1979 INSC 0276
                                              Ramana Dayaram Shetty

                                                           Vs

                              International Airport Authority of India and Others

                                          Civil Appeal No. 895 of 1978

                             (P. N. Bhagwati, V. D. Tulzapurkar, R. S. Pathak JJ)

                                                      04.05.1979

                                                     JUDGMENT

BHAGWATI, J. ­

1. This appeal by special leave raises interesting questions of law in the area of public law. What are
the constitutional obligations on the State when it takes action in exercise of its statutory or
executive power ? Is the State entitled to deal with its property in any manner it likes or award a
contract to any person it chooses without any constitutional limitations upon it ? What are the
parameters of its statutory or executive power in the matter of awarding a contract or dealing with
its property ? These questions fall in the sphere of both administrative law and constitutional law
and they assume special significance in a modern welfare State which is committed to egalitarian
values and dedicated to the rule of law. But these questions cannot be decided in the abstract. They
can be determined only against the background of facts and hence we shall proceed to state the facts
giving rise to the appeal.

2. On or about January 3, 1977 a notice inviting tenders for putting up and running a second class
restaurant and two snack bars at the International Airport at Bombay was issued by respondent 1
which is a corporate body constituted under the International Airport Authority Act, 43 of 1971.
The notice stated in the clearest terms in paragraph (1) that "sealed tenders in the prescribed form
are hereby invited from Registered IInd Class having at least 5 years' experience for putting up and
running a IInd 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 respondent 1 was stipulated in
paragraph 7 of the notice to be 12 p.m. on January 25, 1977 and it was provided that the tenders
would be opened on the same date at 12.30 hours. Paragraph (8) of the notice made it clear that "the
acceptance of the tender will rest with the Airport Director who does not bind himself to accept any
tender and reserves to himself the right to reject all or any of the tenders received without assigning
any reasons therefor". There were six tenders received by respondent 1 in response to the notice and
one of them was from respondents 4 offering a licence fee of Rs. 6666.66 per month, and the others
were from Cafe Mahim, Central Catering Service, one A. S. Irani, Cafe Seaside and Cafe Excelsior
offering progressively decreasing licence fee very much lower than that offered by respondents 4.
The tenders were opened in the office of the Airport Director at 12.30 p.m. on January 25, 1977 and
at that time respondents 4 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 clause (9) of the terms and conditions of the tender form. The tender of A. S. Irani was
also not complete as it was not accompanied by an affidavit of immovable property held by him and
solvency certificates. The only tender which was complete and fully complied with the terms and
conditions of the tender form was that of respondents 4 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 respondents 4 had pointed out in their letter dated January 24, 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 respondents 4 had experience
only of running canteens and not restaurants and it appeared that they did not satisfy the description
of "registered IInd Class hotelier having at least 5 years' experience" as set out in paragraph (1) of
the notice inviting tenders. The Airport Officer, therefore, by his letter dated February 15, 1977
requested respondents 4 to inform by return of post whether they were "a registered IInd Class
hotelier having at least 5 years' experience" and to produce documentary evidence in this respect
within 7 days. Respondents 4 pointed out to the Airport Officer by their letter dated February 22,
1977 that they had, in addition to what was set out in their earlier letter dated January 24, 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 respondents 4
could reach the Airport Officer, another letter dated February 22, 1977 was addressed by the Airport
Officer, another letter dated February 22, 1977 was addressed by the Airport Officer once again
requesting respondents 4 to produce documentary evidence to show if they were "a registered IInd
Class hotelier having at least 5 years' experience". Respondents 4 thereupon addressed another letter
dated February 25, 1977 to the Director pointing out that they had considerable experience of
catering for various reputed commercial houses, clubs, messes and banks and they also held an
Eating House Catering Establishment (Canteen) Licence as also a licence issued under the
Prevention of Food Adulteration Act. Respondents 4 stated that their sole proprietor Kumaria had
started his career in catering line in the year 1962 at Hotel Janpath, Delhi and gradually risen to his
present position and that he had accordingly "experience equivalent to that of a IInd Class or even
1st Class hotelier". This position was reiterated by respondents 4 in a further letter dated March 3,
1977 addressed to the Director. This information given by respondents 4 appeared to satisfy
respondent 1 and by a letter dated April 19, 1977 respondent 1 accepted the tender of respondents 4
on the terms and conditions set out in that letter. Respondents 4 accepted these terms and conditions
by their letter dated April 23, 1977 and deposited with respondent 1 by way of security a sum of Rs.
39,999.96 in the form of Fixed Deposit Receipts in favour of respondent 1 and paid respondent 1 a
sum of Rs. 6666.66 representing licence fee for one month and other amounts representing water,
electricity and conservancy charges. Respondents 4 thereafter executed and handed over to
respondent 1 and agreement in the form attached to the tender on May 1, 1977. Respondents 4 also
got prepared furniture, counters and show cases as also uniforms for the staff, purchased inter alia
deep freezers, water coolers, electrical appliances, ice-cream cabinets, expresso 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 respondent 1 could not hand over possession
of the requisite sites of respondents 4, since A. S. Irani was running his restaurant and snack bars on
these sites under a previous contract with respondent 1 and though that contract had come to an end,
A. S. Irani was did not deliver possession of these sites to respondent 1. Respondents 3 repeatedly
requested respondent 1 and the Airport Director who is respondent 2 in the appeal, to hand over
possession of the sites and pointed out to them that respondents 4 were incurring losses by reason of
delay in delivery of possession, but on account of the intransigence of A. S. Irani respondent 1 could
not arrange to hand over possession of the sites to respondents 4.
3. Meanwhile one K. S. Irani who owned Cafe Excelsior filed suit No. 6544 of 1977 in the City
Civil Court, Bombay against the respondents challenging the decision of respondent 1 to accept the
tender of respondents 4 and took out a notice of motion for restraining respondent 1 from taking any
further steps pursuant to the acceptance of the tender. K. S. Irani obtained an ad interim injunction
against the respondents but after hearing the respondents, the City Civil Court vacated the ad interim
injunction and dismissed the notice of motion by an order dated October 10, 1977. An appeal was
preferred by K. S. Irani against this order, but the appeal was dismissed by the High Court on
October 19, 1977. Immediately thereafter, on the same day, respondent 1 handed over possession of
two sites to respondents 4 and respondents 4 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 respondents 4
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, respondent 1 could not hand
over the possession of it to respondents 3 presumably because there was no other appropriate site
available other than the one occupied by A. S. Irani. Since A. S. Irani refused to hand over
possession of the sites occupied by him to respondent 1, 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, respondent 1 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 respondent 1 restarting 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 July 31, 1978.

4. This was, however, not to be the end of the travails of respondents 4, 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 October 19, 1977, A. S. Irani filed another suit being suit No. 8161 of 1977 in the City
Civil Court, Bombay on October 24, 1977 seeking mandatory injunction for removal of the two
snack bars put up by the respondents 4. This was one more attempt by A. S. Irani to prevent
respondents 4 from obtaining the benefit of the contract awarded to them by respondent 1. He,
however, did not succeed in obtaining ad interim injunction and we are told that the notice of
motion taken out by him is still pending in the City Civil Court.

5. It will thus be seen that A. S. Irani failed in his attempts to prevent respondents 4 from obtaining
the contract and enjoying its benefit. Respondents 4 put up two snack bars on the sites provided by
respondent 1 and started running the two snack bars from October 19, 1977. The restaurant
however, could not be put up on account of the inability of respondent 1 to provide appropriate site
to respondents 4 and, therefore, the licence fee for the two snack bars had to be settled and it was
fixed at Rs. 4,500 per month by mutual agreement between the parties. But it seems that
respondents 4 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 October 19, 1977 and the failure of A. S. Irani to obtain an
ad interim mandatory injunction in the suit filed by him against respondents 1 and 4, the appellant
filed writ petition No. 1582 of 1977 in the High Court of Bombay challenging the decision of
respondent 1 to accept the tender of respondents 4. The writ petition was moved before a Single
Judge of the High Court on November 8, 1977 after giving prior notice to the respondents and after
hearing the parties, the learned Single Judge summarily rejected the writ petition. The appellant
preferred an appeal to the Division Bench of the High Court against the order rejecting the writ
petition and on notice being issued by the Division Bench, respondents 1 and 4 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 of February 21, 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 pieces before us on behalf of both the parties.

