot give or withhold largess in its arbitrary discretion or at its sweet
will. It is insisted, as pointed out by Prof. Reich in an especially stimulating article on
"The New Property" in 73 Yale Law Journal 733, "that Government action be based on
standards that are not arbitrary or unauthorised." "The Government cannot be permitted
to say that it will give jobs or enter into contracts or issue quotas or licences only in
favour of those having grey hair or belonging to a particular political party or professing
a particular religious faith. The Government is still the Government when it acts in the
matter of granting largess and it cannot act arbitrarily. It does not stand in the same
position as a private individual.
12. We agree with the observations of Mathew, J., in V. Punnan Thomas v. State of
Kerala MANU/KE/0020/1969 : AIR1969Ker81 that : "The Government is not and should
not be as free as an individual in selecting the recipients for its largess. Whatever its
activity, the Government is still the Government and will be subject to restraints,
inherent in its position in a democratic society. A democratic Government cannot lay
down arbitrary and capricious standards for the choice of persons with whom alone it
will deal". The same point was made by this Court in Erusian Equipment and Chemicals
Ltd. v. State of West Bengali MANU/SC/0061/1974 : [1975]2SCR674 where the
question was whether black-listing of a person without giving him an opportunity to be
heard was bad? Ray, C.J., speaking on behalf of himself and his colleagues on the
Bench pointed out that black-listing of a person not only affects his reputation which is
in Poundian terms an interest both of personality and substance, but also denies him
equality in the matter of entering into contract with the Government and it cannot,
therefore, be supported without fair hearing. It was argued for the Government that no
person has a right to enter into contractual relationship with the Government and the
Government, like any other private individual, has the absolute right to enter into
contract with any one it pleases. But the Court, speaking through the learned Chief
Justice, responded that the Government is not like a private individual who can pick and
choose the person with whom it will deal, but the Government is still a Government
when it enters into contract or when it is administering largess and it cannot, without

adequate reason, exclude any person from dealing with it or take away largess
arbitrarily. The learned Chief Justice said that when the Government is trading with the
public, "the democratic form of Government demands equality and absence of
arbitrariness and discrimination in such transactions. The activities of the Government
have a public element and, therefore, there should be fairness and equality. The State
need not enter into any contract with anyone, but if it does so, it must do so fairly
without discrimination and without unfair procedure." This proposition would hold good
in all cases of dealing by the Government with the public, where the interest sought to
be protected is a privilege. It must, therefore, be taken to be the law that where the
Government is dealing with the public, whether by way of giving jobs or entering into
contracts or issuing quotas or licences or granting other forms of largess, the
Government cannot act arbitrarily at its sweet will and, like a private individual, deal
with any person it pleases, but its action must be in conformity with standard or norms
which is not arbitrary, irrational or irrelevant.
The power or discretion of the Government in the matter of grant of largess including
award of jobs, contracts, quotas, licences etc., must be confined and structured by
rational, relevant and non-discriminatory standard or norm and if the Government
departs from such standard or norm in any particular case or cases, the action of the
Government would be liable to be struck down,
unless it can be shown by the Government that the departure was not arbitrary, but was
based on some valid principle which in itself was not irrational, unreasonable or
discriminatory.
13. Now, it is obvious that the Government which represents the executive authority of
the State, may act through the instrumentality or agency of natural persons or it may
employ the instrumentality or agency of juridical persons to carry out its functions. In
the early days, when the Government had limited functions, it could operate effectively
through natural persons constituting its civil service and they were found adequate to
discharge governmental functions, which were of traditional vintage. But as the tasks of
the Government multiplied with the advent of the welfare State, it began to be
increasingly felt that the framework of civil service was not sufficient to handle the new
tasks which were often of specialised and highly technical character. The inadequacy of
the civil service to deal with these new problems came to be realised and it became
necessary to force a new instrumentality or administrative device for handling these
new problems. It was in these circumstances and with a view to supplying this
administrative need that the public corporation came into being as the third arm of the
Government. As early as 1819 the Supreme Court of the United States in Mac Cullough
v. Maryland 4 Wheat 315 held that the Congress has power to charter corporations as
incidental to or in aid of governmental functions and, as pointed out by Mathew, J., in
Sukhdev v. Bhagat Ram (supra) such federal corporations would ex-hypothesi be
agencies of the Government. In Great Britain too, the policy of public administration
through separate corporations was gradually evolved and the conduct of basic industries
through giant corporations has now become a permanent feature of public life. So far as
India is concerned, the genesis of the emergence, of corporations as instrumentalities
or agencies of Government is to be found in the Government of India Resolution on
Industrial Policy dated 6th April, 1948 where it was stated inter alia that "management
of State enterprises will as a rule be through the medium of public corporation under
the statutory control of the Central Government who will assume such powers as may
be necessary to ensure this." It was in pursuance of the policy envisaged in this and
subsequent resolutions on Industrial Policy that corporations were created by
Government for setting up and management of public enterprises and carrying out other
public functions. Ordinarily these functions could have been carried out by Government

departmentally through its service personnel, but the instrumentality or agency of the
corporations was resorted to in these cases having regard to the nature of the task to be
performed. The corporations acting as instrumentality or agency of Government would
obviously be subject to the same limitations in the field of constitutional and
administrative law as Government itself, though in the eye of the law, they would be
distinct and independent legal entities. If Government acting through its officers is
subject to certain constitutional and public law limitations, it must follow a fortiori that
Government acting through the instrumentality or agency of corporations should equally
be subject to the same limitations. But the question is how to determine whether a
corporation is acting as instrumentality or agency of Government. It is a question not
entirely free from difficulty.
14. A corporation may be created in one of two ways. It may be either established by
statute or incorporated under a law such as the Companies Act 1956 or the Societies
Registration Act 1860. Where a Corporation is wholly controlled by Government not
only in its policy making but also in carrying out the functions entrusted to it by the law
establishing it or by the Charter of its incorporation, there can be no doubt that it would
be an instrumentality or agency of Government. But ordinarily where a corporation is
established by statute, it is autonomous in its working, subject only to a provision,
often times made, that it shall be bound by any directions that may be issued from time
to time by Government in respect of policy matters. So also a corporation incorporated
under law is managed by a board of directors or committee of management in
accordance with the provisions of the statute under which it is incorporated. When does
such a corporation become an instrumentality or agency of Government? Is the holding
of the entire share capital of the Corporation by Government enough or is it necessary
that in addition, there should be a certain amount of direct control exercised by
Government and, if so, what should be the nature of such control? Should the functions
which the corporation is charged to carry out possess any particular characteristic or
feature, or is the nature of the functions immaterial? Now, one thing is clear that if the
entire share capital of the corporation is held by Government, it would go a long way
towards indicating that the corporation is an instrumentality or agency of Government.
But, as is quite often the case, a corporation established by statute may have no shares
or shareholders, in which case it would be a relevant factor to consider whether the
administration is in the hands of a board of directors appointed by Government, though
this consideration also may not be determinative, because even where the directors are
appointed by Government, they may be completely free from governmental control in
the discharge of their functions. What then are the tests to determine whether a
corporation established by statute or incorporated under law is an instrumentality or
agency of Government? It is not possible to formulate an all-inclusive or exhaustive test
which would adequately answer this question. There is no cut and dried formula, which
would provide the correct division of corporations into those which are instrumentalities
or agencies of Government and those which are not.
15. The analogy of the concept of State action as developed in the United States may
not, however, be altogether out of place while considering this question. The decisions
of the court in the United States seem to suggest that a private agency, if supported by
extraordinary assistance given by the State, may be subject to the same constitutional
limitations as the State. Of course, it may be pointed out that "the State's general
common law and statutory structure under which its people carry on their private
affairs, own property and contract, each enjoying equality in terms of legal capacity, is
not such State assistance as would transform private conduct into State action". But if
extensive and unusual financial assistance is given and the purpose of the Government
in giving such assistance coincides with the purpose for which the corporation is

