Ramana Dayaram Shetty Vs. The International Airport Authority of India & Ors [1979] INSC 111 (4 May 1979)

BHAGWATI, P.N.

TULZAPURKAR, V.D.

PATHAK, R.S.

CITATION: 1979 AIR 1628 1979 SCR (3)1014 1979 SCC (3) 489

CITATOR INFO:

R 1980 SC 840 (15,16,20) F 1980 SC1992 (10) F 1980 SC2147 (63) R 1981 SC 212 (18,31,32,34,36,37,38,39,41,42 E&R 1981 SC 487 (8,9,16) R 1981 SC1694 (5) R 1981 SC2001 (6,7) MV 1982 SC1325 (12) R 1983 SC 130 (16) R 1983 SC 624 (8) F 1983 SC 848 (11) R 1983 SC1235 (8) R 1984 SC 363 (22) D 1984 SC 415 (6) F 1984 SC 541 (13) R 1984 SC 657 (16) R 1984 SC1420 (5) F 1985 SC1147 (12) RF 1986 SC 180 (41) RF 1986 SC 872 (71) RF 1986 SC1035 (12) RF 1986 SC1370 (10) RF 1986 SC1527 (12,19,23) R 1986 SC1571 (52,54,69,105) E&R 1987 SC 251 (23) E 1987 SC1080 (12,TO,17,26,28,29,30) R 1987 SC1109 (30,35,36) RF 1988 SC 157 (8,9,10) RF 1988 SC 268 (30) R 1988 SC 469 (7,8,10,TO,12) APL 1989 SC 88 (7) D 1989 SC1031 (12) D 1989 SC1076 (11,19,20) F 1989 SC1629 (13,14) F 1989 SC1642 (25,27) D 1989 SC2138 (64,100) RF 1990 SC1277 (46) RF 1990 SC1480 (29) R 1991 SC 101 (237,257,263) RF 1991 SC 537 (29) RF 1991 SC1153 (12) RF 1991 SC1173 (5) D 1991 SC1579 (6) RF 1992 SC 1 (133) RF 1992 SC 76 (2) F 1992 SC1858 (19)

ACT:

International Airport Athority Act 1971-Whether an instrumentality of State-Authority called for tenders for a job-If could accept a tender not conforming to conditions in notice.

Administrative law-Statutory body-When an instrumentality of State.

HEADNOTE:

The first respondent, by a public notice, invited tenders for putting up and running a second class restaurant and two snack bars at the International Air port, Bombay.

the notice stated in Paragraph (1) that sealed tenders in the prescribed form were invited from registered second class hoteliers having at least five years' experience for putting up and running a second class restaurant and two snack bars at the Bombay Airport for a period of three years Paragraph (8) stated that acceptance of the tender would 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.

out of the six tenders received only the tender of the 4th respondents was complete and offered the highest amount as licence fee. All the other tenders were rejected because they were incomplete.

Since the fourth respondents did not satisfy the description of "registered second class hoteliers having at least S years' experience" prescribed in para graph (1) of the tender notice, the 1st respondent called upon the fourth respondents to produce documentary evidence whether they were registered second class hotliers having at least 5 years' experience. The fourth respondents stated once again that they had considerable experience of catering for various reputed commercial houses, clubs, messes and banks and that they had Eating Houses Catering Establishment (Canteen) Licence. Satisfied with the information given by the fourth respondents, the first respondent accepted their tender on the terms and conditions set out in its letter.

The appellant filed a writ petition before the High Court challenging the decision of the first respondent in accepting the tender of the fourth respondents. But it was rejected.

In appeal to this Court it was contended on behalf of the appellants that (1) the first respondent which is a public authority was bound to give effect to the most important condition of eligibility and acceptance of the tender by the first respondent was in violation of the standard or norm of eligibility set up by the first respondent and (2) had the appellant known that non- fulfilment of the condition of eligibility would be no bar for considering a tender he too would have competed for obtaining the contract.

