SUPREME COURT OF INDIA
Puravankara Projects Limited
Vs.
Messrs Hotel Venus International & Ors.
C.A.No.7560 of 2005
(Arijit Pasayat and S.H Kapadia,JJ.)
02.02.2007
JUDGMENT
Dr.Arijit Pasayat, J.
1. Challenge in these appeals is to the judgment of a Division Bench of the Kerala High Court holding that the order of cancellation dated 13.4.2005 passed by respondent No.2 was illegal and that respondent No.1 was entitled to further time to furnish the bank guarantee after the order granting exemption in terms of Section 81(3)(b) of the Kerala Land Reforms Act, 1963 (in short the 'Act') is issued.
2. The background facts in a nutshell are as follows:
“The State Government transferred 51.96 acres of land in favour of Goshree Island Development Authority (in short the 'GIDA) a non statutory State Government Undertaking to enable it to sell it and to use the proceeds for its developmental schemes. GIDA was authorized to sell the land in public auction in part or in full. GIDA invited tenders on several occasions but the tenders were cancelled. Finally, as per Notification dated 10.1.2005 fresh tenders were invited and pre bid meeting was held on 10.2.2005. Tenders were submitted, which were opened on 16.2.2005. In the tender documents four options were indicated. The individual extent of plots mentioned in option IV which was accepted by the GIDA was less than the ceiling limit contemplated under Section 82(d) of the Act i.e. 15 acres. Respondent No.1 i.e. M/s Hotel Venus International (hereinafter referred to as the 'Venus') was the successful bidder in respect of plot Nos. D3, D4 and D5 and its sister concerns were successful in respect of plots B, C3, C4 and C5 under Option IV. Appellant M/s Puravankara Projects Ltd. was the second highest bidder in respect of plot Nos. D3, D4 and D5 measuring about 8.78 acres each. In the pre bid meeting held on 10.2.2005 one of the queries raised by one of the participants was as to when exemption notification under Section 81(3)(b) of the Act would be obtained. The reply by the Secretary, GIDA forms the foundation of several stands in the present appeals. The Secretary admittedly replied as follows:
"GIDA had moved for general exemption under Section 81(3)(b) of the Kerala
Land Reforms Act from the Government and the same will be obtained in a few
days".
3. On 28.2.2005 the General Council of GIDA accepted bids of Venus for plot Nos. D3, D4 and D5 and confirmation letters of the said acceptance were issued on 1.4.2005 from Cochin addressed to the addressees in terms of Clause 19 of the tender. The addressees were in Trivandrum (Thiruvananthapuram).
4. By letter dated 31.3.2005 Venus insisted on an exemption notification being
obtained by GIDA as a pre condition to fulfill the tender terms and conditions,
more particularly relating to furnishing of bank guarantee in terms of Clause
10 of the tender. There is some dispute as to whether the bidders had received
the letters because the postal endorsements indicate that on account of oral
instructions of the owner of Venus, the letters were delivered on 28.4.2005
i.e. much after the normal period of delivery of letters. Appellant knowing
that Venus had not furnished the bank guarantee in terms of Clause 10 of Tender
Terms and Conditions vide its letter dated 19.4.2005 matched the highest offer
in respect of the concerned plots and agreed to pay the entire amount in a lump
sum. When GIDA did not respond to the offer, the appellant moved the High Court
of Kerala by a Writ Petition (C) No.13735 of 2005 which relates to C.A. 7561 of
2005. Prayer in the writ petition inter alia was for a declaration that the
tender of Venus in relation to plot Nos D3, D4 and D5 was to be treated as
cancelled as the requisite bank guarantee was not furnished. A consequential
prayer was made not to extend the time for furnishing bank guarantee and for a
direction to GIDA to consider the appellant's tender which till then was not
accepted.
5. Learned Single Judge of the High Court passed an interim order restraining
the alteration of the terms and conditions contained in the tender until
further orders. In the meantime, Venus failed to furnish the bank guarantee
and, therefore, GIDA issued letters of cancellation of the letters of
confirmation issued earlier.
6. The order of cancellation was challenged by Venus in respect of the
concerned Plots in Writ Petition Nos. 15032/2005, 15048/2005 and 15052/2005. It
is to be noted that the first two related to plot Nos. B, C3, C4 and C5. During
the pendency of the writ petitions, the General Council of GIDA in its meeting
on 21.5.2005 ratified the cancellation and directed forfeiture of the earnest
money deposited in respect of the bids made by Venus in respect of the plots.