6. The main contention urged on behalf of the appellant was that in paragraph (1) of the notice
inviting tenders respondent 1 had stipulated a condition of eligibility by providing that a person
submitting a tender must be a "registered IInd Class hotelier having at least 5 years' experience".
This was a condition of eligibility to be satisfied by every person submitting a tender and if in case
of any person, this condition was not satisfied, his tender was ineligible for being considered.
Respondent 1, being a State within the meaning of Article 12 of the Constitution or in any event a
public authority, was bound to give effect to the condition of eligibility set up by it and was not
entitled to depart from it at its own sweet will without rational justification. Respondents 4 had
experience of catering only in canteens and did not have 5 years' experience of running a IInd class
hotel or restaurant and hence they did not satisfy the condition of eligibility and yet respondent 1
accepted the tender submitted by them. This was clearly in violation of the standard or norm of
eligibility set up by respondent 1 and the action of respondent 1 in accepting the tender of
respondents 4 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 IInd class hotelier with 5 year's experience and was in the
same position as respondents 4 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
respondent 1 in accepting the tender of respondents 4 had, therefore, the effect of denying him
quality 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 respondent 1 and 4. The first head of the
argument was that grading is given by the Bombay City Municipal Corporation only to hotels or
restaurants and not persons running them and hence there can be a IInd grade hotel or restaurant but
not a IInd grade hotelier and the requirement in paragraph (1) of the notice that a tenderer must be a
registered IInd grade hotelier was therefore a meaningless requirement and it could not be regarded
as laying down any condition of eligibility. It was also urged that in any event what paragraph (1) of
the notice required was not that a person tendering must have 5 years' experience of running a IInd
grade hotel, but he should have sufficient experience of running a IInd grade hotel and respondents
4 were fully qualified in this respect since they had over 10 year's 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 any reserved to himself the right to
reject all or any of the tenders without assigning any reasons therefor and it was, therefore,
competent to respondent 1 to reject all the tenders and to negotiate with any person it considered fit
to enter into a contract and this is in effect and substance what respondent 1 did when he accepted
the tender of respondents 4. 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 respondent 1 to give the contract to any one it thought fit and it
was not bound by the standard or norm of eligibility set out in paragraph (1) of the notice. It was
submitted that in any event the appellant had no right to complain that respondent 1 had given the
contract to respondents 4 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 respondents 1
and 4 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, 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 respondents 4. 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 in between the date of acceptance of the
tender and the date of filing of the writ petition, respondents 4 had spent an aggregate sum of about
Rs. 1,25,000 in making arrangements for putting up the restaurant and two snack bars. These were
the rival contentions urged on behalf of the parties and we shall now proceed to discuss them in the
order in which we have set them out.

7. Now it is clear from paragraph (1) of the notice that tenders were invited only from "registered
IInd Class hoteliers having at least 5 years' experience". It is only if a person was a registered IInd
Class hotelier having at least 5 years' experience that he could, on the terms of paragraph (1) of the
notice, submit a tender. Paragraph (1) of the notice prescribed a condition of eligibility which had to
be satisfied by every person submitting a tender and if, in a given case, a person submitting a tender
did not satisfy this condition, his tender was not eligible to be considered. Now it is true that the
terms and conditions of the tender form did not prescribe that the tenderer must be a registered IInd
Class hotelier having at least 5 years' experience nor was any such stipulation to be found in the
form of the agreement annexed to the tender but the notice inviting tenders published in the
newspapers clearly stipulated that tenders may be submitted only by registered IInd Class hotelier
having at least 5 years' experience and this tender notice was also included amongst the documents
handed over to prospective tenderers when they applied for tender forms. Now the question is, what
is the meaning of the expression "registered IInd Class hotelier", what category of persons fall
within the meaning of this description ? This is a necessary enquiry in order to determine whether
respondents 4 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 IInd Class hotel but no such grades are
given to persons running hotels and restaurants and hence it would be inappropriate to speak of a
person as a registered IInd Class hotelier. But on that account would it be right to reject the
expression "registered IInd Class hotelier" as meaningless and deprive 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 to silence any part of the
document and make it altogether inapplicable. Now, here the expression used in paragraph (1) of the
notice was "registered IInd Class hotelier" and there can be no doubt that by using this expression
respondent 1 intended to delineate a certain category of persons who alone should be eligible to
submit a tender. Respondent 1 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 respondent 1 to express its intention was rather inapt but it is obvious from the
context that the expression "registered IInd Class hotelier" was loosely used to denote a person
conducting or running a IInd Class hotel or restaurant. It may be ungrammatical but it does not
offend common sense to describe a person running a registered IInd grade hotel as a registered IInd
grade hotelier. This meaning is quite reasonable and does not do any violence to the language and
makes sense of the provision contained in paragraph (1) of the notice. We must, in the
circumstances, hold that, on a proper construction, what paragraph (1) of the notice required was
that only a person running a registered IInd Class hotel or restaurant and having at least 5 years'
experience as such should be eligible to submit a tender. This was a condition of eligibility and it is
difficult to see how this condition could be said to be satisfied by any person who did not have five
years' experience of running a IInd Class hotel or restaurant. The test of eligibility laid down was an
objective test and not a subjective one. What the condition of eligibility required was that the person
submitting a tender must have 5 years' experience of running a IInd Class hotel as this would ensure
by an objective test that he was capable of running a IInd class restaurant and it should not be left to
respondent 1 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 IInd Class hotel, he was not eligible to submit the tender and it would not avail him to
say that though he did not satisfy this condition, he was otherwise capable of running a IInd Class
restaurant and should, therefore, be considered. This was in fact how respondent 1 itself understood
this condition of eligibility. When respondents 4 submitted their tender along with their letter dated
January 24, 1977 and it appeared from the documents submitted by respondents 4 that they did not
have 5 years' experience of running of IInd Class restaurant, respondent 1 by its letter dated
February 15, 1977 required the respondents 4 to produce documentary evidence to show that they
were "registered IInd Class hotelier having at least 5 years' experience". Respondent 1 did not regard
this requirement of eligibility as meaningless or unnecessary and wanted to be satisfied that
respondents 4 did fulfil this requirement. Now, unfortunately for respondents 4, they had over 10
years' experience of running canteens but at the date when they submitted their tender, they were not
running a IInd grade hotel or restaurant nor did they have 5 years' experience of running such a
hotel or restaurant. Even if the experience of respondents 4 in the catering line were taken into
account from 1962 onwards, it would not cover a total period of more than 4 years 2 months so far
as catering experience in IInd grade hotels and restaurants is concerned. Respondents 4 thus did not
satisfy the condition of eligibility laid down in paragraph (1) of the notice and in fact this was
impliedly conceded by respondents 4 in their letter dated February 26, 1977 where they stated that
they had "experience equivalent to that of a IInd Class or even 1st Class hotelier". Respondents 4
were, accordingly, not eligible for submitting a tender and the action of respondent 1 in accepting
their tender was in contravention of paragraph (1) of the notice.

8. It was suggested on behalf of the respondent 1 and 4 that there was nothing wrong in respondent
1 giving the contract to respondents 4 since it was competent to respondent 1 to reject all the tenders
received by it and to negotiate directly with respondents 4 for giving them the contract and it made
no difference that instead of following this procedure, which perhaps might have resulted in
respondents 4 offering a smaller licence free and respondents 1 suffering a loss in the process,
respondent 1 accepted the tender of respondents 4. We do not think there is any force in this
argument. It is true that there was no statutory or administrative rule requiring respondent 1 to give
a contract only by inviting tenders and hence respondent 1 was entitled to reject all the tenders and,
subject to the constitutional norm laid down in Article 14, negotiate directly for entering into a
contract. Paragraph (8) of the notice also made it clear that respondent 1 was not bound to accept
any tender and could reject all the tenders received by it. But here respondent 1 did not reject the
tenders outright and enter into direct negotiations with respondents 4 for awarding the contract. The
process of awarding a contract by inviting tenders was not terminated or abandoned by respondent 1
by rejecting all the tenders but in furtherance of the process, the tender of respondents 4 was
accepted by respondent 1. The contract was not given to respondents 4 as a result of direct
negotiations. Tenders were invited and out of the tenders received, the one submitted by respondents
4 was accepted and the contract was given to them. It is, therefore, not possible to justify the action
of respondent 1 on the ground that respondent 1 could have achieved the same result by rejecting all
the tenders and entering into direct negotiations with respondents 4.

9. That takes us to the next question whether the acceptance of the tender of respondents 4 was
invalid and liable to be set aside at the instance of the appellant. It was contended on behalf of
respondents 1 and 4 that the appellant had no locus to maintain the writ stranger. The argument was
that if the appellant did not enter the filed 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 respondents 4 was
wrongly accepted. A person whose tender was rejected might very well complain that the tender of
someone else was wrongly accepted, but, it was submitted, how could a person who never tendered
and who was at no time in the field, put forward such a complaint ? This argument, in our opinion,
is misconceived and cannot be sustained for a moment. The grievance of the appellant, it may be
noted, was not that his tender was rejected as a result of improper acceptance of the tender of
respondents 4, but that he was differentially treated and denied equality of opportunity with
respondents 4 in submitting a tender. His complaint was that if it were known that non-fulfilment of
the condition of eligibility would be no bar to consideration of a tender, he also would have
submitted a tender and competed for obtaining a contract. But he was precluded from submitting a
tender and entering the filed of consideration by reason of the condition of eligibility, while so far as
respondents 4 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 was 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 respondents 4 was vitiated by any legal infirmity.