expected to use the assistance and such purpose is of public character, it may be a
relevant circumstance supporting an inference that the corporation is an instrumentality
or agency of Government. The leading case on the subject in the United States is Kerr v.
Eneck Pratt Free Library 149 F.d. 212. The Library system in question in this case was
established by private donation in 1882, but by 1944, 99 per cent of the system's
budget was supplied by the city, title to the library property was held by the city,
employees were paid by the city payroll officer and a high degree of budget control was
exercised or available to the city government. On these facts the Court of Appeal
required the trustees managing the system to abandon a discriminatory admission
policy for its library training courses. It will be seen that in this case there was
considerable amount of State control of the library system in addition to extensive
financial assistance and it is difficult to say whether, in the absence of such control it
would have been possible to say that the action of the trustees constituted State action.
Thomas P. Lewis has expressed the opinion in his article on "The meaning of State
Action" (60 Columbia Law Review 1083) that in this case "it is extremely unlikely that
absence of public control would have changed the result as long as 99% of the budget
of a nominally private institution was provided by government. Such extensive
governmental support should be sufficient identification with the Government to subject
the institution to the provisions of the Fourteenth Amendment". It may, therefore, be
possible to say that where the financial assistance of the State is so much as to meet
almost entire expenditure of the corporation, it would afford some indication of the
corporation being impregnated with governmental character. But where financial
assistance is not so extensive, it may not by itself, without anything more, render the
corporation an instrumentality or agency of government, for there are many private
institutions which are in receipt of financial assistance from the State and merely on
that account, they cannot be classified as State agencies. Equally a mere finding of
some control by the State would not be determinative of the question "since a State has
considerable measure of control under its police power over all types of business
operations". But 'a finding of State financial support plus an unusual degree of control
over the management and policies might lead one to characterise an operation as State
action" vide Sukhdev v. Bhagatram MANU/SC/0667/1975 : (1975)ILL J399SC . So also
the existence of deep and pervasive State control may afford an indication that the
Corporation is a State agency or instrumentality. It may also be a relevant factor to
consider whether the corporation enjoys monopoly status which is State conferred or
State protected. There can be little doubt that State conferred or State protected
monopoly status would be highly relevant in assessing the aggregate weight of the
corporation's ties to the State. Vide the observations of Douglas, J., in Jackson v.
Metropolitan Edison Co. 419 U.S. 345 : 42 L. ed. 477.
16. There is also another factor which may be regarded as having a bearing on this
issue and it is whether the operation of the corporation is an important public function.
It has been held in the United States in a number of cases that the concept of private
action must yield to a conception of State action where public functions are being
performed. Vide Arthur S. Miller : "The Constitutional Law of the Security State"10 SLR
620. It was pointed out by Douglas, J., in Evans v. Newton 382 U.S. 296 : 15 L. ed 373
that "when private individuals or groups are endowed by the State with powers or
functions governmental in nature, they become agencies or instrumentalities of the
State". Of course, with the growth of the welfare State, it is very difficult to define what
functions are governmental and what are not, because, as pointed out by Villmer, L.J.,
in Pfizer v. Ministry of Health [1964] 1 Ch. 614 there has been, since mid-Victorian
times, "a revolution in political thought and a totally different conception prevails today
as to what is and what is not within the functions of Government". Douglas, J., also
observed to the same effect in New York v. United States 326 U.S. 572 : "A State's

project is as much a legitimate governmental activity whether it is traditional or akin to
private enterprise, or conducted for profit." Cf. Helvering v. Gerhardt 304 U.S. 405. A
State may deem it as essential to its economy that it own and operate a railroad, a mill,
or an irrigation system as it does to own and operate bridges, street lights, or a sewage
disposal plant. What might have been viewed in an earlier day as an improvident or
even dangerous extension of state activities may today be deemed indispensible. It may
be noted that besides the so called traditional functions, the modern State operates a
multitude of public enterprises and discharges a host of other public functions. If the
functions of the corporation are of public importance and closely related to
governmental functions, it would be a relevant factor in classifying the corporation as
an instrumentality or agency of Government. This is precisely what was pointed out by
Mathew, J., in Sukhdev v. Bhagatram (supra) where the learned Judge said that
"institutions engaged in matters of high public interest or performing public functions
are by virtue of the nature of the functions performed government agencies. Activities
which are too fundamental to the society are by definition too important not to be
considered government functions."
17. This was one of the principal tests applied by the United States Supreme Court in
Marsh v. Alabama 326 U.S. 501 : 19 L. ed. 265 for holding that a corporation which
owned a Company town was subject to the same constitutional limitations as the State.
This case involved the prosecution of Marsh, a member of the Johevah's witnesses sect,
under a state trespass statute for refusing to leave the side walk of the company town
where she was distributing her religious pamphlets. She was fined $ 5/- and aggrieved
by her conviction she carried the matter right upto the Supreme Court contending
successfully that by reason of the action of the corporation her religious liberty had
been denied. The Supreme Court held that administration of private property such as a
town, though privately carried on, was, nevertheless, in the nature of a public function
and that the private rights of the corporation must, therefore, be exercised within
constitutional limitations and the conviction for trespass was reversed. The dominant
theme of the majority opinion written by Mr. Justice Black was that the property of the
corporation used as a town not recognisably different from other towns, lost its
identification as purely private property. It was said that a town may be privately owned
and managed but that does not necessarily allow the corporation to treat it as if it was
wholly in the private sector and the exercise of constitutionally protected rights on the
public street of a company town could not be denied by the owner. "The more an
owner, for his advantage, opens up his property for use by the public in general, the
more do his rights become circumscribed by the statutory and constitutional rights of
those who use it.... Thus, the owners of privately held bridges, ferries, turnpikes and
railroads may not operate them as freely as a farmer does his farm. Since these
facilities are built and operated primarily to benefit the public and since their operation
is essentially a public function, it is subject to state regulation" . Mr. Justice Frankfurter,
concurring, reduced the case to simpler terms. He found in the realm of civil liberties
the need to treat a town, private or not, as a town. The function exercised by the
corporation was in the nature of municipal function and it was, therefore, subject to the
constitutional limitations placed upon State action.
18. We find that the same test of public or governmental character of the function was
applied by the Supreme Court of the United States in Evans v. Newton (supra) and
Smith v. Allwight. 321 U.S. 649. But the decisions show that even this test of public or
governmental character of the function is not easy of application and does not
invariably lead to the correct inference because the range of governmental activity is
broad and varied and merely because an activity may be such as may legitimately be
carried on by Government, it does not mean that a corporation, which is otherwise a