1015 The fourth respondents, on the other hand, contended that the requirement A that the tenderer must be a registered second grade hotlier was meaningless because the grading is given by the Bombay City Municipal Corporation only to hotels or restaurants and not to persons running them and, therefore there could be no second grade hotlier;

(2) the notice setting out the conditions of eligibility having had no stautory force, even if there was a departure from the standard or norm of eligibility, it was not justiceable and the first respondent was competent to give the conract to anyone it thought fit; and (3) the 1 Airport Authority reserved to itself the right to reject all or any of the tenders without assigning any reasons and, therefore, it was competent to it to reject all the tenders or negotiate with any person it considered fit to enter into a contract.

HELD: The action of the first respondent in accepting the tender of the fourth respondents, who did not satisfy the standard or norm, was clearly discriminatory since it excluded other persons similarly situate from tendering for the contract and it was arbitrary and without reason.

Acceptance of the tender was invalid as being violative of the equality clause of the Constitution as also of administrative law inhibiting arbitrary action. [1056C] (a) What paragraph ( 1 ) of the notice required was that only a person running a registered second class hotel or restaurant and having at least 5 years' experience as such should be eligible to submit the tender. The test of 1) eligibility laid down in this paragraph was an objective test and not a subjective one. If a person submitting the tender did not have atleast five years' experience of running a second class hotel, he was 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 second class restaurant and therefore should be considered. This was in fact how the first respondent understood this condition of eligibility. The first respondent did not regard this requirement as meaningless or unnecessary and wanted to be satisfied that the fourth respondents had fulfilled this requirement. The fourth respondents were neither running a second grade hotel or restaurant nor did they have five years' experience of running such a hotel or restaurant. Therefore the fourth respondents did not satisfy the condition of eligibility laid down in paragraph(l) of the notice. [1028 B-H] (b) It is not possible to justify the action of the first respondent on the ground that it could have achieved the same result by rejecting all the tenders and entering into direct negotiations with the fourth respondents Although there was no statutory or administrative rule requiring the first respondent to give a contract only by inviting tenders and that on the terms of paragraph 8 of the tender notice, it was not bound to accept any tender, the first respondent did not reject the tenders outright and enter into direct negotiation with the fourth respondents for awarding the contract. The process of . awarding a contract by inviting tenders was not terminated or abandoned by the first respondent by rejecting all the tenders but in furtherance of the process the tender of the fourth respondents was accepted by the first respondent. Nor was the contract given to the fourth respondents as a result of direct negotiations. [1029 D-G] 2(a) 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 1016 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, there is substantial agreement 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 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 no difference whether the exercise of the power involves affectation of some right or denial of some privilege. [1031 F-H] (b) To.day the Government, in a welfare State? is the regulator and dispenser of special services and provider of a large number of benefits. 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: leases, licences, contracts and so forth. With the inereasing magnitude and range of governmental functions as we move closer to a wefare 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, it cannot be said that they do not enjoy any legal protection nor can they be regarded as gratuity furnished by the State so that the State may withhold, grant or revoke it at its pleasure. [1032 E-H] (c) The law has not been slow to recognize 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 recognized 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.

[1033 C-D] Viterolli v. Saton 359 U.S. 535: 3 Law Ed. (Second Series) 1012, Erusian Equipment and Chemicals Ltd. v. State of West Bengal, [1975] 2 SCR. 674 referred to.