10. Now, there can be no doubt that what paragraph (1) of the notice prescribed was a condition of
eligibility which was required to be satisfied by every person submitted a tender. The condition of
eligibility was that the person submitting a tender must be conducting or running a registered IInd
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 respondent 1 and since the respondents 4 did not satisfy
this standard or norm, it was not competent to respondent 1 to entertain the tender of respondents 4.
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. Saton (359 U.S. 535 : Law Ed (Second series) 1012) where the
learned Judge said :

                  An executive agency must be rigorously held to the standards by which it professes
                  its action to be judge ...... Accordingly, if dismissal from employment is based on a
                  defined procedure, even though generous beyond the requirements that bind such
                  agency, that procedure must be scrupulously observed ... This judicial evolved rule of
                  administrative law is now firmly established and, if I may add, rightly so. He that
                  takes the procedural sword shall perish with the sword.

This Court accepted the rule as valid and applicable in India in A. S. Ahluwalia v. Punjab ((1975) 3
SCR 82 : (1975) 3 SCC 503, 504 : 1975 SCC (L&S) 27) and in subsequent decision given in
Sukhdev v. Bhagatram ((1975) 3 SCR 619 : (1975) 1 SCC 421, 462 : 1975 SCC (L&S) 101),
Mathew, J., quoted the above-referred observations of Mr. Justice Frankfurter with approval. It may
be noted that this rule, though supportable also as an 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. It 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 evolve 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. Today with tremendous expansion of
welfare and social service functions, increasing control of material and economic resources and
large scale assumption of industrial and commercial activities by the State, the power of the
executive Government to affect the lives of the people is steadily growing. The attainment of socio-
economic justice being a conscious end of State policy, there is a vast and inevitable increase in the
frequency with which ordinary citizens come into relationship of direct encounter with State power-
holders. This renders it necessary to structure and restrict the power of the executive Government so
as to prevent its arbitrary application or exercise. Whatever be the concept of the rule of law,
whether it be the meaning given by Dicey in his "The Law of the Constitution" or the definition
give 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 "Trade Welfare State, Rule of Law and Natural Justice" in "Democracy, Equality
and Freedom" "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 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 arbitrations.
That it the very essense 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.

11. Today the Government in a welfare State, is the regulator and dispenser of special services and
provider of a larger number of benefits, including jobs, contracts, licences, quotas, mineral rights,
etc. The Government pours forth wealth, money, benefits, services contracts, quotas and licences.
The valuables dispensed by Government take many forms, but they all share one characteristic.
They are steadily taking the place of traditional forms of wealth. These valuables which derive from
relationships to Government are of many kinds. They comprise social security benefits, cash grants
for political sufferers and the whole scheme of State and local welfare. Then again, thousands of
people are employed in the State and the Central Governments and local authorities. Licences are
required before one can engage in many kinds of businesses 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
largesse 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 largesse and with
the increasing magnitude and range of governmental functions as we move closer to a welfare State,
more and more of our wealth consists of these new forms. Some of these forms of wealth may be in
the nature of legal rights but the large majority of them are in the nature of privileges. But on that
account, can it be said that they do not enjoy any legal protection ? Can they be regarded as gratuity
furnished by the State so that the State may withhold, grant or revoke it at its pleasure ? Is the
position of the Government in this respect the same as that of a private giver ? We do not think so.
The law has not been slow to recognise the importance of this new kind of wealth and the need to
protect individual interest in it and with that end in view, it has developed new forms of protection.
Some interests in Government largesse, formerly regarded as privileges, have been recognised as
rights while others have been given legal protection not only by forging procedural safeguards but
also by confining/structuring and checking Government discretion in the matter of grant of such
largesse. The discretion of the Government has been held to be not unlimited in that the
Government cannot give or withhold largesse in its arbitrary discretion or at its sweet will. It is
insisted, as pointed out by Prof. Reich in an especially stimulating article on "The New Property" in
73 Yale Law Journal 733, "that Government action be based on standards that are not arbitrary or
unauthorised." The Government cannot be permitted to say that it will give jobs or enter into
contracts or issue quotas or licences only in favour of those having grey hair or belonging to a
particular political party or professing a particular religious faith. The Government is still the
Government when it acts in the matter of granting largesse and it cannot act arbitrarily. It does not
stand in the same position as a private individual.

12. We agree with the observations of Mathew, J., in V. Punnan Thomas v. State of Kerala (AIR
1969 Ker 81) that :

                  The Government, is not and should not be as free as an individual in selecting the
                  recipients for its largesse. 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 ((1975) 2 SCR 674 : (1975) 1 SCC 70) where the question was whether black-listing of a
person without giving him an opportunity to be heard was bad ? Ray, C.J., speaking on behalf of
himself and his colleagues on the Bench pointed out that black-listing of a person not only affects
his reputation which is, in Poundian terms, an interest both of personality and substance, but also
denies him equality in the matter of entering into contract with the Government and it cannot,
therefore, be supported without fair hearing. It was argued for the Government that no person has a
right to enter into contractual relationship with the Government and the Government, like any other
private individual, has the absolute right to enter into contract with any one it pleases. But the Court,
speaking through the learned Chief Justice, responded that the Government is not like a private
individual who can pick and choose the person with whom it will deal, but the Government is still a
Government when it enters into contract or when it is administering largesse and it cannot, without
adequate reason, exclude any person from dealing with it or take away largesse 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 quotes
or licences or granting other forms of largesse, 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 largesse including award of jobs, contracts,
quotas, licences, etc. must be confined and structured by rational, relevant and non-discriminatory
standard or norm and if the Government departs from such standard or norm in any particular case
or cases, the action of the Government would be liable to be struck down, unless it can be shown by
the Government that the departure was not arbitrary, but was based on some valid principle which in
itself was not irrational, unreasonable or discriminatory.

13. Now, it is obvious that the Government which represents the executive authority of the State,
may act through the instrumentality or agency of natural persons or it may employ the
instrumentality or agency of juridical persons to carry out its functions. In the early days, when the
Government had limited functions, it could operate effectively through natural persons constituting
its civil service and they were found adequate to discharge governmental functions, which were of
traditional vintage. But as the tasks of the Government multiplied with the advent of the welfare
State, it began to be increasingly felt that the framework of civil service was not sufficient to handle
the new tasks which were often of specialised and highly technical character. The inadequacy of the
civil service to deal with these new problems came to be realised and it became necessary to forge a
new instrumentality or administrative device for handling these new problems. It was in these
circumstances and with a view to supplying this administrative need that the public corporation
came into being as the third arm of the Government. As early as 1819 the Supreme Court of the
United States in MacCullough v. Maryland (4 Wheat 315 (1819) held that the Congress has power
to charter corporations as incidental to or in aid of governmental functions and, as pointed out by
Mathew, J., in Sukhdev v. Bhagat Ram (supra), such federal corporations would ex-hypothesi be
agencies of the Government. In Great Britain too, the policy of public administration through
separate corporations was gradually evolved and the conduct of basic industries through giant
corporations has now become a permanent feature of public life. So far as India is concerned, the
genesis of the emergence of corporations as instrumentalities or agencies of Government is to be
found in the Government of India Resolution of Industrial Policy dated April 6, 1948 where it was
stated inter alia that "management of State enterprise will as a rule be through the medium of public
corporation under the statutory control of the Central Government who will assume such powers as
may be necessary to ensure this". It was in pursuance of the policy envisaged in this and subsequent
resolutions on industrial policy that corporations were created by Government for setting up and
management of public enterprises and carrying out other public functions. Ordinarily these
functions could have been carried out by Government departmental through its service personal, but
the instrumentality or agency of the corporations was resorted to in these cases having regard to the
nature of the task to be performed. The corporations acting as instrumentality or agency of
Government would obviously be subject to the same limitations in the filed of constitutional and
administrative law as Government itself, though it the eye of the law, they would be distinct and
independent legal entities. If Government acting through its officers is subject to certain
constitutional and public law limitations, it must follow a fortiori that Government acting through
the instrumentality or agency of corporations should equally be subject to the same limitations. But
the question is how to determine whether a corporation is acting as instrumentality or agency of
Government. It is a question not entirely free from difficulty.

14. A corporation may be created in one of two ways. It may be either established by statute or
incorporated under a law such as the Companies Act, 1956 or the Societies Registration Act, 1860.
Where a corporation is wholly controlled by Government not only in its policy-making but also in
carrying out the functions entrusted to it the law establishing it or by the charter of its incorporation,
there can be no doubt that it would be an instrumentality or agency of Government. But ordinarily
where a corporation is established by statute, it is autonomous in its working, subject only to a
provision, oftentimes made, that it shall be bound by any directions that may be issued from time to
time by Government in respect of policy matters. So also a corporation incorporated under law is
managed by a board of directors or committees of management in accordance with the provisions of
the statute under which it is incorporated. When does such a corporation become an instrumentality
or agency of Government ? Is the holding of the entire share capital of the corporation by
Government enough or is it necessary that in addition, there should be a certain amount of direct
control exercised by Government and, if so, what should be the nature of such control ? Should the
functions which the corporation is charged to carry out possess any particular characteristic or
feature, or is the nature of the functions immaterial ? Now, one thing is clear that if the entire share
capital of the corporation is held by Government, it would go a long way towards indicating that the
corporation is an instrumentality or agency of Government. But, as is quite often the case, a
corporation established by statute may have no shares or shareholders, in which case it would be a
relevant factor to consider whether the administration is in the hands of a board of directors
appointed by Government, through this consideration also may not be determinative, because even
here the directors are appointed by Government, they may be completely free from governmental
control in the discharge of their functions. What then are the tests to determine whether a
corporation established by statute or incorporated under law is an instrumentality or agency of
Government ? It is not possible to formulate an all-inclusive or exhaustive test which would
adequately answer this question. There is no cut and dried formula which would provide the correct
division of corporations into those which are instrumentalities or agencies of Government and those
which are not.