private entity, would be an instrumentality or agency of Government by reason of
carrying on such activity. In fact, it is difficult to distinguish between governmental
functions and non-governmental functions. Perhaps the distinction between
governmental and non-governmental functions is not valid any more in a social welfare
State where the laissez faire is an outmoded concept and Herbert Spencer's social
static's has no place. The contrast is rather between governmental activities which are
private and private activities which are governmental. (Mathew, J. Sukhdev v.
Bhagatram (supra) at p. 652). But the public nature of the function, if impregnated with
governmental character or "tied or entwined with Government" or fortified by some
other additional factor, may render the corporation an instrumentality or agency of
Government. Specifically, if a department of Government is transferred to a corporation,
it would be a strong factor supportive of this inference.
19. It will thus be seen that there are several factors which may have to be considered
in determining whether a corporation is an agency or instrumentality of Government.
We have referred to some of these factors and they may be summarised as under :
whether there is any financial assistance given by the State, and if so, what is the
magnitude of such assistance whether there is any other form of assistance, given by
the State, and if so, whether it is of the usual kind or it is extraordinary, whether there
is any control of the management and policies of the corporation by the State and what
is the nature and extent of such control, whether the corporation enjoys State conferred
or State protected monopoly status and whether the functions carried out by the
corporation are public functions closely related to governmental functions. This
particularisation of relevant factors is however not exhaustive and by its very nature it
cannot be, because with increasing assumption of new tasks, growing complexities of
management and administration and the necessity of continuing adjustment in relations
between the corporation and Government calling for flexibility, adapt ability and
innovative skills, it is not possible to make an exhaustive enumeration of the tests
which would invariably and in all cases provide an unfailing answer to the question
whether a corporation is governmental instrumentality or agency. Moreover even
amongst these factors which we have described, no one single factor will yield a
satisfactory answer to the question and the court will have to consider the cumulative
effect of these various factors and arrive at its decision on the basis of a particularised
inquiry into the facts and circumstances of each case. "The dispositive question in any
state action case," as pointed out by Douglas, J., in Jackson v. Metropolitan Edison
Company (supra) "is not whether any single fact or relationship presents a sufficient
degree of state involvement, but rather whether the aggregate of all relevant factors
compels a finding of state responsibility." It is not enough to examine seriatim each of
the factors upon which a corporation is claimed to be an instrumentality or agency of
Government and to dismiss each individually as being insufficient to support a finding
of that effect. It is the aggregate or cumulative affect of all the relevant factors that is
controlling.
20. Now, obviously where a corporation is an instrumentality or agency of Government,
it would, in the exercise of its power or discretion, be subject to the same constitutional
or public law limitations as Government. The rule inhibiting arbitrary action by
Government which we have discussed above must apply equally where such corporation
is dealing with the public, whether by way of giving jobs or entering into contracts or
otherwise, and it cannot act arbitrarily and enter into relationship with any person it
likes at its sweet will , but its action must be in conformity with some principle which
meets the test of reason and relevance.
21. This rule also flows directly from the doctrine of equality embodied in Article 14. It

is now well settled as a result of the decisions of this Court in E. P. Rayappa v. State of
Tamil Nadu MANU/SC/0380/1973 : (1974)ILL J172SC and Maneka Gandhi v. Union of
India MANU/SC/0133/1978 : [1978]2SCR621 that Article 14 strikes at arbitrariness in
State action and ensures fairness and equality of treatment. It requires that State action
must not be arbitrary but must be based on some rational and relevant principle which
is non-discriminatory : it must not be guided by any extraneous or irrelevant
considerations, because that would be denial of equality.
The principle of reasonableness and rationality which is legally as well as
philosophically an essential element of equality or non-arbitrariness is protected by
Article 14 and it must characterise every State action, whether it be under authority of
law or in exercise of executive power without making of law. The State cannot,
therefore act arbitrarily in entering into relationship, contractual or otherwise with a
third party, but its action must conform to some standard or norm which is rational and
non-discriminatory.
This principle was recognised and applied by a Bench of this Court presided over by
Ray, C.J., in Erusian Equipment and Chemicak v. State of West Bengal (supra) where
the learned Chief Justice pointed out that "the State can carry on executive function by
making a law or without making a law. The exercise of such powers and functions in
trade, by the State is subject to Part III of the Constitution. Article 14 speaks of equality
before the law and equal protection of the laws. Equality of opportunity should apply to
matters of public contracts. The State has the right to trade. The State has there the
duty to observe equality. An ordinary individual can choose not to deal with any person.
The Government cannot choose to exclude persons by discrimination. The order of
black-listing has the effect of depriving a person of equality of opportunity in the matter
of public contract. A person who is on the approved list is unable to enter into
advantageous relations with the Government because of the order of blacklisting.... A
citizen has a right to claim equal treatment to enter into a contract which may be
proper, necessary and essential to his lawful calling.... It is true that neither the
petitioner nor the respondent has any right to enter into a contract but they are entitled
to equal treatment with others who offer tender or quotations for the purchase of the
goods." It must, therefore follow as a necessary corollary from the principle of equality
enshrined in Article 14 that though the State is entitled to refuse to enter into
relationship with any one, yet if it does so, it cannot arbitrarily choose any person it
likes for entering into "such relationship and discriminate between persons similarly
circumstanced, but it must act in conformity with some standard or principle which
meets the test of reasonableness and non-discrimination and any departure from such
standard or principle would be invalid unless it can be supported or justified on some
rational and non-discriminatory ground.
22. It is interesting to find that this rule was recognised and applied by a Constitution
Bench of this Court in a case of sale of kendu leaves by the Government of Orissa in
Rashbihari Panda v. State of Orissa. MANU/SC/0054/1969 : [1969]3SCR374 . The trade
of kendu leaves in the State of Orissa was regulated by the Orissa Kendu Leaves
(Control of Trade) Act, 1961 and this Act created a monopoly in favour of the State so
far as purchase of kendu leaves from growers and pluckers was concerned. Section 10
of the Act authorised the Government to sell or otherwise dispose of kendu leaves
purchased in, such manner as the Government might direct. The Government first
evolved a scheme under which it offered to renew the licences of those traders who in
its view had worked satisfactorily in the previous year and had regularly paid the
amount due from them. The scheme was challenged and realising that it might be struck
down, the Government withdrew the scheme and instead, decided to invite tenders for
advance purchase of kendu leaves but restricted the invitation to those individuals who
had carried out contracts in the previous year without default and to the satisfaction of