In the said meeting in respect of plot Nos. D3, D4 and D5 it was resolved to
accept the offers made by the appellant who had offered the same price as that
offered by Venus earlier. The decision was however made subject to the decision
of the High Court in the pending writ petitions
.
7 he Notification of exemption of land in terms of Section 81(3)(b) of the Act
was issued and published in the official gazette on 20.5.2005. The learned
Single Judge allowed the writ petition filed by Venus essentially holding that
the exemption Notification should have preceded the tender and Venus could not
have been expected to comply with tender conditions without an exemption
Notification. The Writ Petitions filed by the appellants were dismissed. The
writ appeals preferred in respect of the writ petitions were dismissed
affirming the judgment of the learned Single Judge though on different grounds.
8. It is to be noted that a Division Bench of the High Court had issued notice and passed interim order to maintain status quo in respect of the concerned plots by order dated 18.8.2005.
9. According to the appellants Venus had not come to Court with clean hands.
Both learned Single Judge and the Division Bench proceeded on erroneous
premises as if exemption was a condition precedent to issuance of tender. In
fact all concerned knew that the exemption could be granted later on. The
exemption was necessary only when the total area exceeded the prescribed limit.
As noted above, the successful bidder could be allotted a plot of land which
was less than the ceiling limit. It is submitted that Venus was aware that
exemption notification was not a condition precedent. Therefore, it had by its
letter dated 16.3.2005 addressed to the Chief Minister of State expressed its
willingness for execution of the sale deeds in respect of the plots for which
they had submitted tenders. Prayer was made in respect of the benefit of stamp
duty. In that context they had clearly stated in the writ petition that instead
of waiting for installments they had prepared to raise their own resources to
save a huge amount. In other words, attempt of Venus was to save the stamp duty
and absence of the exemption order was not even taken as a ground for
permission to execute the sale deeds. The High Court, it is submitted, had
erroneously considered the terms of the tender and the effect of Section 87 of
the Act. The High Court by its judgment virtually re-wrote the terms of the
tender document and in essence introduced new aspects in the contract Section
87 had no application because it relates to cases when a person either acquires
any land after the notified date under Section 83 of the Act by gift, purchase,
mortgage with possession, lease, surrender or any other kind of transfer inter
vivos or by bequest or inheritance or by otherwise. It comes into existence
once there is acquisition of title or interest over the property. The agreement
for sale does not create any interest in the property and, therefore, the High
Court was not justified in applying Section 87 to the facts of the case.
10. In response, learned counsel for Venus-respondent No.1 submitted that
Section 81(3)(b) of the Act relates to exemption. Section 82 specifies the
ceiling area and, therefore, no person can hold land in excess of the ceiling
limit. There is a total prohibition. Since the global tender notification was
issued in respect of the entire 51 acres 96 cents of land, it was obvious that
even if a bidder succeeds in the tender for more than 51 acres of land he
cannot own or hold the land for any purpose without the exemption. Clause 14 of
Tender Terms and Conditions provides that allottees can avail loan from the
banks/financial institutions for effecting payment and for that purpose GIDA
was requested to issue NOC. That being so, no any bank or financial institution
will advance any amount without a clear title. In the absence of the exemption
notification legally the successful bidder cannot hold any land. That actually
would affect the generation of finances. In the pre bid meeting a specific
stand was raised as to when the exemption notification is likely to be issued
and the reply of GIDA authorities was that it was to be obtained shortly. In
the absence of the exemption notification the requirement of furnishing the
bank guarantee could not have been insisted upon and both the learned Single
Judge and the Division Bench have therefore rightly held that the exemption
notification was a condition precedent. If a bidder is constrained to fulfill
the conditions regarding payment of bank guarantee without exemption that would
cause great hardship and if there is non compliance, the inevitable result
would be that GIDA would forfeit the EMD for no fault of the tenderer.
Therefore, the High Court has rightly accepted the contention of Venus that
time for compliance would be computed only from the date of exemption
notification and the receipt of the confirmation thereof. When the parties
entered into an arrangement it is impliedly understood that there should be an
effective transfer of undisputed clear title to the transferee. It is therefore
submitted that the order of learned Single Judge and the Division Bench do not
warrant any interference.
11. A belated special leave petition has been filed by the State taking the
stand that there has been considerable increase in price and cost of the land and
the appellant should not be allowed to get the land by matching price offered
by Venus. It is to be noted that the order of learned Single Judge was not
challenged either by the State Government or GIDA and this fact has been noted
by the Division Bench.