15. The analogy of the concept of State action as developed in the United States may not, however,
be altogether out of place while considering this question. The decisions of the courts in the United
States seem to suggest that a private agency, if supported by extraordinary assistance given by the
State, may be subject to the same constitutional limitations as the State. Of course, it may be pointed
out that "the State's general common law and statutory structure under which its people carry on
their private affairs, own property and contract, each enjoying equality in terms of legal capacity, is
not such State assistance as would transform private conduct into State action". But if extensive and
unusual financial assistance is given and the purpose of the Government in giving such assistance
coincides with the purpose for which the corporation is expected to use the assistance and such
purpose is of public character, it may be a relevant circumstance supporting an inference that the
corporation is an instrumentality or agency of Government. The leading case on the subject in the
United States is Kerr v. Enock Pratt Free Library (149 F. 2d 212). The library system in question in
this case was established by private donation in 1882, but by 1944, 99 per cent of the system's
budget was supplied by the city, title to the library property was held by the city, employees were
paid by the city payroll officer and a high degree of budget control was exercised or available to the
city government. On these facts the Court of Appeal required the trustees managing the system to
abandon a discriminatory admission policy for its library training courses. It will be seen that in this
case there was considerable amount of State control of the library system in addition to extensive
financial assistance and it is difficult to say whether, in the absence of such control, it would have
been possible to say that the action of the trustees constituted State action. Thomas P. Lewis has
expressed the opinion in his article on "The Meaning of State Action" (60 Columbia Law Review
1083) that in this case "it is extremely unlikely that absence of public control would have changed
the result as long as 99% of the budget of a nominally private institution was provided by
Government. Such extensive governmental support should be sufficient identification with the
Government to subject the institution to the provisions of the Fourteenth Amendment". It may,
therefore, be possible to say that were the financial assistance of the State is so much as to meet
almost entire expenditure of the corporation, it would afford some indication of the corporation
being impregnated with governmental character. But where financial assistance is not so extensive,
it may not by itself, without anything more, tender the corporation an instrumentality or agency or
government, for there are many private institutions which are in receipt of financial assistance from
the State and merely on that account, they cannot be classified as State agencies. Equally a mere
finding of some control by the State would not be determinative of the question "since a State has
considerable measure of control under its police power over all types of business operations". But "a
finding of State financial support plus an unusual degree of control over the management and
policies might lead one to characterise an operation as State action". Vide Sukhdev v. Bhagatram
((1975) 3 SCR 619, 650 : (1975) 1 SCC 421, 454 (para 96)). So also the existence of deep and
pervasive State control may afford an indication that the Corporation is a State agency or
instrumentality. It may also be a relevant factor to consider whether the corporation enjoys
monopoly status which is State conferred or State protected. There can be little doubt that State
conferred or State protected monopoly status would be highly relevant in assessing the aggregate
weight of the corporations' ties to the State. Vide the observations of Douglas, J., in Jackson v.
Metropolitan Edison Co. (419 US 345 : 42 L Ed 2d 477).

16. There is also another factor which may be regarded as having a bearing on this issue and it is
whether the operation of the corporation is an important public function. It has been held in the
United States in a number of cases that the concept of private action must yield to a conception of
State action where public functions are being performed. Vide Arthur S. Miller : "The
Constitutional Law of the 'Security State'" (10 Standard Law Review 620 at 664). It was pointed out
by Douglas, J., in Evans v. Newton (382 US 296 : 15 L Ed 2d 373) that "when private individuals or
groups are endowed by the State with powers or functions governmental in nature, they become
agencies or instrumentalities of the State". Of course, with the growth of the welfare State, it is very
difficult to define what functions are governmental and what are not, because, as pointed out by
Villmer, L.J., in Pfizer v. Ministry of Health ((1964) 1 Ch 614 : (1963) 1 All ER 590 (affirmed in
1965 AC 512 : (1965) 1 All ER 450), there has been since mid-Victorian times, "a revolution in
political thought and a total different conception prevails today as to what is and what is not within
the functions of Government". Douglas, J., also observed to the same effect in New York v. United
States (326 US 572) : "A State's project is as much a legitimate governmental activity whether it is
traditional, or akin to private enterprise, or conducted for profit." Cf. Helvering v. Gerhardt (304 US
405, 426, 427). A State may deem it as essential to its economy that it own and operate a railroad, a
mill, or an irrigation system as it does to own and operate bridges, street lights, or a sewage disposal
plant. What might have been viewed in an earlier day as an improvident or even dangerous
extension of State activities may today be deemed indispensable. It may be noted that besides the
so-called traditional functions, the modern State operates a multitude of public enterprises and
discharges a host of other public functions. If the functions of the corporation are of public
importance and closely related to governmental functions, it would be a relevant factor in
classifying the corporation as an instrumentality or agency of Government. This is precisely what
was pointed out by Mathew, J., in Sukhdev v. Bhagatram (supra) where the learned Judge said that
"institutions engaged in matters of high public interest or performing public functions are by virtue
of the nature of the functions performed government agencies. Activities which are too fundamental
to the society are by definition too important not to be considered government functions".

17. This was one of the principal tests applied by the United States Supreme Court in Marsh v.
Alabama (326 US 501 : 19 L Ed 265 (1946)) for holding that a corporation which owned a
company town was subject to the same constitutional limitations as the State. This case involved the
prosecution of Marsh, a member of the Jehovah's witnesses sect, under a State trespass statue for
refusing to leave the sidewalk of the company town where she was distributing her religious
pamphlets. She was fined $5 and aggrieved by her conviction she carried the matter right up to the
Supreme Court contending successfully that by reason of the action of the corporation her religious
liberty had been denied. The Supreme Court held that administration of private property such as a
town, though privately carried on, was, nevertheless, in the nature of a public function and that the
private rights of the corporation must, therefore, be exercised within constitutional limitations and
the conviction for trespass was reversed. The dominant them of the majority opinion written by Mr.
Justice Black was that the property of the corporation used as a town not recognisably different from
other towns, lost its identification as purely private property. It was said that a town may be
privately owned and managed but that does not necessarily allow the corporation to treat it as if it
was wholly in the private sector and the exercise of constitutionally protected rights on the public
street of a company town could not be denied by the owner. "The more an owner, for his advantage,
opens up his property for use by the public in general, the more do his rights become circumscribed
by the statutory and constitutional rights of those who use it . . . . Thus, the owners of privately held
bridges, ferries, turnpikes and railroads may not operate them as freely as a framer does his farm.
Since these facilities are built and operated primarily to benefit the public and since their operation
is essentially a public function, it is subject to State regulation". Mr. Justice Frankfurter, concurring,
reduced the case to simpler terms. He found in the realm of civil liberties the need to treat a town,
private or not, as a town. The function exercised by the corporation was in the nature of municipal
function and it was, therefore, subject to the constitutional limitation placed upon State action.

18. We find that the same test of public or governmental character of the function was applied by
the Supreme Court of the United States in Evans v. Newton (supra) and Smith v. Allwight (321 US
649). But the decisions show that even this test of public or governmental character of the function
is not easy of application and does not invariably lead to the correct inference because the range of
governmental activity is broad and varied and merely because an activity may be such as may
legitimately be carried on by Government, it does not mean that a corporation, which is otherwise a
private entity, would be an instrumentality of agency of Government by reason of carrying on such
activity. In fact, it is difficult to distinguish between governmental functions and non-governmental
functions. Perhaps the distinction between governmental and non-governmental functions is not
valid any more in a social welfare State where the laissez faire is an outmoded concept and Herbert
Spencer's social statics has no place. The contract is rather between governmental activities which
are private and private activities which are governmental. [Mathew, J., Sukhdev v. Bhagatram
(supra) at p. 652 : SCC pp. 452, 456, para 103]. But the public nature of the function, if
impregnated with governmental character or "tied or entwined with Government" or fortified by
some other additional factor, may render the corporation an instrumentality or agency of
Government. Specifically, if a department of Government is transferred to a corporation, it would be
a strong factor supportive of this inference.
19. It will thus be seen that there are several factors which may have to be considered in
determining whether a corporation is an agency or instrumentality of Government. We have referred
to some of these factors and they may be summarised as under : whether there is any financial
assistance given by the State, and if so, what is the magnitude of such assistance, whether there is
any other form of assistance, given by the State, and if so, whether it is of the usual kind or it is
extraordinary, whether there is any control of the management and policies of the corporation by the
State and what is the nature and extent of such control, whether the corporation enjoys State
conferred or State protected monopoly status and whether the functions carried out by the
corporation are public functions closely related to governmental functions. This particularisation of
relevant factors is however not exhaustive and by its very nature it cannot be, because with
increasing assumption of new tasks, growing complexities of management and administration and
the necessity of continuing adjustment in relations between the corporation and Government calling
for flexibility, adaptability and innovative skills, it is not possible to make an exhaustive
enumeration of the tests which would invariably and in all cases provide an unfailing answer to the
question whether a corporation is governmental instrumentality or agency. Moreover even amongst
these factors which we have described, no one single factor will yield a satisfactory answer to the
question and the Court will have to consider the accumulative effect of these various factors and
arrive at its decision on the basis of a particularised inquiry into the facts and circumstances of each
case. "The dispositive question in any State action case", as pointed out by Douglas, J., in Jackson v.
Metropolitan Edison Company (supra) "is not whether any single fact or relationship presents a
sufficient degree of State involvement, but rather whether the aggregate of all relevant factors
compels a finding of State responsibility". It is not enough to examine seriatim each of the factors
upon which a corporation is claimed to be an instrumentality or agency of Government and to
dismiss each individually as being insufficient to support a finding of that effect. It is the aggregate
or cumulative effect of all the relevant factors that is controlling.