(d) Therefore, 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 norm 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 etc., must be con fined 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 1017 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 non-irrational, unreasonable or discriminatory. [1034 F-H] (e) 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. With the advent of the welfare state the civil service, which traditionally carried out functions of Government through natural persons, was found inadequate to handle the new tasks of specialised and highly technical character. To fill the gap it became necessary to forge a new instrumentality or administrative device for handling these new problems and that is done by public corporations which has become the third arm of the Government. They are regarded as agencies of the Government. In pursuance of the industrial policy resolution of the Government of India corporations were created by the Government for setting up and management of public enterprises and carrying out public function. The corporations so created, 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 law they would be distinct and independent legal entities. It Government. acting,, through its officers is subject to certain constitutional and public law. limitations, it must follow a fortiori that Government, though 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 is instrumentality or agency of Government. [1035A-C, F-H] 3(a ) The factors for determining whether a corporation has become an instrumentality or agency of the Government are: does the State give (my financial assistance and if so that is the magnitude of such assistance ? Is there any control of the management and policies of the corporation by the State, and what is the nature and extent of such control? Does the corporation enjoy any State conferred or State protected monopoly status and whether the functions carried out by the corporation are pubic functions closely related to governmental functions? It is not possible to particularise all the relevant factors but no single factor will yield a safisfactory answer, to the question and the court will have to consider the cumulative. effect of these various factors and establish it by its decision on the basis of a particularised enquiry into facts and circumstances of each case. [1041 B-E] (b) Sukhudev v. Bhagatram [1975] 3 S.C.R. 619 at 658 explained, Kerr v. Eneck Pratt Free Library, 149 F. 2d 212, Jackson v. Metropolitan Edison Co. 419 U.S. 345, 42 L.ed. 2d 477, Evans v. Newton 382 U.S. 296; 15 L.ed. 2d 373, Pfizer v. Ministry of Health [1964] 1 Ch. 614, New York v. United State 326 U.S. 572, Cf. Helvering v. Gerhardt 304 U.S. 405 426, 427 referred to.

(c) Where a corporation is an instrumentality or agency of Government it would be subject to some constitutional or public law limitations ns Government. The rule inhibiting arbitrary action by Government must apply equally where such corporation is dealing with the public and it cannot act arbitrarily and c into relationship with any person it likes at its sweet will. Its action must be in conformity with some principles which meets the test of reason and relevance. [1041 H] 9-409 SC1/79 1018 Rajasthan Electricity Board v. Mohan Lal [1967] 3 S.C.R. 377, and Sukhdev v. Bhagatram [19751 3 S.C.R. 619 at 658 followed.

Praga Tools Corporation v. C.A. Imanuel (1969] 3 S.C.R.

773, Heavy Engineering Mazdoor Union v. State of Bihar [1969] 3 S.C.R. 995, S. L. Aggarwal v. General Manager, Hindustan Steel Limited [1970] 3 SCR 363, Sarbhajit Tewari v Union of lndia & Ors. [1975] 1 SCC 485; held inapplicable.

(d) It is well established that Art. 14 requires That action must not be arbitrary and must be based on some rational and relevant principle which is non-discriminatory.

It must not be guided by extraneous or irrelevant considerations. The State cannot act arbitrarily in enter into relationship, contractual or otherwise, with a third party. Its action must conform to some standard or norm which is rational and non-discriminatory. [1042 C] E. P. Rayappa v. State of Tamil Nadu [1974] 2 SCR 348, Maneka Gandhi v. Union of India [1978] 2 S.C.R. 621, Rashbihari Panda v. State of Orissa [1969] 3 S.C.R. 374, C. K. Achuthan v. State of Kerala [1959] S.C.R. 78, referred to, Trilochan Mishra v. State of orissa & ors. [1971 3 S.C.R. 153, State of Orissa v. Harinarayan Jaiswal & ors. [1972] 2 S.C.R. 36, Rajasthan Electricity Board v. Mohan Lal [1967] 3 S.C.R. 377, Praga Tools Corporation Dv. c. A. Imanuel [1969] 3 S.C.R. 773, Heavy Engineering Mazdoor Union v. State of Bihar [1969] 3 SCR, 995, S. L. Aggarwal v. General Manager Hindustan Steel Limited [1970] 3 SCR. 363, Sarbhajit Tewari v. Union of India & ors. [1975] 1 SCC 485, held in applicable.