12. A few clauses in the Tender Terms and Conditions need to be noted. They are
Clauses 3, 7, 8, 10, 14 and 15 which read as follows:
"3The tenderers have to acquaint themselves with regard to the nature and
other conditions of the land before submitting tender. The Tender form quoting
unit rate (rate per cent) enclosed in sealed cover with the superscription
"Tender for goshree Land at Marine Drive, Kochi" shall reach the
Secretary, Goshree Islands Development Authority, Park Avenue, Kochi-682 011
before 3.00 P.M. on 16th February, 2005. Tender received after the time fixed
will not be considered. The tenders will be opened by the Secretary, GIDA or an
officer authorized by him at 4.00 P.M. on the same day at District Collector's
Camp office, Club Road, Kochi-682 011 in the presence of the bidders or their
authorized representative if present.
xx....xx....xx
7. The tenders shall remain open for a period of 90 days
8. The tenders received in each option, will be evaluated by the General
Council and appropriate decision which is most advantageous to GIDA will be
taken. The General Council is free to take any decision, which it deems fit in
the best interest of GIDA.
xx.....xx.....xx
10. Within 10 days of receipt of confirmation letter, the bidder shall furnish
two bank guarantees each covering 20% of the bid amount for a period of 180
days. On failure of compliance, the tender shall stand cancelled without
further notice and the earnest money deposit shall be forfeited. If the
tenderer to whom the notice intimating confirmation is sent, fails to respond
within the specified time of 10 days, GIDA will be free to consider any other
tender without any further notice.
Xx....xx.....xx
14. If after payment of Ist installment, the allottee desires to avail loan from banks/financial institutions for paying the 2nd and 3rd installments of sale value of the land, GIDA will issue necessary NOC favouring the bank/financial institution.
15. Sale deed will be registered and possession handed over to the purchaser on payment of the full value of the land".
Sections 81(3)(b) and 87 on which much of the controversy revolves round read as follows:
"81 (3) the Government may, if they are satisfied that it is necessary to do so in the public interest.
(a) xx....xx....xx....xx
(b) on account of any land being bona fide required for the purpose of
conversion into plantation or for the extension or preservation of an existing
plantation or for any commercial, industrial, education or charitable purpose,
by notification in the Gazette, exempt such land from the provisions of this
Chapter, subject to such restrictions and conditions as they deem fit to
impose:
Provided that the land referred to in clause (b) shall be used for the purpose
for which it is intended within such time as the Government may specify in that
behalf; and where the land is not so used within the time specified, the
exemption shall cease to be in force".
Section 87: Excess land obtained by gift, etc., to be surrendered:-(1) Where
any person acquires any land after the date notified under section 83 by gift,
purchase, mortgage with possession lease, surrender or any other kind of
transfer intervivos or by bequest or inheritance or otherwise and in
consequence thereof the total extent of land owned or held by such person
exceeds the ceiling area, such excess shall be surrendered to such authority as
may be prescribed.
Explanation I.- Where any land is exempted by or under section 81 and such
exemption is in force on the date notified under section 83, such land shall,
with effect from the date on which it ceases to be exempted, be deemed to be
land acquired after the date notified under section 83.
Explanation II.-. Where, after the date notified under section 83, any class of
land specified in Schedule II has been converted into any other class of land
specified in that Schedule or any land exempt under section 81 from the
provisions of this Chapter is converted into any class of land not so exempt
and in consequence thereof the total extent of land owned or held by a person
exceeds the ceiling area, so much extent of land as is in excess of the ceiling
area, shall be deemed to be land acquired after the said date.
(1A) Any person referred to in sub-section (1) shall file a statement
containing the particulars specified in sub- section (1) of section 85A within
a period of three months of the date of the acquisition.
(2) The provisions of sections 85 and 86 shall, so far as may be, apply to the
vesting in the Government of the ownership or possession or both of the lands
required to be surrendered under sub-section (1).”