the Government. This method of sale of kendu leaves was also challenged by filing a
writ petition on the ground inter alia that it was violative of Articles 14 and 19(1)(g)
and this challenge, though negatived by the High Court, was upheld by this Court in
appeal. The Court pointed out that the original scheme of offering to enter into
contracts with the old licences and to renew their terms was open to grave objection,
since it sought arbitrarily to exclude many persons interested in the trade and the new
scheme under which the Government restricted the invitation to make offers to those
traders who had carried out their contracts in the previous year without default and to
the satisfaction of the Government was also objectionable, since the right to make
tenders for the purchase of kendu leaves being restricted to a limited class of persons,
it effectively s hut out all other persons carrying on trade in kendu leaves and also the
new entrants into that business and hence it was ex-facie discriminatory and imposed
unreasonable restrictions' upon the right of persons other than the existing contractors
to carry on business. Both the schemes evolved by the Government were thus held to
be violative of Articles 14 and 19(1)(g) because they "gave rise to a monopoly in the
trade in kendu leaves to certain traders and singled out other traders for discriminatory
treatment". The argument that existing contractors who had carried out their obligations
in the previous year regularly and to the satisfaction of the Government formed a valid
basis of classification bearing a just and reasonable relation to the object sought to be
achieved by the sale namely, effective execution of the monopoly in the public interest,
was also negatived and it was pointed out that : "exclusion of all persons interested in
the trade, who were not in the previous year licencees, is ex facie arbitrary; it had not
direct relation to the object of preventing-exploitation of pluckers and growers of kendu
leaves, nor had it any just or reasonable relation to the securing of the full benefit from
the trade, to the State".
23. The Court referred to the offer made by a well known manufacturer of bidis for
purchase of the entire crop of kendu leaves for a sum of Rs. 3 crores which was turned
down by the Government and expressed its surprise that no explanation was attempted
to be given on behalf of the State as to why such an offer, from which the State stood
to gain more than Rs. 1 crore, was rejected by the Government. It will be seen from this
judgment that restricting the invitation to submit tenders to a limited class of persons
was held to be violative of the equality clause, because the classification did not bear
any just and reasonable relation to the object sought to be achieved, namely, selling of
kendu leaves in the interest of general public. The standard or norm laid down by the
Government for entering into contracts of sale of kendu leaves with third parties was
discriminatory and could not stand the scrutiny of Article 14 and hence the scheme was
held to be invalid. The Court rejected the contention of the Government that by reason
of Section 10 it was entitled to dispose of kendu leaves in such manner as it thought fit
and there was no limitation upon its power to enter into contracts for sale of kendu
leaves with such persons it liked. The Court held that the Government was, in the
exercise of its power to enter into contracts for sale of kendu leaves, subject to the
constitutional limitation of Article 14 and it could not act arbitrarily in selecting persons
with whom to enter into contracts and discriminate against others similarly situate. The
Court criticised the Government for not giving any explanation as to why an offer for a
large amount was not accepted, the clearest implication being that the Government
must act in the public interest; it cannot act arbitrarily and without reason and if it does
so, its action would be liable to be invalidated. This decision wholly supports the view
we are taking in regard to the applicability of the rule against arbitrariness in State
action.
24. We may also in this connection refer to the decision of this Court in C.K. Achuthan
v. State of Kerala MANU/SC/0033/1958 : [1959] Supp. 1 S.C.R. 787, where

Hidayatullah, J., speaking on behalf of the Court, made certain observation which was
strongly relied upon on behalf of the respondents. The facts of this case were that the
petitioner and the 3rd respondent Co-operative Milk Supply Union, Cannanore,
submitted tenders for the supply of milk to the Government hospital at Canrianore for
the year 1948-49. The Superintendent who scrutinised the tenders accepted that of the
petitioner and communicated the reasons for the decision to the Director of Public
Health. The resulting contract in favour of the petitioner was, however, subsequently
cancelled by issuing a notice in terms of Clause (2) of the tender, in pursuance of the
policy of the Government that in the matter of supply to Government Medical
Institutions the Co-operative Milk Supply Union should be given contract on the basis of
prices fixed by the Revenue Department. The petitioner challenged the decision of the
Government in a petition under Article 32 of the Constitution on the ground inter alia
that there had been discrimination against him vis-a-vis the 3rd respondent and as
such, there was contravention of Article 14 of the Constitution. The Constitution Bench
rejected this contention of the petitioner and while doing so, Hidayatullah, J., made the
following observation : "There is no discrimination, because it is perfectly open to the
Government, even as it is to a private party, to choose a person to their liking, to fulfil
contracts which they wish to be performed. When one person is choosen rather than
another, the aggrieved party cannot claim the protection of Article 14, because the
choice of the person to fulfil a particular contract must be left to the Government." The
respondents relied very strongly on this observation in support of their contention that
it is open to the 'State' to enter into contract with any one it likes and choosing one
person in preference to another for entering into a contract does not involve violation of
Article 14. Though the language in which this observation is couched is rather wide, we
do not think that in making this observation, the Court intended to lay down any
absolute proposition permitting the state to act arbitrarily in the matter of entering into
contract with third parties. We have no doubt that the Court could not have intended to
lay down such a proposition because Hidayatullah J. who delivered the judgment of the
Court in this case was also a party to the judgment is Rashbihari Panda v. State of
Orissa (supra) which was also a decision of the Constitution Bench, where it was held in
so many terms that the State cannot act arbitrarily in selecting persons with whom to
enter into contracts. Obviously what the Court meant to say was that merely because
one person is chosen in preference to another, it does not follow that there is a
violation of Article 14, because the Government must necessarily be entitled to make a
choice. But that does not mean that the choice be arbitrary or fanciful. The choice must
he dictated by public interest and must not be unreasoned or unprincipled.
25. The respondents also relied on the decision of this Court in Trilochan Mishra v.
State of Orissa and Ors. MANU/SC/0058/1971 : AIR1971SC733 . The complaint of the
petitioner in that case was that the bids of persons making the highest tenders were not
accepted and persons who had made lesser bids were asked to raise their bids to the
highest offered and their revised bids were accepted. The Constitution Bench negatived
this complaint and speaking through Mitter, J., observed:
With regard to the grievance that in some cases the bids of persons making the
highest tenders were not accepted, the facts are that persons who had made
lower bids were asked to raise their bids to the highest offered before the same
were accepted Thus there was no loss to Government and merely because the
Government preferred one tender to another no complaint can be entertained.
Government certainly has a right to enter into a contract with a person well
known to it and specially one who has faithfully performed his contracts in the
past in preference to an undesirable or unsuitable or untried person. Moreover,
Government is not bound to accept the highest tender but may accept a lower