4(a) The International Airport Authority Act, 1971 empowers the Central Government to constitute an authority called the International Air port Authority. The salient features of the Act are: the Anthority, which is a body cor porate having perpetual succession and a common seal, consists of a Chairman and certain other Members who are appointed by the Central Government. The Central Government has power to terminate the appointment or to remove a member from the Board of the Authority. Although the Authority has no share capital of its own, capital needed by it for carrying out its functions is provided wholly by the Central Government. All non-recurring, expenditure Incurred by the Central Government for or in connection with the purposes of the airports upto the appointed date and declared to be capital expenditure by the Central Government shall be treated as capital provided by the Central Government to the first respondent and all sums of money due to the Central Government in relation to the airports immediately before the appointed date shall] be deemed to be due to the first respondent. The functions, which until the appointed date were being carried out by the General Government, were Transferred to the Airport Athority by virtue of s. 16. The first respondent, according to s. 20, should pay the balance of its annual net profits to the Central Government after making provision for reserve funds, bad and doubtful debts, depreciation in assets and so on. The first respondent, under s. 21, has to submit for the approval of the Central Government a statement of the programme of its activities during the forthcoming financial year. Its accounts are audited by the Comptroller and Auditor General and the accounts Shall be forwarded to the Central Government. The first respondent is required to submit an account of its activities during a financial year and this report is laid before the Houses of Parliament by the Central Government.

The Central Government has power to divest the first respodent temporarily from 1019 the management of any airport and direct to entrust such management to any other person. Power is conferred under s.

34 on the Central Government to supersede the first respodent under certain specified circumtances. Section 35 gives power to the Central Government to give directions in writing to the Airport Authority on questions of policy and the Airport Authority is bound by such directions. Section 37 empowers the Airport Authority to make regulations.

Section 39 provides that contravention of any regulation made by the Airport Authority is punishable. [1052B-1054C] (b) A conspectus of the provisions of the Act clearly shows that every test l down by this Court in deciding whether a statuority authority comes within the purview of Art. 12 of the constitution is satisfied in the case of the first respondent. they leave no room for doubt that it is an instrumentality or agency of the Central Government and falls within the definition of State. Therefore, having regard both to the constitutional mandate of Art. 14 and the judicially evolved rule of administrative law, the first respendent was not entitled to act arbitrarily in accepting the tender of the fourth respondents but was bound to conform to the standard or norm did down in paragraph I of the notice inviting tenders. The standard or norm laid down by the notice was reasonable and non-discriminatory and once it is found that such a standard or norm is laid down, the first respondent was not entitled to depart from it and award the contract to the fourth respondents who did not satisfy the condition of eligibility prescribed by standard or norm. If none of the tenderer satisfied the condition the first respondent could have rejected the tender and invited fresh tenders on the basis of less stringent standard or norm, but it could not depart from the prescribed standard or norm. [1055 E-A] (c) In the instant case the appellant had no real interest in the result of the litigation. There can be no doubt that the litigation was commenced by the appellant not with a view to protection his own interest, but had been put up by others for depriving the fourth respondents of the benefit of the contract secured by them. The Writ Petition was filed more than five months after the acceptance of the tender and the position would have been different had the appellant filed it immediately after the acceptance of the tender. The Fourth respondents have incurred a large expenditure in making necessary arrangement under the bona fide belief that their tender had been legally and validly accepted. It would be most inequitous to set aside the contract at the instance of the appellant

CIVIL APPELLATE JURISIDICTION: Civil Appeal No. 895 of 1978.

Appeal by Special Leave from the Judgment and order dated 23-1-1978 of the High Court at Bombay in Appeal No.

234/77 arising out of Misc. Petition No. 1582/77.

Ashok H. Desai, Y. S. Chitale, Jai Chinai, P. G. Gokhale and . R Agarwal for the Appellant. II G. B. Pai, o. c. Mathur and D. N. Mishra for Respondent No. 1.

1020 F.S. Nariman, R. H. Dhebar, S. K. Dholakia, H H. Yagnik and . V. Desai for Respondent No. 4.

The Judgment of the Court was delivered by BHAGWATI, J.-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 and 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 matter of awarding a contract or dealing with its propery ? The questions fell in the sphere of both administrative law and constitutional law and they assume special significance in a modern welfare State which is com mitted to egalitarian values and dedicated to the rule or 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.

On or about 3rd January, 1977 a notice inviting tenders for putting up and running a second class restaurant and two Snack bars at the International Airport 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 here by invited from Registered 2nd Class Hoteliers having at least 5 years' experience for putting up and running a 2nd Class Restaurant and two Snack bars at this Airport for a period of 3 years". The latest point of time up to which the tenders could be submitted to the 1st respodent 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 ally 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 Care Excelsior offering progressively decreasing licence fee very much lower than that offered by the 4th respondents.

