1993 (7) TMI 300 - HC - Companies Law

Summary

Issues Involved:

1. Legality of the direction to invite tenders for the utilization of idle capacity.
2. Enforcement of the contract dated December 1, 1992.
3. Validity of the letter dated February 18, 1993.
4. Compliance with the Articles of Association.
5. Violation of Article 14 of the Constitution.
6. Application of principles of natural justice.

Detailed Analysis:

1. Legality of the direction to invite tenders for the utilization of idle capacity:

The petitioner, Allana Cold Storage Ltd. (ACS Ltd.), challenged the direction by the second respondent to the first respondent, Goa Meat Complex Ltd. (GMC Ltd.), to invite tenders for the utilization of idle capacity. The court found that the decision to invite tenders was taken in response to a lucrative offer from a third party, Mac Donald Halal Frozen Foods, and was influenced by the need to maximize revenue. The court held that the State Government's action was not mala fide, unfair, or arbitrary as it aimed to secure higher revenue through a transparent tender process.

2. Enforcement of the contract dated December 1, 1992:

The petitioners sought to enforce the contract dated December 1, 1992, which extended the original agreement dated April 8, 1988, for a further period of five years. The court examined whether the agreement was a continuation of the old contract or a new agreement. It concluded that the renewal clause in the original agreement was not enforceable as it was vague and lacked certainty. The court held that the December 1, 1992, agreement was a new contract and not a mere continuation of the old one.

3. Validity of the letter dated February 18, 1993:

The letter dated February 18, 1993, informed ACS Ltd. that the State Government had not granted approval for leasing out the spare capacity of the abattoir, rendering the agreement void. The court found that there was no evidence of the State Government declining approval before or after the signing of the agreement. The minutes of the board meeting were misleading as they falsely indicated that approval was sought and declined. The court held that the letter was based on incorrect information and was not valid.

4. Compliance with the Articles of Association:

The respondents argued that the agreement was void as it violated Article 26 of the Articles of Association, which required State Government approval for leasing out the whole or substantially the whole of the undertaking. The court held that the right to use the spare capacity of the slaughterhouse did not amount to a lease or disposal of the whole undertaking. The transaction was described as "use of facilities" and did not involve a transfer of interest in the property. Therefore, Article 26 was not applicable.

5. Violation of Article 14 of the Constitution:

The court examined whether the agreement violated Article 14 of the Constitution, which mandates fairness and non-discrimination in state actions. The court referred to several Supreme Court decisions emphasizing the need for public tenders to secure the highest revenue for the State. It held that the agreement dated December 1, 1992, was contrary to Article 14 as it was entered into without inviting tenders, thereby depriving the State of higher revenue. The court concluded that the agreement was void and unenforceable.

6. Application of principles of natural justice:

The petitioners argued that their civil rights under the agreement were violated without complying with the principles of natural justice, as the agreement was unilaterally terminated. The court held that since the agreement was void ab initio for violating Article 14, there was no need to provide an opportunity to the petitioners. It also referred to the Supreme Court decision in Radhakrishna Agarwal v. State of Bihar, which stated that rules of natural justice apply to statutory functions affecting rights, not to void agreements.

Conclusion:

The court rejected the petition, holding that the agreement dated December 1, 1992, was void for violating Article 14 of the Constitution. It directed the first respondent to open the tenders after one month, ensuring a transparent process to maximize revenue. The court did not address other contentions, considering them unnecessary in light of its findings. The petition was dismissed without any order as to costs.