one in case it thinks that the person offering the lower tender is on an overall
consideration to be preferred to the higher tenderer.
We fail to see how this observation can help the contention of the respondents. It does
not say that the Government can enter into contract with any one it likes arbitrarily and
without reason. On the contrary, it postulates that the Government may reject a higher
tender and accept a lower one only when there is valid reason to do so, as for example,
where it is satisfied that the person offering the lower tender is on an overall
consideration preferable to the higher tenderer. There must be some relevant reason for
preferring one tenderer to another, and if there is, the Government can certainly enter
into contract with the former even though his tender may be lower but it cannot do so
arbitrarily, or for extraneous reason.
26. There was also one other decision of this Court in State of Orissa v. Harituwayan
Jaiswal and Ors. MANU/SC/0379/1972 : [1972]3SCR784 which was strongly relied upon
on behalf of the respondents. There the respondents were the highest bidders at an
auction held by the Orissa Government through the Excise Commissioner for the
exclusive privilege of selling by retail country liquor in some shops. The auction was
held pursuant to an order dated 6th January, 1971 issued by the Government of Orissa
in exercise of the power conferred under Section 29(2) of the Bihar & Orissa Excise Act,
1915 and Clause (6) of this Order provided that "no sale shall be deemed to be final
unless confirmed by the State Government who shall be at liberty to accept or reject
any bid without assigning any reason therefore. The Government of Orissa did not
accept any of the bids made at the auction and subsequently sold the privilege by
negotiations with some other parties One of the contentions raised on behalf of the
petitioners in that case was that the power retained by the Government "to accept or
reject any bid without any reason therefor" was an arbitrary power violative of Articles
14 and 19(1)(g). This contention was negatived and Hegde, J. speaking on behalf of the
Court observed:
The Government is the guardian of the finances of the State. It is expected to
protect the financial interest of the State. Hence quite naturally, the legislature
has empowered the Government to see that there is no leakage in its revenue.
It is for the Government to decide whether the price offered in an auction sale
is adequate. While accepting or rejecting a bid, it is merely performing an
executive function. The correctness of its conclusion is not open to judicial
review We fail to see how the plea of contravention of Article 19(1)(g) or
Article 14 can arise in these cases. The Governments power to sell the exclusive
privilege set out in Section 22 was not denied. It was also not disputed that
these privileges could be sold by public auction. Public auctions are held to get
the best possible price. Once these aspects are recognised, there appears to be
no basis for contending that the owner of the privileges in question who had
offered to sell them cannot decline to accept the highest bid if he thinks that
the price offered is inadequate.
It will be seen from these observations that the validity of Clause (6) of the order dated
6th January, 1971 was upheld by this Court on the ground that having regard to the
object of holding the auction, namely, to raise revenue, the Government was entitled to
reject even the highest bid, if it thought that the price offered was inadequate. The
Government was not bound to accept the tender of the person who offered the highest
amount and if the Government rejected all the bids made at the auction, it did not
involve any violation of Article 14 or 19(1)(g). This is a self-evident proposition and we
do not see how it can be of any assistance to the respondents.

27. The last decision to which reference was made on behalf of the respondents was
the decision in P.R. Quenin v. M.K. Tendel MANU/SC/0032/1974 : [1974]3SCR64 . This
decision merely reiterates the principle laid down in the earlier decisions in Trilochan
Mishra v. State of Orissa (supra) and State of Orissa v. Harinarayan Jaiswal (supra) and
points out that a condition that the Government shall be at liberty to accept or reject
any bid without assigning any reason therefore is not violative of Article 14 and that "in
matters relating to contracts with the Government, the latter is not bound to accept the
tender of the person who offers the highest amount". Now where does it say that such a
condition permits the Government to act arbitrarily in accepting a tender or that under
the guise or pretext of such a condition, the Government may enter into a contract with
any person it likes, arbitrarily and without reason. In fact the Court pointed out at the
end of the judgment that the act of the Government was not "shown to be vitiated by
such arbitrariness as should call for interference by the Court", recognising clearly that
if the rejection of the tender of the 1st respondent were arbitrary, the Court would have
been justified in striking it down as invalid.
28. Now this rule, flowing as it does from Article 14, applies to every State action and
since "State" is defined in Article 12 to include not only the Government of India and
the Government of each of the States, but also "all local or other authorities within the
territory of India or under the control of the Government of India", it must apply to
action of "other authorities" and they must be held subject to the same constitutional
limitation as the Government. But the question arises what are the "other authorities"
contemplated by Article 12 which fall within the definition of 'State'? On this question
considerable light is thrown by the decision of this Court in Rajasthan Electricity Board
v. Mohan Lal MANU/SC/0360/1967 : (1968)ILL J257SC . That was a case in which this
Court was called upon to consider whether the Rajasthan Electricity Board was an
'authority' within the meaning of the expression "other authorities" in Article 12.
Bhargava, J. delivering the judgment of the majority pointed out that the expression
"other authorities" in Article 12 would include all constitutional and statutory authorities
on whom powers are conferred by law. The learned Judge also said that if any body of
persons has authority to issue directions the disobedience of which would be punishable
as a criminal offence, that would be an indication that that authority is 'State'. Shah, J.
who delivered a separate judgment, agreeing with the conclusion reached by the
majority, preferred to give a slightly different meaning to the expression "other
authorities". He said that authorities, constitutional or statutory, would fall within the
expression "other authorities" only if they are invested with the sovereign power of the
State, namely, the power to make rules and regulations which have the force of law.
The ratio of this decision may thus be stated to be that a constitutional or statutory
authority would be within the meaning of the expression "other authorities", if it has
been invested with statutory power to issue binding directions to thi rd parties, the
disobedience of which would entail penal consequence or it has the sovereign power to
make rules and regulations having the force of law. This test was followed by Ray, C.J.,
in Sukhdev v. Bhagat Ram (supra). Mathew, J., however, in the same case, propounded
a broader test, namely, whether the statutory corporation or other body or authority,
claimed to fall within the definition of 'State', is an instrumentality or agency of
Government: if it is, it would fall within the meaning of the expression 'other
authorities' and would be 'State'. Whilst accepting the test laid down in Rajasthan
Electricity Board v. Mohan Lal (supra), and followed by Ray, C.J. in Sukhdev v. Bhagat
Ram (supra), we would, for reasons already discussed, prefer to adopt the test of
Governmental instrumentality or agency as one more test and perhaps a more
satisfactory one for determining whether a statutory corporation, body or other
authority falls within the definition of 'State'. If a statutory corporation, body or other
authority is an instrumentality or agency of Government, it would be an 'authority' and