13. It is clear that the Division Bench of the High Court was of the view that
duty is cast on the Government as well as GIDA to inform the prospective
bidders as to whether they propose to place any restriction or condition in
granting exemption under Section 81(3)(b). The High Court also noted that both
the Government and the GIDA were aware of the necessity of issuing a statutory
notification in the gazette under Section 81(3)(b) of the Act failing which the
entire contract would be rendered void and unworkable. Once the Government
refuses exemption the entire contract would be frustrated, as also, the
restrictions or conditions the Government may impose in a given case may not be
acceptable to the parties. Disregard of statutory requirements may render the
contract illegal and when the contract is entered into in violation of these
statutory requirements it would be opposed to public policy and may violate
Section 23 of the Indian Contract Act, 1872 (in short the 'Contract
Act'). Therefore, it was held that notification under Section 81(3)(b) should
have come before inviting the global tender so that the bidders were in a
position to know the restrictions and conditions which Government would impose
while granting exemption. That being so, learned Single Judge's view is
affirmed by the Division Bench of the High Court. Clauses 10 and 15 in the
tender document which have been extracted above are of considerable
significance. Clause 10 provides the mode of payment. Clause 13 provides that
in case of non payment of 1st installment, the bank guarantee can be invoked.
Clause 15 provides that the sale deed is to be registered on payment of the
full value of the land.
14. Section 87 deals with acquisition of title after the notified date. Section
87(1)(a) deals with action to be taken within a period of three months from the
date of acquisition. The bank guarantee was to be furnished within a period of
10 days. The High Court held that the contract was un- enforceable in view of
Section 87 of the Act is not correct. The High Court mis- construed the scope
of Section 87 of the Act. The reason that the bank guarantee was not given is
of no consequence. In fact as rightly submitted by learned counsel for the
appellant, Venus itself being conscious that the exemption notification was not
necessary before furnishing of bank guarantee, requested for immediate
registration of the sale deed. The only reason indicated was that if it is done
before a particular date considerable amount of stamp duty would be saved. At
that stage, GIDA was never even intimated by Venus that it had no money or that
it was awaiting for bank finances or that there was any necessity to obtain
exemption notification. It appears even the stands regarding the availability
of finances are different at different points of time.
15. In the pre bid meeting also admittedly there was no demand to change the
condition regarding the exemption notification being obtained first. GIDA's
stand was very specific. It never treated the exemption notification to be a
condition precedent.
16. Clause 11 also throws considerable light on the actual intention. The same
when read with Clause 14 makes the position clear that if after payment of
first instalment the allottee desires to avail loan from a bank or financial
institution for paying the second and third instalments of the sale value of
the land, GIDA will issue NOC in favour of bank/financial institution.
Therefore, only after the payment of the first instalment, the question of GIDA
issuing NOC arises, that too when the allottee desires to avail loan for paying
the second and third instalments.
17. Clause 13 provides for forfeiture in case of non payment of the first
instalment and permits the bank guarantee to be invoked without further notice.
It specifically provides for furnishing of bank guarantee in respect of the
required percentage of the bid amount and permits cancellation of the tender
and forfeiture of the amount deposited.
18. The High Court also has held that the exemption notification can be treated
as part of implied terms. It is to be noted that the Government itself
permitted GIDA to sell the property initially. Section 23 of the Contract Act
has really no application to the facts of the case. Section 87 as noted above,
deals with acquisition after the date of notification and permits filing of the
statement subsequently in terms of Sub-section (1A) of Section 87. Illegality
is attached to a case where a person continues to hold the land and there is a
requirement of surrender after acquisition.
19. There is a vital distinction between the administrative and contractual law
decisions.
20. It is to be noted that there was no privity of contract between Government
and the bidders. The tender conditions inter alia contained provisions relating
to signing of contract and payment of money. There can be no implied terms so
far as the Government is concerned. Terms can be claimed to be implied by the
parties to the contract. Thus, it was open to the contracting parties to say
that subject to obtaining exemption notification, the contract would be given
effect to. It is not so in the present case.
21. Government by a contract cannot be compelled to grant permission. The
statutory parameters have to be kept in view. A condition may be there, as
appears to be in present case, to take steps to obtain permission. An agreement
may fail because of absence of permission. Then it becomes unenforceable. Certain
decisions of this Court are relevant. In W.B. State Electricity Board v.