20. Now, obviously where a corporation is an instrumentality or agency of Government, it would, in
the exercise of its power or discretion, be subject to the same constitutional or public law limitations
as Government. The rule inhibiting arbitrary action by Government which we have discussed above
must apply equally where such corporation is dealing with the public, whether by way of giving
jobs or entering into contracts or otherwise, and it cannot act arbitrarily and enter into relationship
with any person it likes at its sweet will, but its action must be in conformity with some principle
which meets the test of reason and relevance.

21. This rule also flows directly from the doctrine of equality embodied in Article 14. It is now well
settled as a result of the decisions of this Court in E. P. Royappa v. State of Tamil Nadu ((1974) 2
SCR 348 : (1974) 4 SCC 3) and Maneka Gandhi v. Union of India ((1978) 1 SCC 248) that Article
14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. It requires
that State action must not be arbitrary but must be based on some rational and relevant principle
which is non-discriminatory : it must not be guided by any extraneous or irrelevant considerations,
because that would be denial of equality. The principle of reasonableness and rationality which is
legally as well as philosophically an essential element of equality or non-arbitrariness is projected
by Article 14 and it must characterise every State action, whether it be under authority of law or in
exercise of executive power without making of law. The State cannot, therefore, act arbitrarily in
entering into relationship, contractual or otherwise with a third party, but its action must conform to
some standard or norm which is rational and non-discriminatory. This principle was recognised and
applied by a Bench of this Court presided over by Ray, C.J., in Erusian Equipment and Chemicals
Ltd. v. State of West Bengal (supra) where the learned Chief Justice pointed out that the State can
carry on executive function by making a law or without making a law. The exercise of such powers
and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of
equality before the law and equal protection of the laws. Equality of opportunity should apply to
matters of public contracts. The State has the right to trade. The State has there the duty to observe
equality. An ordinary individual can choose not to deal with any person. The Government cannot
choose to exclude persons by discrimination. The order of black-listing has the effect of depriving a
person of equality of opportunity in the matter of public contract. A person who is on the approved
list is unable to enter into advantageous relations with the Government because of the order of
black-listing ............. A citizen has a right to claim equal treatment to enter into a contract which
may be proper, necessary and essential to his lawful calling ........... It is true that neither the
petitioner nor the respondent has any right to enter into a contract but they are entitled to equal
treatment with others who offer tender or quotations for the purchase of the goods.

It must, therefore follow as a necessary corollary from the principle of equality enshrined in Article
14 that though the State is entitled to refuse to enter into relationship with any one, yet if it does so,
it cannot arbitrarily choose any person it likes for entering into such relationship and discriminate
between persons similarly circumstanced, but it must act in conformity with some standard or
principle which meets the test of reasonableness and non-discrimination and any departure from
such standard or principle would be invalid unless it can be supported or justified on some rational
and non-discriminatory ground.

22. It is interesting to find that this rule was recognised and applied by a Constitution Bench of this
Court in a case of sale of kendu leaves by the Government of Orissa in Rashbihari Panda v. State of
Orissa ((1969) 3 SCR 374 : (1969) 1 SCC 414). The trade of kendu leaves in the State of Orissa was
regulated by the Orissa Kendu Leaves (Control of Trade) Act, 1961 and this Act created a monopoly
in favour of the State so far as purchase of kendu leaves from growers and pluckers was concerned.
Section 10 of the Act authorised the Government to sell or otherwise dispose of kendu leaves
purchase in such manner as the Government might direct. The Government first evolved a scheme
under which it offered to renew the licences of those traders who in its view had worked
satisfactorily in the previous year and had regularly paid the amounts due from them. The scheme
was challenged and realising that it might be struck down, the Government withdrew the scheme
and instead, decided to invite tenders for advance purchases of kendu leaves but restricted the
invitation to those individuals who had carried out contracts in the previous year without default and
to the satisfaction of the Government. This method of sale of kendu leaves was also challenged by
filing a writ petition on the ground inter alia that it was violative of Articles 14 and 19(1)(g) and this
challenge, though negatived by the High Court, was upheld by this Court in appeal. The court
pointed out that the original scheme of offering to enter into contracts with the old licensees and to
renew their terms was open to grave objection, since it sought arbitrarily to exclude many persons
interested in the trade and the new scheme under which the Government restricted the invitation to
make offers to those traders who had carried out their contracts in the previous year without default
and to the satisfaction of the Government was also objectionable, since the right to make tenders for
the purchase of kendu leaves being restricted to a limited class of persons, it effectively shut out all
other persons carrying on trade in kendu leaves and also the new entrants into that business and
hence it was ex facie discriminatory and imposed unreasonable restrictions upon the right of persons
other than the existing contractors to carry on business. Both the schemes evolved by the
Government were thus held to be violative of Articles 14 and 19(1)(g) because they "gave rise to a
monopoly in the trade in kendu leaves to certain traders and singled out other traders for
discriminatory treatment". The argument that existing contractors who had carried out their
obligations in the previous year regularly and to the satisfaction of the Government formed a valid
basis of classification bearing a just an reasonable relation to the object sought to be achieved by the
sale, namely, effective execution of the monopoly in the public interest, was also negatived and it
was pointed out that : "exclusion of all persons interested in the trade, who were not in the previous
year licensees, is ex facie arbitrary : it had not direct relation to the object of preventing exploitation
of pluckers and growers of kendu leaves, nor had it any just or reasonable relation to the securing of
the full benefit from the trade, to the State". The Court referred to the offer made by a well known
manufacturer of bidis for purchase of the entire crop of kendu leaves for a sum of Rs. 3 crores
which was turned down by the Government and expressed its surprise that no explanation was
attempted to the given on behalf of the State as to why such an offer, from which the State stood to
gain more than Rs. 1 crore, was rejected by the Government. It will be see from this judgment that
restricting the invitation to submit tenders to a limited class of persons was held to be violative of
the equality clause, because the classification did not bear any just and reasonable relation to the
object sought to be achieved, namely, selling of kendu leaves in the interest of the general public.
The standard or norm laid down by the Government for entering into contracts of sale of kendu
leaves with third parties was discriminatory and could not stand the scrutiny of Article 14 and hence
the scheme was held to be invalid. The Court rejected the contention of the Government that by
reason of Section 10 it was entitled to dispose of kendu leaves in such manner as it thought fit and
there was no limitation upon its power to enter into contracts for sale of kendu leaves with such
persons it liked. The Court held that the Government was, in the exercise of its power to enter into
contracts for sale of kendu leaves, subject to the Constitutional limitation of Article 14 and it could
not act arbitrarily in selecting persons with whom to enter into contracts and discriminate others
similarly situate. The Court criticised the Government for not giving any explanation as to why an
offer for a large amount was not accepted, the clearest implication being that the Government must
act in the public interest; it cannot act arbitrarily and without reason and if it does so, its action
would be liable to be invalidated. This decision wholly supports the view we are taking in regard to
the applicability of the rule against arbitrariness in State action.

23. We may also in this connection refer to the decision of this Court in C. K. Achuthan v. State of
Kerala (1959 Supp 1 SCR 787 : AIR 1959 SC 490), where Hidayatullah, J., speaking on behalf of
the court made certain observation which was strongly relied upon on behalf of the respondents.
The facts of this case were that the petitioner and respondent 3 Co-operative Milk Supply Union,
Cannanore, submitted tenders for the supply of milk to the Government hospital at Cannanore for
the year 1948-49. The Superintendent who scrutinised the tenders accepted that of the petitioner and
communicated the reasons for the decision to the Director of Public Health. The resulting contract
in favour of the petitioner was, however, subsequently cancelled by issuing a notice in terms of
clause (2) of the tender, in pursuance of the policy of the Government that in the matter of supply to
Government Medical Institutions, the Co-operative Milk Supply Union should be given contract on
the basis of prices fixed by the Revenue Department. The petitioner challenged the decision of the
Government in a petition under Article 32 of the Constitution on the ground inter alia that there has
been discrimination against him vis-a-vis respondent 3 and as such, there was contravention of
Article 14 of the Constitution. The Constitution Bench rejected this contention of the petitioner and
while doing so, Hidayatullah, J., made the following observation :

                  There is no discrimination, because it is perfectly open to the Government, even as it
                  is to a private party, to choose a person to their liking, to fulfil contracts which they
                  wish to be performed. When one person is chosen rather than another, the aggrieved
                  party cannot claim the protection of Article 14, because the choice of the person to
                  fulfil a particular contract must be left to the Government.