therefore 'State' within the meaning of that expression in Article 12.
29. It is necessary at this stage to refer to a few decisions of this Court which seem to
bear on this point and which require a little explanation. The first is the decision in
Praga Tools Corporation v. C.A. Imanuel MANU/SC/0327/1969 : (1969)IILL J479SC .
This was a case in which some of the workmen sought a writ of mandamus against
Praga Tools Corporation which was a company with 56 per cent of its share capital held
by the Central Government, 32 per cent by the Andhra Pradesh Government and 12 per
cent by private individuals. The Court held that a writ of mandamus, did not lie,
because Praga Tools Corporation "being a non-statutory body and one incorporated
under the Companies Act, there was neither a statutory nor a public duty imposed on it
by a statute in respect of which enforcement could be sought by means of mandamus,
nor was there in its workmen any corresponding legal right for enforcement of any such
statutory or public duty." (emphasis supplied). It is difficult to see how this decision
can be of any help in deciding the present issue before us. This was not a case where
Praga Tools Corporation claimed to be an instrumentality of government or an
'authority' within the meaning of Article 12. The only question was whether a writ of
mandamus could lie and it was held that since there was no duty imposed oh Praga Tool
Corporation by Statute, no writ of mandamus could issue against it.
30. The second decision to which we must refer is that in Heavy Engineering Mazdoor
Union v. State of Bihar MANU/SC/0309/1969 : (1969)IILL J549SC . The question which
arose in this case was whether a reference of an industrial dispute between the Heavy
Engineering Corporation Limited (hereinafter referred to as the 'Corporation') and the
Union made by the State of Bihar under Section 10 of the Industrial Disputes Act, 1947
was valid. The argument of the Union was that the industry in question was "carried on
under the authority of the Central Government" and the reference could, therefore, be
made only by the Central Government. The Court held that the words "under the
authority" mean "pursuant to the authority, such as where an agent or a servant acts
under or pursuant to the authority of his principal or master" and on this view, the
Court addressed itself to the question whether the Corporation could be said to be
carrying on business pursuant to the authority of the Central Government. The answer
to this question was obviously 'no' because, the Corporation was carrying on business
in virtue of the authority derived from its memorandum and articles of association and
not by reason of any authority granted by the Central Government. The Corporation, in
carrying on business, was acting on its own behalf and not on behalf of the Central
Government and it was therefore not a servant or agent of the Central Government in
the" sense that its actions would bird the Central Government. There was no question in
this case whether the Corporation was an instrumentality of the Central Government and
therefore an 'authority' within the meaning of Article 12. We may point out here that
when we speak of a Corporation being an instrumentality or agency of Government, we
do not mean to suggest that the Corporation should be an agent of the Government in
the sense that whatever it does should be binding on the Government. It is not the
relationship of principal and agent which is relevant and material but whether the
Corporation is an instrumentality of the Government in the sense that a part of the
governing power of the State is located in the Corporation and though the Corporation
is acting on its own behalf and not on behalf of the Government, its action is really in
the nature of State action This decision dealing with an altogether different point has no
bearing on the present issue.
31. We may then refer to the decision in S.L. Aggarwal v. General Manager, Hindustan
Steel Limited MANU/SC/0498/1969 : (1970)IILL J499SC .This decision has also no
relevance to the point at issue before us, since the only question in that case was

whether an Assistant Surgeon in the employment of Hindustan Steel Limited could be
said to be holding a civil post under the Union or a State so as to be entitled to the
protection of Article 311(2) of the Constitution. The Court held that Hindustan Steel
Limited was not a department of the Government nor were its employees holding posts
under the State within the meaning of Article 311(2). The decision was clearly right and
indeed it could not be otherwise, since Hindustan Steel Limited, which was a distinct
and independent legal entity, was not a department of the Government and could not be
regarded as State for the purpose of Article 311(2). It may be noted that the Court was
not concerned with the question whether Hindustan Steel Limited was an 'authority'
within the meaning of Article 12.
32. Lastly, we must refer to the decision in Sarbhajit. Tewari v. Union of India and Ors.
MANU/SC/0131/1974 : 1974CriL J1310 where the question was whether the Council of
Scientific and Industrial Research was an 'authority' within the meaning of Article 12.
The Court no doubt took the view on the basis of facts relevant to the Constitution and
functioning of the Council that it was not an 'authority', but we do not find any
discussion in this case as to what are the features which must be present before a
corporation can be regarded as an 'authority' within the meaning of, Article 12. This
decision does not lay down any principle or test for the purpose of determining when a
corporation can be said to be an 'authority'. If at all any test can be gleaned from the
decision, it is whether the Corporation is "really an agency of the Government". The
Court seemed to hold on the facts that the Council was not an agency of the
Government and was, therefore, not an 'authority'.
3 3 . We may examine, in the light of this discussion, whether the 1st respondent,
namely, the International Airport Authority of India, can be said to be an authority
falling within the definition of 'State' in Article 12. It is necessary to refer to some of the
provisions of the International Airport Authority Act, 1971 (hereinafter referred to as the
Act) for the purpose of determining this question. Sub-section (1) of Section 3 of the
Act provides that the Central Government shall constitute an authority to be called the
International Airport Authority of India, to whom we shall hereafter refer as the 1st
respondent. Sub-section (2) states that the 1st respondent shall be a body corporate
having perpetual succession and a common seal and Sub-section (3) enacts that the 1st
respondent shall consist of a Chairman to be appointed by the Central Government, the
Director General of civil Aviation ex-officio and not less than six and not more than
thirteen members to be appointed by the Central Government. The term of office of
every member of the 1st respondent is prescribed by Sub-section (1) of Section 5 to be
3 years, but the Central Government is given under the Proviso power to terminate the
appointment of any member who is not a servant of the Government after giving him
notice as also to terminate at any time the appointment of any member who is a servant
of the Government. The power to remove a member in certain specified circumstances
is also vested in the Central Government under Section 6. Section 12, Sub-section (1)
provides that as from the date appointed by the Central Government all properties and
other assets vested in the Central Government for the purposes of the airport and
administered by the Director General of civil Aviation immediately before such date
shall vest in the 1st respondent and all debts, obligations and liabilities incurred, all
contracts entered into and all matters and things engaged to be done by, with or for the
Central Government immediately before such date shall be deemed to have been
incurred, entered into and engaged to be done by, with or for the 1st respondent. This
Sub-section also says that all non-recurring expenditure incurred by the Central
Government for or in connection with the purposes of the airport upto the appointed
date and declared to be capital expenditure by the Central Government shall be treated
as the capital provided by the Central Government to the 1st respondent and all sums of

