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TMI Blog1993 (7) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... acity at the said Goa Meat Complex Ltd., with effect from April 8, 1993 ; and ( c )to quash letter dated February 18, 1993, of the first respondent. The first petitioner, Allana Cold Storage Ltd. (hereinafter referred to as "ACS Ltd."), is registered with the Agricultural and Processed Food Products Export Development Authority also known as APEDA, a Government of India undertaking. The second petitioner is the shareholder of ACS Ltd., the first petitioner company. The first respondent is also a company duly registered under the Companies Act and carrying on the business of providing facilities for slaughtering of animals at their slaughter-house situated in Usgao, Goa. It is a company whose shareholding is held by the State Government and the Municipal Councils. It is not in dispute that the first respondent, hereinafter referred to as "GMC Ltd." is State under article 12 of the Constitution. It is alleged in the petition that the petitioners are pioneers in the field of export of meat products from India and are the largest exporters of meat, forming part of the Allana group which was established in the year 1865. The Allana group are recognised as "Star Trading House" whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich huge sum of money was spent. All this was done because the petitioners were led to believe that there would be a renewal for a further period of five years. Simultaneously the petitioners could launch a major thrust in the field of export and earn valuable -foreign exchange. The petitioners having discharged all their obligations under the agreement, wrote a letter dated October 19, ,1992, to the chairman of GMC Ltd. to renew the agreement for use of spare facilities for a further period of five years. In this context the petitioners also relied upon clause 17 of the agreement. In response thereto the petitioners were called for discussion with the managing director of the first respondent, the GMC Ltd. In the discussion that followed the petitioners agreed to increase the rates and accordingly concrete proposals were made in their letter dated October 29, 1992. At the 21st annual general meeting of the shareholders held on November 19, 1992, in the Chamber, of Minister for Agriculture, who is also the chairman of GMC Ltd., the subject of renewal of the lease was considered. After expressly taking into account the efforts made by the petitioners to involve even the Malaysian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, the decision was taken in utter disregard of the principles of natural justice and also in violation of the principles of propriety, fairness and reasonableness. The action of the second respondent in compelling the first respondent to resile from the agreement and the action of the first respondent, GMC Ltd. in yielding to the said compulsion and/or reneging on the contract dated December 1, 1992, with the petitioner and deciding to tender the spare capacity/facility are challenged by the petitioners as void, illegal and of no effect whatsoever and are without authority of law and/or in irregular exercise of jurisdiction on various grounds. The first respondent filed a reply affidavit opposing admission and also the interim relief, raised various defences by contending that: ( i ) the petitioners have no enforceable right ;. ( ii ) no relief by way of specific performance is permissible and at the highest, the relief will be by way of damages ; ( iii ) the agreement dated December 1, 1992, is not in conformity with the articles of association and, therefore, not enforceable ; ( iv ) the agreement is void being contrary to well-settled principles and the mandate of article 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not provide for renewal of the agreement because clause 17 only provides that the agreement would be renewed for a further period of five years, subject to such modifications as mutually agreed. Such a clause cannot be construed as renewal clause of the existing agreement ; ( e )the respondent Government learnt for the first time that an agreement dated December 1, 1992, was signed by GMC Ltd. with ACS Ltd. only, when a letter was; received offering a minimum guaranteed amount of Rs. 26 lakhs per year. Upon realising that the action of the first respondent was contrary to the articles of association and that the said agreement was unconstitutional and void, the Government directed the first respondent not to act upon the said agreement but to call for tenders with a view to fetch maximum price ; ( f )the resolution to enter into the agreement dated December 1, 1992, was passed at an annual general body meeting contrary to the provisions of the Companies Act. Before embarking upon the points raised, it is necessary to find out whether the petitioners were induced to enter into the agreement dated April 8,1988. In this connection, various correspondence is filed on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. It is clear that GMC Ltd. were on the look out for a person who could upgrade the abattoir by making investment and simultaneously use its spare capacity and pay GMC Ltd. a specific guaranteed minimum amount. Though at the time the GMC Ltd. approached ACS Ltd. they had shown their willingness to provide necessary infrastructure by installing some of the machinery which was not-there but it appears that they could not do so for want of finances. This would be clear from the letter written by GMC Ltd. to APEDA as late as on July 13, 1989, where it is stated that the most acute problem is of finance which GMC Ltd. is facing. The financial liabilities of the company do not permit GMC Ltd. to go in for improvement at additional cost. Only for this reason GMC Ltd. had to enter into an agreement with ACS Ltd. It may be appropriate to observe here that it took nearly five years for GMC Ltd. to find out a person who could invest and at the same time pay a