The respondents relied very strongly on this observation in support of their contention that it is open
to the 'State' to enter into contract with anyone it likes and choosing one person in preference to
another for entering into a contract does not involve violation of Article 14. Though the language in
which this observation is couched is rather wide, we do not think that in making this observation,
the Court intended to lay down any absolute proposition permitting the State to act arbitrarily in the
matter of entering into contract with third parties. We have no doubt that the Court could not have
intended to lay down such a proposition because Hidayatullah, J. who delivered the judgment of the
Court in this case was also a party to the judgment in Rashbihari Panda v. State of Orissa (supra)
which was also a decision of the Constitution Bench, where it was held in so many terms that the
State cannot act arbitrarily in selecting persons with whom to enter into contracts. Obviously what
Court meant to say was that merely because one person is chosen in preference to another, it does
not follow that there is a violation of Article 14, because the Government must necessarily be
entitled to make a choice. But that does not mean that the choice be arbitrary or fanciful. The choice
must be dictated by public interest and must be unreasoned or unprincipled.

24. The respondents also relied on the decision of this Court in Trilochan Mishra v. State of Orissa
((1971) 3 SCC 153). The complaint of the petitioner in that case was that the bids of persons
making the highest tenders were not accepted and persons who had made lesser bids were asked to
raise their bids to the highest offered and their revised bids were accepted. The Constitution Bench
negatived this complaint and speaking through Mitter, J., observed :

                  With regard to the grievance that in some cases the bids of persons making the
                  highest tenders were not accepted, the facts are that persons who had made lower
                  bids were asked to raise their bids to the highest offered before the same were
                  accepted. Thus there was no loss to Government and merely because the Government
                  preferred one tender to another no complaint can be entertained. Government
                  certainly has a right to enter into a contract with a person well known to it and
                  specially one who has faithfully performed his contracts in the past in preference to
                  an undersirable or unsuitable or untried person. Moreover, Government is not bound
                  to accept the highest tender but may accept a lower one in case it thinks that the
                  person offering the lower tenders is on an overall consideration to be preferred to the
                  higher tenderer.

We fail to see how this observation can help the contention of the respondents. It does not say that
the Government can enter into contract with anyone it likes arbitrarily and without reason. On the
contrary, it postulates that the Government may reject a higher tender and accept a lower one only
when there is valid reason to do so, as for example, where it is satisfied that the person offering the
lower tender is on overall consideration preferable to the higher tenderer. There must be some
relevant reason for preferring one tenderer to another, and if there is, the Government can certainly
enter into contract with the former even though his tender may be lower but it cannot do so arbitrary
or for extraneous reasons.

25. There was also one other decision of this Court in State of Orissa v. Harinarayan Jaiswal ((1972)
2 SCC 36) which was strongly relied upon on behalf of the respondents. There the respondents were
the highest bidders at an auction held by the Orissa Government through the Excise Commissioners
for the exclusive privilege of selling by retail country liquor in some shops. The auction was held
pursuant to an order dated January 6, 1971 issued by the Government of Orissa in exercise of the
power conferred under Section 29(2) of the Bihar and Orissa Excise Act, 1915 and clause (6) of this
Order provided that "no sale shall be deemed to be final unless confirmed by the State Government
who shall be at liberty to accept or reject any bid without assigning any reason therefor". The
Government of Orissa did not accept any of the bids made at the auction and subsequently sold the
privilege by negotiations with some other parties. One of the contentions raised on behalf of the
petitioners in that case was that the power retained by the Government "to accept or reject any bid
without any reason therefor" was an arbitrary power violative of Articles 14 and 19(1)(g). This
contention was negatived and Hedge, J., speaking on behalf of the Court observed :

                  The Government is the guardian of the finances of the State. It is expected to protect
                  the financial interest of the State. Hence quite naturally, the legislature has
                  empowered the Government to see that there is no leakage in its revenue. It is for the
                  Government to decide whether the price offered in an auction sale is adequate. While
                  accepting or rejecting a bid, it is merely performing an executive function. The
                  correctness of its conclusion is not open to judicial review. We fail to see how the
                  plea of contravention of Article 19(1)(g) or Article 14 can arise in these cases. The
                  Government's power to sell the exclusive privilege set out in Section 22 was not
                  denied. It was also not disputed that these privileges could be sold by public auction.
                  Public auctions are held to get the best possible price. Once these aspects are
                  recognised, there appears to be no basis for contending that the owner of the
                  privileges in question who had offered to sell them cannot decline to accept the
                  highest bid if he thinks that the price offered is inadequate.

It will be seen from these observations that the validity of clause (6) of the Order dated January 6,
1971 was upheld by this Court on the ground that having regard to the object of holding the auction,
namely, to raise revenue, the Government was entitled to reject even the highest bid, if it thought
that the price offered was inadequate. The Government was bound to accept the tender of the person
who offered the highest amount and if the Government rejected all the bids made at the auction, it
did not involve any violation of Article 14 of 19(1)(g). This is a self-evident proposition and we do
not see how it can be of any assistance to the respondents.

26. The last decision to which reference was made on behalf of the respondents was the decision in
P. R. Quenin v. M. K. Tendel ((1974) 3 SCR 64 : (1974) 2 SCC 169). This decision merely,
reiterates the principle laid down in the earlier decisions in Trilochan Mishra v. State of Orissa
(supra) and State of Orissa v. Harinarayan Jaiswal (supra) and points out that a condition that the
Government shall be at liberty to accept or reject any bid without assigning any reason therefor is
not violative of Article 14 and that "in matters relating to contracts which the Government, the latter
is not bound to accept the tender of the person who offers the highest amount." Nowhere does it say
that such a condition permits the Government to act arbitrarily in accepting a tender or that under
the guise or pretext of such a condition, the Government may enter into a contract with any person it
likes, arbitrarily and without reason. In fact the Court pointed out at the end of the judgment that the
act of the Government was not "shown to be vitiated by such arbitrariness as should call for
interference by the Court", recognising clearly that if the rejection of the tender of respondent 1
were arbitrary, the Court would have been justified in striking it down as invalid.

27. Now this rule, flowing as it does from Article 14, applies to every State action and since "State"
is defined in Article 12 to include not only the Government of India and the Government of each of
the States, but also "all local or other authorities within the territory of India or under the control of
the Government of India", it must apply to action of "other authorities" and they must be held
subject to the same constitutional limitation as the Government. But the question arises, what are the
"other authorities" contemplated by Article 12 which fall within the definition of 'State' ? On this
question considerable light is thrown by the decision of this Court in Rajasthan Electricity Board v.
Mohan Lal ((1967) 3 SCR 377 : AIR 1967 SC 1857 : (1968) 1 LLJ 257). That was a case in which
this Court was called upon to consider whether the Rajasthan Electricity Board was an 'authority'
within the meaning of expression "other authorities" in Article 12. Bhargava, J., delivering the
judgment of the majority pointed out that the expression "other authorities" in Article 12 would
include all constitutional and statutory authorities on whom powers are conferred by law. The
learned Judge also said that if any body of persons has authority to issue directions the disobedience
of which would be punishable as a criminal offence, that would be an indication that the authority in
'State'. Shah, J., who delivered a separate judgment, agreeing with the conclusion reached by the
majority, preferred to give a slightly different meaning to the expression "other authorities". He said
that authorities, constitutional or statutory, would fall within the expression "other authorities" only
if they are invested with the sovereign power of the State, namely, the power to make rules and
regulations which have the force of law. The ratio of this decision may thus be stated to be that a
constitutional or statutory authority would be within the meaning of the expression "other
authorities", if it has been invested with statutory power to issue binding directions to third parties,
the disobedience of which would entail penal consequence or it has the sovereign power to make
rules and regulations having the force of law. This test was followed by Ray, C.J., in Sukhdev v.
Bhagatram (supra). Mathew, J., however, in the same case, propounded a broader test, namely,
whether the statutory corporation or other body of authority, claimed to fall within the definition of
'State', is an instrumentality or agency of Government : if it is, it would fall within the meaning of
the expression 'other authorities' and would be 'State'. Whilst accepting the test laid down in
Rajasthan Electricity Board v. Mohan Lal (supra), and followed by Ray, C.J., in Sukhdev v.
Bhagatram (supra), we would, for reasons already discussed, prefer to adopt the test of
Governmental instrumentality or agency as one more test and perhaps a more satisfactory one for
determining whether a statutory corporation, body or other authority falls within the definition of
'State'. If a statutory corporation, body or other authority is an instrumentality or agency of the
Government, it would be an 'authority' and therefore 'State' within the meaning of that expression in
Article 12.