money due to the Central Government in relation to the airport immediately before the
appointed date shall be deemed to be due to the 1st respondent. The 1st respondent is
also given the power to institute or continue all suits and other legal proceedings
instituted or which could have been instituted by or against the Central Government for
any matter in relation to the airport and every employee holding any office under the
Central Government immediately before the appointed date solely or mainly for or in
connection with the affairs of the airport shall be treated as on deputation with the 1st
respondent. Sub-section (1) of Section 12 also enacts similar provisions with regard to
the air navigation services and the buildings used exclusively for such services
immediately before the appointed date. The functions of the 1st respondent are
specified in Section 16 Sub-section (1) provides that, subject to the rules, if any, made
by the Central Government in this behalf, it shall be the function of the 1st respondent
to manage the airports efficiently and Sub-section (2) casts an obligation on the 1st
respondent to provide at the airports such services and facilities as are necessary or
desirable for the efficient operation of air transport services and certain specific
functions to be performed by the 1st respondent are particularised in Sub-section (3).
These functions were, until the appointed date, being carried out by the Central
Government but now under Section 16 they are transferred to the 1st respondent.
Section 20 provides that after making provision for reserve funds, ba d and doubtful
debts, depreciation in assets and all other matters which are usually provided for by
companies, the 1st respondent shall pay the balance of its annual net profits to the
Central Government. Section 21 requires the 1st respondent to submit for the approval
of the Central Government a statement of the programme of its activities during the
forthcoming financial year as well as its financial estimate in respect thereof at least
three months before the commencement of each financial year and Section 24 provides
that the accounts of the 1st respondent shall be audited annually by the Comptroller and
Auditor General and the accounts as certified by the Comptroller and Auditor General or
any other person appointed by him in this behalf, together with the audit report
thereon, shall be forwarded to the Central Government and the Central Government
shall cause the same to be laid before both Houses of Parliament. The 1st respondent is
also required by Section 25 to prepare and submit to the Central Government, as soon
as may be after the end of each financial year, a report giving an account of its
activities during the financial year and this report has to be laid before both Houses of
Parliament by the Central Government. The officers and employees of the 1st
respondent are deemed by Section 28 to be public servants and Section 29 gives them
immunity from suit, prosecution or other legal proceeding for anything in good faith
done or intended to be done in pursuance of the Act or any rule or regulation made
under it. Section 33 confers power on the Central Government to temporarily divest the
1st respondent from the management of any airport and to direct the 1st respondent to
entrust such management to any other person. The Central Government is also
empowered by Section 34 to supersede the 1st respondent under certain specified
circumstances, Section 35 gives power to the Central Government to give directions in
writing from time to time on questions of policy and provides that the 1st respondent
shall in the discharge of its functions, and duties, be bound by such directions. Section
36 confers rule making power on the Central Government for carrying out the purposes
of the Act and power to make regulations is conferred oil the 1st respondent under
Section 37. Section 39 provides that any regulation made by the 1st respondent under
any of the Clauses (g) to (m) of Sub-section (2) of Section 37 may make it penal to
contravene such regulation.
3 4 . It will be seen from these provisions that there are certain features of the 1st
respondent which are eloquent and throw considerable light on the true nature of the
1st respondent. In the first place, the chairman and members of the 1st respondent are

all persons nominated by the Central Government and the Central Government has also
the power to terminate their appointment as also to remove them in certain specified
circumstances. The Central Government is also vested with the power to take away the
management of any airport from the 1st respondent and to entrust it to any other
person or authority and for certain specified reasons, the Central Government can also
supersede the 1st respondent. The Central Government has also power to give
directions in writing from time to time on questions of policy and these directions are
declared binding on the 1st respondent. The 1st respondent has no share capital but the
capital needed by it for carrying out its functions is provided wholly by the Central
Government. The balance of the net profit made by the 1st respondent after making
provision for various charges, such as reserve funds, bad and doubtful debts
depreciation in assets etc. does not remain with the 1st respondent and is required to
be paid over to the Central Government. The 1st respondent is also required to submit
to the Central Government for its approval a statement of the programme of its
activities as also the financial estimate and it must follow as a necessary corollary that
the 1st respondent can carry out only such activities and-incur only such expenditure as
is approved by the Central Government. The audited accounts of the 1st respondent
together with the audit report have to be forwarded to the Central Government and they
are required to be laid before both Houses of Parliament. So far as the functions of the
1st respondent are concerned, the entire department of the Central Government relating
to the administration of airports and air navigation services together with its properties
and assets, debts, obligations and liabilities, contracts, causes of action and pending
litigation is transferred to the 1st respondent and the 1st respondent is charged with
carrying out the same functions which were, until the appointed date, being carried out
by the Central Government. The employees and officers on the 1st respondent are also
deemed to be public servants and the 1st respondent as well as its members, officers
and employees are given immunity for anything which is in good faith done or intended
to be done in pursuance of the Act or any rule or regulation made under it. The 1st
respondent is also given power to frame Regulations and to provide that contravention
of certain specified Regulations shall entail penal consequence. These provisions clearly
show that every test discussed above is satisfied in the case of the 1st respondent and
they leave no doubt that the 1st respondent is an instrumentality or agency of the
Central Government and falls within the definition of 'State' both on the narrow view
taken by the majority in Sukhdev v. Bhagat Ram (supra) as also on the broader view of
Mathew, J., adopted by us.
35. It is, therefore, obvious that both having regard to the constitutional mandate of
Article 14 as also the judicially evolved rule of administrative law, the 1st respondent
was not entitled to act arbitrarily in accepting the tender of the 4th respondents, but
was bound to conform to the standard or norm laid down in paragraph 1 of the notice
inviting tenders which required that only a person running a registered IInd Class hotel
or restaurant and having at least 5 years' experience as such should be eligible to
tender. It was not the contention of the appellant that this standard or norm prescribed
by the 1st respondent was discriminatory having no just or reasonable relation to the
object of inviting tenders namely, to award the contract to a sufficiently experienced
person who would be able to run efficiently a IInd class restaurant at the airport.
Admittedly the standard or norm was reasonable and non-discriminatory and once such
a standard or norm for running a IInd Class restaurant should be awarded was laid
down, the 1st respondent was not entitled to depart from it and to award the contract to
the 4th respondents who did not satisfy the condition of eligibility prescribed by the
standard or norm. If there was no acceptable tender from a person who satisfied the
condition of eligibility, the 1st respondent could have rejected the tenders and invited
fresh tenders on the basis of a less stringent standard or norm, but it could not depart