The tenders were opened in the 1021 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 Kumaria. 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 cl. (9) of the terms and conditions of the tender form. The tenders 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 centres, 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 2nd 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 2nd 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, 1977 was addressed by the Airport officer once again requesting the 4th respondents to produce documentary evidence to show if they were ''a registered Ilnd 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, 1022 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 2nd 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, icecream cabinets, espresso coffee machines, crockery, cutlery and other articles and things 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 1 st 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 the that the 4th repondents 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.

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 1 st respondent from taking any further steps pursuant to 1023 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. lrani 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 the snack bars. A. S. Irani preferred an appeal against the order 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.

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 nation taken out by him is still pending in the City Civil Court.

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 1024 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 1 9th 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. 4.50O/- 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 l9th 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 respondent 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 opportunity to the 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.

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 2nd 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 any person, this condition was not satisfied, his tender was ineligible for being considered. The 1st respondent, being a State within the meaning of Art. 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 1025 without rational justification. The 4th respondents had experience of catering only in canteens and did not have 5 years' experience of running a 2nd 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 1 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 the effect of denying him equality of 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 E 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 clown any condition of eligibility. It was also urged that in any event what paragraph (] ) 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 therefor and it was, therefore, competent to the 1st respondent to reject all the tenders and to nogotiate with any person it considered fit to enter 1026 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 paragraph, it was not justiciable and did not furnish any cause of action to the appellant. It was competent to the 1st respondent to give the contract to anyone it thought fit and it was not bound by the standard or norm of eligibility set out in paragraph (l) 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.

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 2nd Class hotelier having at least 5 years' experience nor was any such stipulation to be found in the form c f the agreement 1027 annexed to the tender but the notice inviting tenders published in the newspapers clearly stipulated that tenders may be submitted only by registered 2nd 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 Ilnd 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 2nd 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 2nd Class hoteIier. But on that account would it be right to reject the expression "registered 2nd Class hotelier" as meaningless and deprive paragraph (1) of the notice of any meaning and effect. We do not think 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 silence any part of the document and make it altogether in-applicable. Now, here the expression used in paragraph (1) of the notice was "registered 2nd 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 2nd Class hotelier" was loosely used to denote a person conducting or running a 2nd Class hotel or restaurant. It may be ungrammatical but it docs not offend common-sense to describe a 1028 person running a registered 2nd grade hotel as a registered 2nd 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, hold that, on a proper construction, what paragraph (1) of the notice required was that only a person running a registered 2nd 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 2nd 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 has 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 Il 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 2nd 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 l5th 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 the 4th respondents, the had over lO years' experience of running can teens but at the date when they submitted their tender, they cannot 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 2nd 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 implidely conceded by 1029 the 4th respondents in their letter dated 26th February, 1977 where A 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.

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 1 st respondent suffering a loss in the process, true 1 st 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 Art 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.

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 GI 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 1030 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 mis-conceived 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-fulfillment 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 grievance was justified in law and the acceptance of the tender of the 4th respondents was vitiated by any legal infirmity.

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(l) 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 define(l procedure, even though generous beyond the requirement 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. Ahuwalia v. Punjab(2) and in subsequent decision given in Sukhdev v. Bhagatram,(3) 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. Wade's 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. To- day 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 (1) 359 U. S. 535: 3 Law.Ed. (Second series) 1012 (2) [1975] 3. S. C. R. 82. (3) [1975] 3. S. C. R. 619.

1032 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 justice 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 no difference whether the exercise of the power involves affection of some right or denial of some privilege.

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 relationship 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 1033 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 confinding/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 religions 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 We agree with the observations of Mathew, J., in V. Punnan Thomas v. State of Kerala(1) that: "The Government is not and should not be as free as an individual in selecting the recepients 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 Bengal(2) where the question was whether black-listing of a person without (1) AIR 1969 Kerala 81.

(2) [1975] 2 S.C.R. 674.

10-409 SCI/79 1034 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 on 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 anyone 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 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.

Now, it is obvious that the Government which represents the executive authority of the State