guaranteed sum to them. It is in these circumstances that ACS Ltd. was given facility to utilise the spare capacity of the abattoir and the agreement dated April 8, 1988, came to be executed. It cannot be denied that ACS Ltd. was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mentioned therein ; ( h )clause 21 provides that in case either party fails to perform their obligations the other party will have a right to claim refund/damages. It further stipulates that neither GMC Ltd. nor ACS Ltd. will or can terminate this agreement ex parte before the expiry of the period. Soon after the agreement was signed the second respondent received a letter from Mac Donald Halal Frozen Foods dated December 3, 1992, wherein they showed their willingness to take the complex on lease for a period of five years and also stipulated some of the conditions therein. In a subsequent letter dated December 5, 1992, the same party offered a minimum guaranteed amount of Rs. 26 lakhs per annum for five years. It appears from the Government files produced before this court that the comments of the managing director were called for as the second respondent found that the offer of Mac Donald Halal Frozen Foods was very lucrative. This is clear from the note sheet dated December 18, 1988, and the cover sheet where it is written "Leasing of Meat Complex/Slaughter to Mac Donald Proposal reg." The managing director of GMC Ltd. emphatically opined that it is not advisable to ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents are nothing but afterthoughts and were not in contemplation when the contract was sought to be rescinded. The reasons cannot be supplemented in the affidavit and this raises a fundamental issue of propriety relating to the decision making process. It is observed in the Supreme Court decision that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons. Otherwise, the order bad in the beginning, may by the time it comes to court on account of challenge, get validated by additional grounds later brought out. This case was, however, explained in a later decision of the Supreme Court in the case of Sachidanand Pandey v. State of West Bengal [1987] 2 SCC 295, by observing, "it is important to note that unlike Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851, where the court was dealing with a statutory order made by a statutory functionary who could not, therefore, be allowed to supplement the grounds of this order by later explanations, the present is a case where neither a statutory function nor a statutory functionary is involved bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase". There is no transfer of interest in the property and that too exclusively. The attempt on the part of the respondents to describe the use of facilities as "lease" is totally misconceived. At the stage of arguments, it was suggested that the petitioners were given the right to run the whole of the undertaking. Even this is incorrect inasmuch as the petitioners are using the idle capacity of the slaughterhouse to carry on their own business and for such use of the abattoir, payment as agreed was being made. Such a user can never come within the sweep of sale, lease or disposal otherwise as sought to be contended. These words only envisage a complete and exclusive transfer of an undertaking by GMC Ltd. to a third party and the transferee derives the right to hold, possess and control that undertaking. A mere user of facilities and that too partially, would not attract the provisions of article 26(2) of the articles of association. The word "undertaking", is defined in various statutes including the Indian Companies Act. The Bench comprising of eleven judges had an occasion to consider the meaning of the word "undertaking" in the case of Rustom Cavasjee Cooper v. Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither false or the letter in question has been suppressed by the respondents. It is now a settled proposition that in contractual matters the State Government is bound by the rule of fairness and arbitrariness. It was urged on behalf of the petitioners that the action of the respondents is pregnant with mala fide s, unfairness and arbitrariness. The contention is based on the two files produced by the State Government at the instance of the petitioners. The records do reveal that in one of the files which was opened earlier on receipt of the letter from MacDonald Frozen Foods dated December 3, it is written on the cover sheet "Leasing of Goa Meat Complex to MacDonald Proposal reg.". The order sheet reveals that the comments of the managing director were called for on the letter of MacDonald addressed to the Chief Minister directly. The managing director submitted his notes pointing out various reasons including the efforts made by ACS Ltd. in upgrading the complex and inviting foreign agencies for procuring export of the products manufactured there and as to why it was not advisable to enter into any sort of arrangement/agreement with this MacDonald Halal Frozen Foods. In other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o believe that the agreement with ACS Ltd. was non est for a particular reason. May be that the said reason was not ultimately found to be correct. It is hence difficult for us to accept that the agreement stands vitiated on this ground. We now take up the vital point in controversy whether the disputed agreement offends article 14 of the Constitution and for that reason it is void and unenforceable. We. may mention here that this question is raised by the second respondent the State Government. On behalf of the petitioners the following contentions were raised : (1) It is not right for the Government to say that the contract is void for the reason that the agreement offends article 14 of the Constitution ; (2)That the disputed agreement is a continuation of an old contract by virtue of exercise of an option to renew and hence the second respondent cannot challenge the existing agreement on the ground that it suffers from the vice of article 14 