from the standard or norm prescribed by it and arbitrarily accept the tender of the 4th
respondents. When the 1st respondent entertained the tender of the 4th respondents
even though they did not have 5 years' experience of running a IInd Class restaurant or
hotel, denied equality of opportunity to others similarly situate in the matter of
tendering for the contract. There might have been many other persons, in fact the
appellant himself claimed to be one such person, who did not have 5 years' experience
of running a IInd Class restaurant, but who were otherwise competent to run such a
restaurant and they might also have competed with the 4th respondents for obtaining
the contract, but they were precluded from doing so by the condition of eligibility
requiring five years' experience. The action of the 1st respondent in accepting the
tender of the 4th respondents, even though they did not satisfy the prescribed condition
of eligibility, was clearly discriminatory, since it excluded other person similarly situate
from tendering for the contract and it was plainly arbitrary and without reason The
acceptance of the tender of the 4th respondents was, in the circumstances invalid as
being violative of the equality clause of the Constitution as also of the rule of
administrative law inhibiting arbitrary action.
3 6 . Now, on this view we should have ordinarily set aside the decision of the 1st
respondent accepting the tender of the 4th respondents and the contract resulting from
such acceptance but in view of the peculiar facts and circumstances of the present case,
we do not think it would be a sound exercise of discretion on our part to upset that
decision and void the contract. It does appear from the affidavits filed by the parties
that the appellant has no real interest in the result of the litigation, but has been put up
by A.S. Irani for depriving the 4th respondents of the benefit of the contract secured by
them We find that a number of proceedings have been instituted for this purpose from
time to time by A.S. Irani either personally or by instigating others to take such
proceedings. The first salvo in the battle against the 4th respondents was fired by K.S.
Irani, proprietor of Cafe Excelsior, who filed a suit challenging the decision of the 1st
respondent to accept the tender of the 4th respondents, but in this suit he failed to
obtain an interim injunction and his appeal was dismissed by the High Court on 19th
October, 1977. It is significant that when the tenders were opened in the office of the
Airport Director, Cafe Excelsior was represented by A.S. Irani, which shows that either
Cafe Excelsior was a nominee of A.S. Irani or in any event K.S. Irani, proprietor of Cafe
Excelsior, was closely connected with A.S. Irani. Moreover, it is interesting to note that
though the tender of the 4th respondents was accepted as far back as 19th April, 1977,
K.S. Irani did not adopt any proceedings immediately but filed the suit only after A.S.
Irani was informed by the Airport Director on 22nd August, 1977 that a final order has
been received from the Ministry requiring A.S. Irani to immediately close down his
restaurant and snack bars. It is also a circumstance not without significance that A.S.
Irani did not immediately take any proceeding for challenging the acceptance of the
tender of the 4th respondents, but filed a suit in his own name only after the appeal of
K.S. Irani was dismissed by the High Court on 19th October, 1977. These circumstances
clearly indicate that the suit was filed by K.S. Irani at the instance of A.S. Iranier in any
event in concert with him and when the suit of K.S. Irani failed to achieve the desired
result, A.S. Irani stepped into the arena and filed his own suit. This suit was for a
mandatory injunction seeking removal of the two snack bars which had in the meantime
been put up by the 4th respondents pursuant to the acceptance of their tender by the
1st respondent. But in this proceeding also A.S. Irani failed to obtain an ad-interim
injunction. It was only after the failure to obtain interim relief in these two proceedings,
one by K.S. Irani and the other by A.S. Irani that the appellant filed the present writ
petition in the High Court of Bombay challenging the decision of the 1st respondent to
accept the tender of the 4th respondents. Now, it appears from the record that the
appellant was at the material time conducting a restaurant called Royal Restaurant and

Store which was owned in partnership by three persons, namely, J.K. Irani, K.M. Irani
and G.S. Irani. G.S. Irani is the brother of A.S. Irani and he was managing and looking
after the restaurant of A.S. Irani at the airport. It would, therefore, be a fair inference to
make that the appellant was well connected with A.S. Irani and from the manner in
which proceedings with a view to thwarting the attempt of the 4th respondents to obtain
the benefit of their contract, have been adopted one after the other in different names,
it does appear that the appellant has filed the writ petition at the instance of A.S. Irani
with a view to helping him to obtain the contract for the restaurant and the snack bars.
It is difficult to understand why the appellant should have waited until 8th November,
1977 to file the writ petition when the tender of the 4th respondents was accepted as
far back as 19th April, 1977. The explanation given by the appellant is that he was not
aware of the acceptance of the tender of the 4th respondents but that is a rather naive
explanation which cannot be easily accepted. It is not possible to believe that the
appellant who was so well connected with A.S. Irani and G.S. Irani did not know that
A.S. Irani had failed to obtain the contract for running the restaurant and the snack bars
and that this contract had been awarded to the 4th respondents as a result of which
A.S. Irani was being pressed to close down his restaurant and snack bars. We have
grave doubts whether this writ petition was commenced by the appellant bona fide with
a view to protecting his own interest. Moreover, the writ petition was filed by the
appellant more than five months after the acceptance of the tender of the 4th
respondents and during this period, the 4th respondents incurred considerable
expenditure aggregating to about Rs. 1,25,000/- in making arrangements for putting up
the restaurant and the snack bars and in fact set up the snack bars and started running
the same. It would now be most inequitous to set aside the contracts of the 4th
respondents at the instance of the appellant. The position would have been different if
the appellant had filed the writ petition immediately after the acceptance of the tender
of the 4th respondents but the appellant allowed a period of over five, months to elapse
during which the 4th respondents altered their position. We are, therefore, of the view
that this is not a fit case in which we should interfere and grant relief to the appellant in
the exercise of our discretion under Article 136 read with Article 226 of the Constitution
3 7 . We accordingly dismiss the appeal and confirm the order of the High Court
rejecting the writ petition. But in the circumstances of the case there will be no order as
to costs throughout.
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MANU/SC/0048/1979

IN THE SUPREME COURT OF INDIA

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