Patel Engineering Co. Ltd. and Ors1. it
was held that the conditions cannot be changed. The relevant paragraphs are 24,
30 and 31. They read as follows:
"24. The controversy in this case has arisen at the threshold. It cannot
be disputed that this is an international competitive bidding which postulates
keen competition and high efficiency. The bidders have or should have
assistance of technical experts. The degree of care required in such a bidding
is greater than in ordinary local bids for small works. It is essential to
maintain the sanctity and integrity of process of tender/bid and also award of
a contract. The appellant, Respondents 1 to 4 and Respondents 10 and 11 are all
bound by the ITB which should be complied with scrupulously. In a work of this
nature and magnitude where bidders who fulfil prequalification alone are
invited to bid, adherence to the instructions cannot be given a go-by by
branding it as a pedantic approach, otherwise it will encourage and provide
scope for discrimination, arbitrariness and favouritism which are totally
opposed to the rule of law and our constitutional values. The very purpose of
issuing rules/instructions is to ensure their enforcement lest the rule of law
should be a casualty. Relaxation or waiver of a rule or condition, unless so
provided under the ITB, by the State or its agencies (the appellant) in favour
of one bidder would create justifiable doubts in the minds of other bidders,
would impair the rule of transparency and fairness and provide room for manipulation
to suit the whims of the State agencies in picking and choosing a bidder for
awarding contracts as in the case of distributing bounty or charity. In our
view such approach should always be avoided. Where power to relax or waive a
rule or a condition exists under the rules, it has to be done strictly in
compliance with the rules. We have, therefore, no hesitation in concluding that
adherence to the ITB or rules is the best principle to be followed, which is
also in the best public interest.
30. Though clause 29 in this case appears to be similarly worded as in the bid
documents in Spina case a close reading of these clauses shows that no power of
waiver is reserved in the case on hand. That apart, the nature of the error in
these two cases is entirely different. There, the error was apparent $ 400 for
$ 4, non-material and waivable by the Corporation; in the present case the
errors pointed out above are not simply arithmetical and clerical mistake but a
deliberate mode of splitting the bid which would amount to rewriting the
entries in the bid document and cannot be treated as non-material. Therefore,
the judgment in Spina case does not help Respondents 1 to 4.
31. The submissions that remains to be considered is that as the price bid of
respondents 1 to 4 is lesser by 40 crores and 80 crores than that of
respondents 11 and 10 respectively, public interest demands that the bid of
respondents 1 to 4 should be considered. The Project undertaken by the
appellant is undoubtedly for the benefit of the public. The mode of execution
of the work of the Project should also ensure that the public interest is best
served. Tenders are invited on the basis of competitive bidding for execution
of the work of the Project as it serves dual purposes. On the one hand it
offers a fair opportunity to all those who are interested in competing for the
contract relating to execution of the work and, on the other hand it affords
the appellant a choice to select the best of the competitors on a competitive
price without prejudice to the quality of the work. Above all, it eliminates
favouritism and discrimination in awarding public works to contractors. The
contract is, therefore, awarded normally to the lowest tenderer which is in
public interest. The principle of awarding contract to the lowest tenderer
applies when all things are equal. It is equally in public interest to adhere
to the rules and conditions subject to which bids are invited. Merely because a
bid is the lowest the requirements of compliance with the rules and conditions
cannot be ignored. It is obvious that the bid of respondents 1 to 4 is the
lowest of bids offered. As the bid documents of respondents 1 to 4 stand
without correction there will be inherent inconsistency between the particulars
given in the annexure and the total bid amount, it (sic they) cannot be
directed to be considered along with the other bids on the sole ground of being
the lowest."
22. In Directorate of Education and Ors. v. Educomp Datamatics Ltd. and Ors2. it
was observed as follows:
"9. It is well settled now that the courts can scrutinise the award of the
contracts by the Government or its agencies in exercise of their powers of
judicial review to prevent arbitrariness or favouritism. However, there are
inherent limitations in the exercise of the power of judicial review in such
matters. The point as to the extent of judicial review permissible in
contractual matters while inviting bids by issuing tenders has been examined in
depth by this Court in Tata Cellular v. Union of India  After examining
the entire case-law the following principles have been deduced: (SCC pp.
687-88, para 94)
"94. The principles deducible from the above are:
(1) The modern trend points to judicial restraint in administrative action.
(2) The court does not sit as a court of appeal but merely reviews the manner
in which the decision was made.
(3) The court does not have the expertise to correct the administrative
decision. If a review of the administrative decision is permitted it will be
substituting its own decision, without the necessary expertise which itself may
be fallible
.
(4) The terms of the invitation to tender cannot be open to judicial scrutiny
because the invitation to tender is in the realm of contract. Normally
speaking, the decision to accept the tender or award the contract is reached by
process of negotiations through several tiers. More often than not, such
decisions are made qualitatively by experts.
(5) The Government must have freedom of contract. In other words, a fair play
in the joints is a necessary concomitant for an administrative body functioning
in an administrative sphere or quasi- administrative sphere. However the
decision must not only be tested by the application of Wednesbury principle of
reasonableness (including its other facts pointed out above) but must be free
from arbitrariness not affected by bias or actuated by mala fides.
