1979 (5) TMI 144 - SC - Indian Laws

What are the constitutional obligations on the State when it takes action in exercise of its statutory or executive power? Is the State entitled to deal with its property in and manner it likes or award a contract to any person it chooses without any constitutional limitations upon it? What are the parameters of its statutory or executive power in the matter of awarding a contract or dealing with its property? Held that - The corporations acting as instrumentality or agency of Government would obviously be subject to the same limitations in the field of constitutional and administrative law as Government itself, though in the eye of the law, they would be distinct and independent legal entities. If Government acting through its officers is subject to certain constitutional and public law limitations, it must follow a fortiori that Government acting through the instrumentality or agency of corporations should equally be subject to the same limitations. But the question is how to determine whether a corporation is acting as instrumentality or agency of Government. It is a question not entirely free from difficulty. 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. It may, therefore, be possible to say that where the financial assistance of the State is so much as to meet almost entire expenditure of the corporation, it would afford some indication of the corporation being impregegnated with governmental character. But where financial assistance is not so extensive, it may not by itself, without anything more render the corporation an instrumentality or agency of government, for there are many private institutions which are in receipt of financial assistance from the State and merely on that account, they cannot be classified as State agencies. Equally a mere finding of some control by the State would not be determinative of the question since a State has considerable measure of control under its police power over all types of business operations . But a finding of State financial support plus an unusual degree of control over the management and policies might lead one to characteristic an operation as State action

Issues Involved:
1. Constitutional obligations on the State in exercising statutory or executive power.
2. Parameters of the State's power in awarding contracts or dealing with property.
3. Eligibility criteria for submitting tenders.
4. The validity of the tender acceptance process.
5. Locus standi of the appellant.
6. The application of Article 14 and the rule against arbitrariness in State actions.
7. The determination of whether the International Airport Authority of India (IAAI) is an instrumentality or agency of the State.
8. The exercise of judicial discretion in granting relief.

Detailed Analysis:

1. Constitutional Obligations on the State in Exercising Statutory or Executive Power:
The judgment explores the constitutional obligations of the State when it takes action in the exercise of its statutory or executive power. The court questioned whether the State is entitled to deal with its property or award contracts without any constitutional limitations. It emphasized the significance of these questions in a modern welfare state committed to egalitarian values and the rule of law.

2. Parameters of the State's Power in Awarding Contracts or Dealing with Property:
The court examined the parameters of the State's statutory or executive power in awarding contracts or dealing with its property. It was noted that the State must act in conformity with the standards or norms it sets and cannot act arbitrarily.

3. Eligibility Criteria for Submitting Tenders:
The notice inviting tenders stipulated that only "registered IInd Class hoteliers having at least 5 years' experience" were eligible to submit tenders. The court clarified that this was a condition of eligibility that had to be satisfied by every person submitting a tender. The 4th respondents did not meet this criterion as they had experience in catering but not in running a registered IInd Class hotel or restaurant.

4. The Validity of the Tender Acceptance Process:
The court found that the acceptance of the 4th respondents' tender was in contravention of the eligibility condition set out in the tender notice. The 1st respondent (IAAI) was not entitled to accept a tender that did not meet the prescribed eligibility criteria. The action of the 1st respondent was deemed arbitrary and discriminatory, violating the equality clause of the Constitution.

5. Locus Standi of the Appellant:
The court addressed the issue of locus standi, noting that the appellant's grievance was based on being denied the opportunity to submit a tender due to the eligibility condition. The appellant argued that if the condition was known to be non-mandatory, he too would have submitted a tender. The court held that the appellant had the locus to maintain the writ petition as he was differentially treated.

6. Application of Article 14 and the Rule Against Arbitrariness in State Actions:
The court reiterated that Article 14 of the Constitution strikes at arbitrariness in State action and ensures fairness and equality of treatment. The State cannot act arbitrarily in entering into contracts and must conform to rational and non-discriminatory standards. The acceptance of the 4th respondents' tender was found to be arbitrary and discriminatory, thus violating Article 14.

7. Determination of Whether IAAI is an Instrumentality or Agency of the State:
The court examined whether the IAAI could be considered an instrumentality or agency of the State. It considered factors such as the composition of the IAAI, its functions, the control exercised by the Central Government, and the financial assistance provided by the State. The court concluded that the IAAI is indeed an instrumentality or agency of the Central Government and falls within the definition of 'State' under Article 12.

8. Exercise of Judicial Discretion in Granting Relief:
Despite finding the acceptance of the 4th respondents' tender invalid, the court decided not to set aside the contract. It noted the appellant's delay in filing the writ petition and the significant expenditure incurred by the 4th respondents in reliance on the contract. The court exercised its discretion to dismiss the appeal and confirmed the High Court's order rejecting the writ petition, citing the inequity of granting relief at this stage.

Conclusion:
The Supreme Court dismissed the appeal, confirming the High Court's order rejecting the writ petition. The court emphasized the importance of non-arbitrariness and equality in State actions, particularly in the context of awarding contracts. It also highlighted the necessity for the State and its instrumentalities to adhere to the standards and norms they set, ensuring fairness and preventing discrimination.

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