28. It is necessary at this stage of refer to a few decisions of this Court which seem to bear on this
point and which require a little explanation. The first is the decision in Praga Tool Corporation v. C.
A. Imanuel ((1969) 3 SCR 773 : (1969) 1 SCC 585). This was a case in which some of the
workmen sought a writ a mandamus against Praga Tool Corporation which was a company with 56
per cent of its share capital held by the Central Government, 32 per cent by the Andhra Pradesh
Government and 12 per cent by private individuals. The Court held that a writ of mandamus did not
lie, because Praga Tool Corporation "being a non-statutory body and one incorporated under the
Companies Act, there was neither a statutory nor a public duty imposed on it by a statute in respect
of which enforcement could be sought by means of mandamus, nor was there in its workmen any
corresponding legal right for enforcement of any such statutory or public duty". It is difficult to see
how this decision can be of any help in deciding the present issue before us. This was not a case
where Praga Tool Corporation claimed to be an instrumentality of government or an 'authority'
within the meaning of Article 12. The only question was whether a writ of mandamus could lie and
it was held that since there was no duty imposed on Praga Tool Corporation by statute, no writ of
mandamus could issue against it.

29. The second decision to which we must refer is that in Heavy Engineering Mazdoor Union v.
State of Bihar ((1969) 3 SCR 995 : (1969) 1 SCC 765). The question which arose in this case was
whether a reference of an industrial dispute between the Heavy Engineering Corporation Limited
(hereinafter referred to as the 'Corporation') and the Union made by the State of Bihar under Section
10 of the Industrial Disputes Act, 1947 was valid. The argument of the Union was that the industry
in question was "carried on under the authority of the Central Government" and the reference could,
therefore, be made only by the Central Government. The Court held that the words "under the
authority" mean "pursuant to the authority, such as where agency or a servant acts under or pursuant
to the authority of his principal or master" and on this view, the Court addressed itself to the
question whether the Corporation could be said to be carrying on business pursuant to the authority
of the Central Government. The answer to this question was obviously 'no' because the Corporation
was carrying on business in virtue of the authority derived from its memorandum and articles of
association and not by reason of any authority granted by the Central Government. The Corporation,
in carrying on business, was acting on its own behalf and not on behalf of the Central Government
and it was therefore not a servant or agent of the Central Government in the sense that its actions
would bind the Central Government. There was no question in this case whether the Corporation
was an instrumentality of the Central Government and therefore an 'authority' within the meaning of
Article 12. We may point out here that when we speak of a Corporation being an instrumentality or
agency of Government, we do not mean to suggest that the Corporation should be an agent of the
Government in the sense that whatever it does should be binding on the Government. It is not the
relationship of principal and agent which is relevant and material but whether the Corporation is an
instrumentality of the Government in the sense that a part of the governing power of the State is
located in the Corporation and though the Corporation is acting on its own behalf and not on behalf
of the Government, its action is really in the nature of State action. This decision dealing with a
altogether different point has no bearing on the present issue.

30. We may then refer to the decision in S. L. Aggarwal v. General Manager, Hindustan Steel
Limited ((1970) 3 SCR 363 : (1970) 1 SCC 177). This decision has also no relevance to the point at
issue before us, since the only question in that case was whether an Assistant Surgeon in the
employment of Hindustan Steel Limited could be said to be holding a civil post under the Union or
a State so as to be entitled to the protection of Article 311(2) of the Constitution. The Court held
that Hindustan Steel Limited was not a department of the Government nor were its employees
holding posts under the State within the meaning of Article 311(2). The decision was clearly right
and indeed it could not be otherwise, since Hindustan Steel Limited, which was a distinct and
independent legal entity, was not a department of the Government and could not be regarded as
State for the purpose of Article 311(2). It may be noted that the Court was not concerned with the
question whether Hindustan Steel Limited was an 'authority' within the meaning of Article 12.

31. Lastly, we must refer to the decision in Sabhajit Tewari v. Union of India ((1975) 1 SCC 485)
where the question was whether the Council of Scientific and Industrial Research was an 'authority'
within the meaning of Article 12. The Court no doubt took the view on the basis of facts relevant to
the constitution and functioning of the Council that it was not an 'authority', but we do not find any
discussion in this case as to what are the features which must be present before a corporation can be
regarded as an 'authority' within the meaning of Article 12. This decision does not lay down any
principle or test for the purpose of determining when a corporation can be said to be an 'authority'.
If at all any test can be gleaned from the decision, it is whether the Corporation is "really an agency
of the Government". The Court seemed to hold on the facts that the Council was not an agency of
the Government and was, therefore, not an 'authority'.

32. We may examine, in the light of this discussion, whether respondent 1, namely, the International
Airport Authority of India, can be said to be an authority falling within the definition of 'State' in
Article 12. It is necessary to refer to some of the provisions of the International Airport Authority
Act, 1971 (hereinafter referred to as the Act) for the purpose of determining this question. Sub-
section (1) of Section 3 of the Act provides that the Central Government shall constitute an
authority to be called the International Airport Authority of India, to whom we shall hereafter refer
as respondent 1. Sub-section (2) states that respondent 1 shall be a body corporate having perpetual
succession and a common seal and sub-section (3) enacts that respondent 1 shall consist of a
Chairman to be appointed by the Central Government, the Director General of Civil Aviation ex-
officio and not less than six and not more than thirteen members to be appointed by the Central
Government. The term of office of every member of respondent 1 is prescribed by sub-section (1)
of Section 5 to be 3 years, but the Central Government is given under the Proviso power to
terminate the appointment of any member who is not a servant of the Government after giving him
notice as also to terminate at any time the appointment of any member who is a servant of the
Government. The power to remove a member in certain specified circumstances is also vested in the
Central Government under Section 6. Section 12, sub-section (1) provides that as from the date
appointed by the Central Government all properties and other assets vested in the Central
Government for the purposes of the airport and administered by the Director General of Civil
Aviation immediately before such date shall vest in respondent 1 and all debts, obligations and
liabilities incurred, all contracts entered into and all matters and things engaged to be done by, with
or for the Central Government immediately before such date shall be deemed to have been incurred,
entered into and engaged to be done by, with or for respondent 1. This sub-section also says that all
non-recurring expenditure incurred by the Central Government for or in connection with the
purposes of the airport up to the appointed date and declared to be capital expenditure by the Central
Government shall be treated as the capital provided by the Central Government to respondent 1 and
all sums of money due to the Central Government in relation to the airport immediately before the
appointed date shall be deemed to be due to respondent 1. Respondent 1 is also given the power to
institute or continue all suits and other legal proceedings instituted or which could have been
instituted by or against the Central Government for any matter in relation to the airport and every
employee holding any office under the Central Government immediately before the appointment
date solely or mainly for or in connection with the affairs of the airport shall be treated as on
deputation with respondent 1. Sub-section (1) of Section 12 also enacts similar provisions with
regard to the air navigation services and the buildings used exclusively for such services
immediately before the appointed date. The functions of respondent 1 are specified in Section 16 :
sub-section (1) provides that, subject to the rules, if any, made by the Central Government in this
behalf, it shall be the function of respondent 1 to manage the airports efficiently and sub-section (2)
casts an obligation on respondent 1 to provide at the airports such services and facilities as are
necessary or desirable for the efficient operation of air transport services and certain specific
functions to be performed by respondent 1 are particularised in sub-section (3). These functions
were, until the appointed date, being carried out by the Central Government but now under Section
16 they are transferred to respondent 1. Section 20 provides that after making provision for reserve
funds, bad and doubtful debts, depreciation in assets and all other matters which are usually
provided for by companies, respondent 1 shall pay the balance of its annual net profits to the Central
Government. Section 21 requires respondent 1 to submit for the approval of the Central
Government a statement of the programme of its activities during the forthcoming financial year as
well as its financial estimate in respect thereof at least three months before the commencement of
each financial year and Section 24 provides that the accounts of respondent 1 shall be audited
annually by the Comptroller and Auditor-General and the accounts as certified by the Comptroller
and Auditor-General or any other person appointed by him in this behalf, together with the audit
report thereon, shall be forwarded to the Central Government and the Central Government shall
cause the same to be laid before both Houses of Parliament. Respondent 1 is also required by
Section 25 to prepare and submit to the Central Government, as soon as may be after the end of
each financial year, a report giving an account of its activities during that financial year and this
report has to be laid before both Houses of Parliament by the Central Government. The officers and
employees of respondent 1 are deemed by Section 28 to be public servants and Section 29 gives
them immunity from suit, prosecution or other legal proceeding for anything in good faith done or
intended to be done in pursuance of the Act or any rule or regulation made under it. Section 33
confers power to the Central Government to temporarily divest respondent 1 from the management
of any airport and to direct respondent 1 to entrust such management to any other person. The
Central Government is also empowered by Section 34 to supersede respondent 1 under certain
specified circumstances. Section 35 gives power to the Central Government to give directions in
writing from time to time on questions of policy and provides that respondent 1 shall, in the
discharge of its functions and duties, be bound by such directions. Section 36 confers rule making
power on the Central Government for carrying out the purposes of the Act and power to make
regulations is conferred on respondent 1 under Section 37. Section 39 provides that any regulation
made by respondent 1 under any of the clauses (g) to (m) of sub-section (2) of Section 37 may make
it penal to contravene such regulation.