(6) Quashing decisions may impose heavy administrative burden on the
administration and lead to increased and unbudgeted expenditure."
10. In Air India Ltd. v. Cochin International Airport Ltd3. this
Court observed: (SCC p. 623, para 7)
"The award of a contract, whether it is by a private party or by a public
body or the State, is essentially a commercial transaction. In arriving at a
commercial decision considerations which are paramount are commercial
considerations. The State can choose its own method to arrive at a decision. It
can fix its own terms of invitation to tender and that is not open to judicial
scrutiny. It can enter into negotiations before finally deciding to accept one
of the offers made to it. Price need not always be the sole criterion for
awarding a contract. It is free to grant any relaxation, for bona fide reasons,
if the tender conditions permit such a relaxation. It may not accept the offer
even though it happens to be the highest or the lowest. But the State, its
corporations, instrumentalities and agencies are bound to adhere to the norms,
standards and procedure laid down by them and cannot depart from them
arbitrarily. Though that decision is not amenable to judicial review, the court
can examine the decision- making process and interfere if it is found vitiated
by mala fides, unreasonableness and arbitrariness."
11. This principle was again re-stated by this Court in Monarch Infrastructure (P) Ltd. v. Commr, Ulhasnagar Municipal Corpn4. It was held that the terms and conditions in the tender are prescribed by the Government bearing in mind the nature of contract and in such matters the authority calling for the tender is the best judge to prescribe the terms and conditions of the tender. It is not for the courts to say whether the conditions prescribed in the tender under consideration were better than the ones prescribed in the earlier tender invitations".
In Har Shankar and Ors. v. The Dy. Excise and Taxation Commr. and Ors5.
 the case of a bid with full knowledge was considered. It was observed
as follows:
"15. Learned counsel for the respondents raised a preliminary objection to
the maintainability of the writ petitions filed by the appellants to the grant
of reliefs claimed by them. He contends that the appellants who offered their
bids in the auctions did so with knowledge of the terms and conditions
attaching to the auctions and they cannot, by their writ petitions, be
permitted to wriggle out of the contractual obligations arising out of the
acceptance of their bids. This objection is well- founded and must be accepted.
16. Those interested in running the country liquor vends offered their voluntarily
in the auctions held for granting licences for the sale of country liquor. The
terms and conditions of auctions were announced before the auctions were held
and the bidders participated in the auction without a demur and with full
knowledge of the commitments which the bids involved. The announcement of
conditions governing the auctions were in the nature of an invitation to an
offer to those who were interested in the sale of country liquor. The bids
given in the auctions were offers made by prospective vendors to the
Government. The Government's acceptance of those bids was the acceptance of
willing offers made to it. On such acceptance, the contract between the bidders
and the Government became concluded and a binding agreement came into existence
between them. The successful bidders were then granted licences evidencing the
terms of contract between them and the Government, under which they became
entitled to sell liquor. The licensees exploited the respective licences for a
portion of the period of their currency, presumably in expectation of a profit.
Commercial considerations may have revealed an error of judgment in the initial
assessment of profitability of the adventure but that is a normal incident of
all trading transactions. Those who contract with open eyes must accept the
burdens of the contract along with its benefits. The powers of Financial
Commissioner to grant liquor licences by auction and to collect licence fees
through the medium of auctions cannot by writ petitions be questioned by those
who, had their venture succeeded, would have relied upon those very powers to
found a legal claim, Reciprocal rights and obligations arising out of contract
do not depend for their enforceability upon whether a contracting party finds
it prudent to abide by the terms of the contract. By such a test no contract
could ever have a binding force".
23. The difference between administrative law and contractual law was
succinctly stated in Indian Oil Corporation Ltd. v. Amritsar Gas Service and
Ors6. It was noted in paras 9, 10 and 11 as follows:
"9. The argument advanced by Shri Harish Salve on behalf of the
appellant-Corporation to the validity of the award are these. The first
contention is that the validity of the award has to be tested on the principle
of private law and the law of contracts and not on the touchstone of
constitutional limitations to which the Indian Oil Corporation Ltd., as an
instrumentality of the State may be subject since the suit was based on breach
of contract alone and the arbitrator who proceeded only on that basis to grant
the reliefs. It is urged that for this reason the further questions of public
law do not arise on the facts of the present case. The next contention is that
the relief of restoration of the contract granted by the arbitrator is contrary
to law being against the express prohibition in Sections 14 and 16 of the Specific
Relief Act, 1963. It is urged that the contract being admittedly revokable at
the instance of either party in accordance with clause 28 of the agreement, the
only relief which can be granted on the finding of breach of contract by the
appellant-Corporation is damages for the notice period of 30 days and no more.
It was then urged that the reasons given in the award for granting the relief of
restoration of the distributorship are untenable, being contrary to law. Shri
Salve contended that the propositions of law indicated in the award and applied
for granting the reliefs disclose an error of law apparent on the face of the
award. It was also urged that the onus of proving valid termination of the
contract was wrongly placed by the arbitrator on the appellant-Corporation
instead of requiring the plaintiff-respondent 1 to prove that the termination
was invalid. It was also contended that the failure of the arbitrator to
consider and decide the appellant-Corporation's counter-claim when the whole
suit was referred for decision constitute legal misconduct.
10. In reply, Shri Sehgal on behalf of respondent 1 contended that there is a
presumption of validity of award and the objections not taken specifically must
be ignored. This argument of Shri Sehgal relates to the grievance of the
appellant relating to placing the onus on the appellant-Corporation of proving
validity of the termination. This contention of Shri Sehgal must be upheld
since no such specific ground is taken in the objections of the appellant.
Moreover, there being a clear finding by the arbitrator of breach of contract
by invalid termination, the question of onus is really of no significance. The
other arguments of Shri Sehgal are that the termination of distributorship
casts stigma on the partners of the firm; counter claim of the
appellant-Corporation was rightly not considered since it was not made before
the order of the reference; the reference made being of all disputes in the
suit, the nature of relief to be granted was also within the arbitrator's
jurisdiction; and interest also must be awarded to the respondent.
11. We may at the outset mention that it is not necessary in the present case
to go into the constitutional limitations of Article 14 of the Constitution
Of India, 1950 to which the appellant- Corporation as an instrumentality
of the State would be subject particularly in view of the recent decisions of
this Court in Dwarkadas Marfatia and Sons v. Board of Trustees of the Bombay7, Mahabir
Auto Stores v. Indian Oil Corporation8 and
Shrilekha Vidyarathi v. State of U.P9..
This is on account of the fact that the suit was based only on breach of
contract and remedies flowing therefrom and it is on this basis alone that the
arbitrator has given his award. Shri Salve is therefore right in contending
that the further questions of public law basis on Article 14 of the
Constitution do not arise for decision in the present case and the matter must
be decided strictly in the realm of private law rights governed by the general
law relating to contracts with reference to the provisions of the Specific
Relief Act, 1963 provided for non-enforceability of certain types of
contracts. It is, therefore, in this background that we proceed to consider and
decide the contentions raised before us".
7. In essence, it was held that tender terms are contractual and it is the
privilege of the Government which invites its tenders and Courts did not have jurisdiction
to judge as to how the tender terms would have to be framed.
8. By observing that there was implied term which is not there in the tender,
and postponing the time by which the bank guarantee has to be furnished, in
essence the High Court directed modification of a vital term of the contract. In
M/s New Bihar Biri Leaves Co. and Ors. v. State of Bihar and Ors10. it
was observed at para 48 as follows:
"48. It is a fundamental principle of general application that if a person
of his own accord, accepts a contract on certain terms and works out the
contract, he cannot be allowed to adhere to and abide by some of the terms of
the contract which proved advantageous to him and repudiate the other terms of
the same contract which might be disadvantageous to him. The maxim is qui
approbat non reprobate (one who approbates cannot reprobate). This principle,
though originally borrowed from Scots Law, is now firmly embodied in English
Common Law. According to it, a party to an instrument or transaction cannot
take advantage of one part of a document or transaction and reject the rest.
That is to say, no party can accept and reject the same instrument or
transaction (Per Scrutton, L.J., Verschures Creameries Ltd. v. Hull @
Netherlands Steamship Co11. see
Douglas Menzies v. Umphelby12 see
also Stround's Judicial Dictionary, Vol. I, page 169, 3rd Edn.)"
23. In Assistant Excise Commissioner and Ors. v. Isaac Peter and Ors. Â 6 this Court highlighted that the concept of administrative law and fairness should not be mixed up with fair or unfair terms of the contract.