33. It will be seen from these provisions that there are certain features of respondent 1 which are
eloquent and throw considerable light on the true nature of respondent 1. In the first place, the
chairman and members of respondent 1 are all persons nominated by the Central Government and
the Central Government has also the power to terminate their appointment as also to remove them in
certain specified circumstances. The Central Government is also vested with the power to take away
the management of any airport from respondent 1 and to entrust it to any other person or authority
and for certain specified reasons, the Central Government can also supersede respondent 1. The
Central Government has also to give directions in writing from time to time on questions of policy
and these directions are declared binding on respondent 1. Respondent 1 has no share capital but the
capital needed by it for carrying out its functions is provided wholly by the Central Government.
The balance of the net profit made by respondent 1 after making provision for various charges, such
as reserve funds, bad and doubtful debts, depreciation in assets, etc. does not remain with
respondent 1 and is required to be paid over to the Central Government. Respondent 1 is also
required to be paid over to the Central Government for its approval a statement of the programme of
its activities as also the financial estimate and it must follow as a necessary corollary that respondent
1 can carry out only such activities and incur only such expenditure as is approved by the Central
Government. The audited accounts of respondent 1 together with the audit report have to be
forwarded to the Central Government and they are required to be laid before both Houses of
Parliament. So far as the functions of respondent 1 are concerned, the entire department of the
Central Government relating to the administration of airports and air navigation services together
with its properties and assets, debts, obligations and liabilities, contracts, causes of action and
pending litigation is transferred to respondent 1 and respondent 1 is charged with carrying out the
same functions which were, until the appointed date, being carried out by the Central Government.
The employees and officers of respondent 1 are also deemed to be public servants and respondent 1
as well as its members, officers and employees are given immunity for anything which is in goods
faith done or intended to be done in pursuance of the Act or any rule or regulation made under it.
Respondent 1 is also given power to frame Regulations and to provide that contravention of certain
specified Regulations shall entail penal consequence. These provisions clearly show that every test
discussed above is satisfied in the case of respondent 1 and they leave no doubt that respondent 1 is
an instrumentality or agency of the Central Government and falls within the definition of 'State' both
on the narrow view taken by the majority in Sukhdev v. Bhagatram (supra) as also on the broader
view of Mathew, J., adopted by us.

34. It is, therefore, obvious that both having regard to the constitutional mandate of Article 14 as
also the judicially evolved rule of administrative law, respondent 1 was not entitled to act arbitrarily
in accepting the tender of respondents 4, but was bound to conform to the standard or norm laid
down in paragraph 1 of the notice inviting tenders which required that only a person running a
registered IInd Class hotel or restaurant and having at least 5 years' experience as such should be
eligible to tender. It was not the contention of the appellant that this standard or norm prescribed by
respondent 1 was discriminatory having no just or reasonable relation to the object of inviting
tenders, namely, to award the contract to a sufficiently experienced person who would be able to run
efficiently a IInd Class restaurant at the airport. Admittedly the standard or norm was reasonable
and non-discriminatory and once such a standard or norm for running a IInd Class restaurant should
be awarded was laid down, respondent 1 was not entitled to depart from it and to award the contract
to respondents 4 who did not satisfy the condition of eligibility prescribed by the standard or norm.
If there was not acceptable tender from a person who satisfied the condition of eligibility,
respondent 1 could have rejected the tenders and invited fresh tenders on the basis of a less stringent
standard or norm, but it could not depart from the standard or norm prescribed by it and arbitrarily
accept the tender of respondents 4. When respondent 1 entertained the tender of respondents 4 even
though they did not have 5 years' experience of running a IInd Class restaurant or hotel, it denied
equality of opportunity to others similarly situate in the matter of tendering for the contract. There
might have been many other persons, in fact the appellant himself claimed to be one such person,
who did not have 5 years' experience of running of IInd Class restaurant, but who were otherwise
competent to run such a restaurant and they might also have competed with respondents 4 for
obtaining the contract, but they were precluded from doing so by the condition of eligibility
requiring five years' experience. The action of respondent 1 in accepting the tender of respondents 4,
even though they did not satisfy the prescribed condition of eligibility, was clearly discriminatory,
since it excluded other persons similarly situate from tendering for the contract and it was also
arbitrary and without reason. The acceptance of the tender of respondents 4 was, in the
circumstances, invalid as being violative of the equality clause of the Constitution as also of the rule
of administrative law inhibiting arbitrary action.

35. Now, on this view we should have ordinarily set aside the decision of respondent 1 accepting the
tender of respondents 4 and the contract resulting from such acceptance but in view of the peculiar
facts and circumstances of the present case, we do not think it would be a sound exercise of
discretion on our part to upset that decision and void the contract. It does appear from the affidavit
filed by the parties that the appellant has no real interest in the result of the litigation, but has been
put up by A. S. Irani for depriving respondents 4 of the benefit of the contract secured by them. We
find that a number of proceedings have been instituted for this purpose from time to time by A. S.
Irani either personally or by instigating others to take such proceedings. The first salvo in the battle
against respondents 4 was fired by K. S. Irani, proprietor of Cafe Excelsior, who filed a suit
challenging the decision of respondent 1 to accept the tender of respondents 4 but in this suit he
failed to obtain an interim injunction and his appeal was dismissed by the High Court on October
19, 1977. It is significant that when the tenders were opened in the office of the Airport Director,
Cafe Excelsior was represented by A. S. Irani which shows that either Cafe Excelsior was a
nominee of A. S. Irani or in any event K. S. Irani, proprietor of Cafe Excelsior, was closely
connected with A. S. Irani. Moreover, it is interesting to note that though the tender of respondents
4 was accepted as far back as April 19, 1977, K. S. Irani did not adopt any proceedings immediately
but filed the suit only after A. S. Irani was informed by the Airport Director on August 22, 1977
that a final order has been received from the Ministry requiring A. S. Irani to immediately close
down his restaurant and snack bars. It is also a circumstances not without significance that A. S.
Irani did not immediately take any proceeding for challenging the acceptance of the tender of
respondents 4, but filed a suit in his own name only after the appeal of K. S. Irani was dismissed by
the High Court on October 19, 1977. These circumstances clearly indicate that the suit was filed by
K. S. Irani at the instance of A. S. Irani or in any event in concert with him and when the suit of K.
S. Irani failed to achieve the desired result, A. S. Irani stepped into the arena and filed his own suit.
This suit was for a mandatory injunction seeking removal of the two snack bars which had in the
meantime been put up by respondents 4 pursuant to the acceptance of their tender by respondent 1.
But in this proceeding also A. S. Irani failed to obtain an ad interim injunction. It was only after the
failure to obtain interim relief in these two proceedings, one by K. S. Irani and other other by A. S.
Irani, that the appellant filed the present writ petition in the High court of Bombay challenging the
decision of respondent 1 to accept the tender of respondents 4. Now, it appears from the record that
the appellant was at the material time conducting a restaurant called Royal Restaurant and Store
which was owned in partnership by three persons, namely, J. K. Irani, K. M. Irani and G. S. Irani.
G. S. Irani is the brother of A. S. Irani and he was managing and looking after the restaurant of A.
S. Irani at the airport. It would, therefore, be a fair inference to make that the appellant was well
connected with A. S. Irani and from the manner in which proceedings with a view to thwarting the
attempt of respondents 4 to obtain the benefit of their contract, have been adopted one after the
other in different names it does appear that the appellant has filed the writ petition at the instance of
A. S. Irani with a view to helping him to obtain the contract for the restaurant and the snack bars. It
is difficult to understand why the appellant should have waited until November 8, 1977 to file the
writ petition when the tender of respondents 4 was accepted as far back as April 19, 1977. The
explanation given by the appellant is that he was not aware of the acceptance of the tender of
respondents 4 but that its a rather naive explanation which cannot be easily accepted. It is not
possible to believe that the appellant who was so well connected with A. S. Irani and G. S. Irani did
not know that A. S. Irani had filed to obtain the contract for running the restaurant and the snack
bars and that this contract had been awarded to respondents 4 as a result of which A. S. Irani was
being passed to close down his restaurant and snack bars. We have grave doubts whether this writ
petition was commenced by the appellant bona fide with a view to protecting his own interest.
Moreover, the writ petition was filed by the appellant more than five months after the acceptance of
the tender of respondents 4 and during this period, respondents 4 incurred considerable expenditure
aggregating to about Rs. 1,25,000 in making arrangements for putting up the restaurant and the
snack bars and in fact set up the snack bars and started running the same. It would now be most
inequities to set aside the contracts of respondents 4 at the instance of the appellant. The position
would have been different if the appellant had filed the writ petition immediately after the
acceptance of the tender of respondents 4 but the appellant allowed a period of over five months to
elapse during which respondents 4 altered their position. We are, therefore, of the view that this is
not a fit case in which we should interfere and grant relief to the appellant in the exercise of our
discretion under Article 226 of the Constitution.

36. We accordingly dismiss the appeal and confirm the order of the High Court rejecting the writ
petition. But in the circumstances of the case there will be no order as to costs throughout.

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