24. It was stated in no uncertain terms that duty to act fairly which is sought
to be imported into a contract to modify and/or alter its terms and/or to
create an obligation upon the State Government which is not there in the
contract is not covered by any doctrine of fairness or reasonableness. The duty
to act fairly and reasonably is a doctrine developed in administrative law
field to ensure the rule of law and to prevent failure of justice when the
action is administrative in nature. Just as the principles of natural justice
ensure fair decision where function is quasi-judicial the doctrine of fairness
is evolved to ensure fair action when the function is administrative. But the
said principle cannot be invoked to amend, alter or vary the expressed terms of
the contract between the parties. So far as the principles relating to implied
terms are concerned the position has been stated by Chitty on Contracts, 28th
Edn. Chapter 13. They read as follows:
"A term will not however thus be implied unless the court is satisfied
that both parties would, as reasonable men have agreed to it had it been
suggested to them..The Court will only imply a term if it is one which must
necessarily have been intended by them, and in particular will be reluctant to
make any implications, "where the parties have entered into a carefully
drafted written contract containing detail terms agreed between them"A
term ought not to be implied unless it is in all the circumstances equitable
and reasonable . But this does not mean that a term will be implied merely
because in all the circumstances it would be reasonable to do so or because it
would improve the contract or make its carrying out more convenient. "the
touchstone is always necessity and not merely reasonableness". "A
term will not be implied if it would be inconsistent with the express wording
of the contract".
25. In Halsbury's Laws of England, 4th Edn, Vol. 9, the expression
"implied terms" reads as follows:
"In practice, logically implied terms and the other three types of implied
terms tend to merge imperceptibly into each other, all the categories being
justified to some extent by reference to the intention of the parties; and the
distinctions between classes of implied terms tend to be based on convention
rather than logic. The conventional distinction which will be adopted here, are
as follows: (1) terms implied by custom; (2) terms implied by law; (3) other
terms implied by the courts. The relationship between the parties may be a
matter of profound importance in determining whether a contract contains a term
implied under one of these heads.
xx.....xx....xx.....xx
Implication by law- There are many cases where apart from local custom or usage,
the common law has recognized a general custom that certain terms be
incorporated into particular types of contract. In some of these cases, the
rules having been decided by the courts, they have been put into statutory
form; for example the implied terms in sale of goods, conveyances of interests
in land, in contracts of marine insurance or in contractual licences to enter
property. Frequently, such statutorily implied terms are expressed to give way
to a contrary intention; but there are other cases where the terms implied by
statute cannot be excluded by any contrary agreement. Yet a further step in the
process is that where statute law has in a particular field codified terms
implied at common law, the courts may import those statutory terms into similar
transactions by way of analogy. For instance, the statutorily implied term as
to fitness in a sale of goods has been imported by analogy into contracts for
the manufacturer of dentures, repair of a motor car, the erection of
scaffolding, the dyeing of a woman's hair but the courts have shown themselves
much more reluctant to import similar terms as to fitness into contracts for
the sale or lease of interests in land.The conclusion would appear to be that
terms implied by law are not happily described as "implied terms":
they are rather duties which (frequently subject to a contrary intention) are
imposed by the law on the parties to particular types of contract. In deciding
whether to create such duties, the courts tend to look, not to the intention of
the parties, but to consideration of public policy..An implied warranty, or as
it has been called, a covenant in law, as distinguished from an express
contract or express warranty is really founded on the presumed intention of the
parties and upon reason. The implication which the law draws from what must
obviously have been the intention of the parties, it draws with the object of
giving efficacy to the transaction and preventing such failure of consideration
as cannot have been within the contemplation of either side.
In view of what we have stated above, it is not necessary to deal with the
grievance raised by the State Government in its belated Special Leave Petition.
Judged at from any angle the order of the learned Single Judge as affirmed by
the Division Bench cannot be maintained and is set aside The appellants had
stated their willingness to match the amount offered by Venus and also to pay
interest in terms of the contract. It has been stated that the whole amount
shall be paid and they shall not give any bank guarantee. Let the amounts
offered by Venus be paid by the appellants within a period of one month from
today with interest @12% p.a. from the date of allotment. The amount, if any
deposited by Venus will be refunded with interest @ 9% from the date of deposit
within a period of six weeks.”
26. The appeals are allowed but without any order as to costs.
Judgment Referred.
1(2001) 2 SCC 0451
2(2004) 4 SCC 0019
3(1994) 6 SCC 0651
4(2000 2 SCC 0617
5(2000) 5 SCC 0287
6(1975) 1 SCC 0737
7(1991) 1 SCC 0533
8(1989) SCR 2 0751
9(1990) SCR 1 0818
10(1990) SCR Supl. (1) 0625
11(1981) 1 SCC 0537
12(1994) 4 SCC 0104