of the Constitution. We shall deal with the aforesaid submissions one by one. It would be appropriate first to deal with the point relating to renewal of the agreement. It is necessary to find out whether the agreement dated Decemb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Supreme Co.urt in the case of Damodhar Tuharam Mangalmurti v. State of Bombay, AIR 1959 SC 639, and it was contended that where the fixation of rent was left to the lessor, the court could determine the proper amount of rent on which the renewal could be granted. The condition contained in the lease deed in that case was that the renewal would be "subject to such fair and equitable enhancement as the lessor shall determine". It was held that although the matter was left to the determination of the lessor, the amount had to be "fair and equitable", in fact and the matter thus became justiciable in court. Such is not the position in the present case. Another case relied upon by the petitioners was the Secretary of State for India v. Volkart Bros., AIR 1927 Mad 513. In that case, a contract to grant renewal of lease "on such terms and conditions as shall be adjudged reasonable", at the time of such renewal was held to be capable of specific performance and not void on the ground of uncertainty. Even this case cannot help the petitioners firstly because the terms in the present case do not speak about the terms being fair, proper and reasonable and secondly, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action is valid at law and also enforceable. In these circumstances, the second respondent is not precluded from raising a defence that the agreement is viola-tive of article 14. As stated above, the first respondent is an authority under article 12 of the Constitution. That such an authority does not have complete freedom to contract, as private individuals do have, has been repeatedly laid down in the various decisions of the Supreme Court. This is made clear in the judgment of the Supreme Court in Ramana Dayaram Shetty v. International Airports Authority of India, AIR 1979 SC 1628. In this decision, it is clearly pointed out that-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 private individuals. It is also held in the aforesaid judgment that "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 dealings by the Government with the public where interest sought to be protected is a privilege. It must, therefore, be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sounded a tocsin and cautioned that its earlier rulings whereby contracts of private negotiations were held should not be construed as granting an option to the authorities within the meaning of article 12 to enter into contractual relationship by public tender or by private negotiations at their discretion. This is clearly spelt out in para 26 of the report which is extracted below : "The cases aforesaid on which reliance was placed on behalf of the appellants, have also reiterated that once the State decides to grant any right or privilege to others, then there is no escape from the rigour of article 14 ; the executive does not have an absolute discretion, certain precepts and principles have to be followed, the public interest being the paramount consideration. It has also been pointed out that for securing the public interest one of the methods recognised is to invite tenders affording opportunity to submit offers for consideration in an objective manner. However, there may be cases where in the special facts and circumstances and due to compelling reasons which must stand the test of article 14 of the Constitution, departure from the aforesaid rule can be made. This court wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87] 1 SCR 1. The production and distribution of liquor was entirely controlled by the State of Madhya Pradesh. Even the distilleries were owned by the State but run by entrepreneurs under licences awarded in auction. Over the course of time the distillery had become dilapidated, the machineries therein were replaced by entrepreneurs there being pollution problem. Therefore, the State decided to shift the distilleries and businessmen be invited to set up and run the distilleries. Only to those businessmen who were prepared to . incur expenses to establish distilleries the licences for sale and distribution were to be given. The respondents in those cases showed interest. By the time the writ petitions were filed each distiller had invested huge sums extending up to rupees two crores. The Supreme Court relying upon the ratio laid down in Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, AIR 1980 SC 1992, at length discussed the pernicious nature of the trade and reiterated that in economic policy the courts should not interfere. Many more cases were cited at the Bar on the point, but we do not feel it necessary to refer to them since the law laid down is almost the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (3) admittedly, the alleged opportunity was given in the year 1991 when the utilisation of spare capacity of the abattoir was with ACS Ltd. and the production was in progress. No offer can be expected from any one knowing the subsistence of the agreement between the GMC Ltd. and ACS Ltd. which was to last for about two years more. Therefore, there is no substance in the contention that the disputed agreement is not opposed to public interest. One more contention is raised on behalf of the petitioners that they have a vested right under the agreement and those civil rights were sought to be violated without complying with the principles of natural justice. The unilateral termination was in contravention of clause 21 of the agreement which prohibits either party from terminating the agreement ex parte . We are unable to persuade ourselves to accept the contention because the agreement in question is void at the threshold since it offends article 14 of the Constitution. No useful purpose would be served by giving opportunity to the petitioners. We may also usefully refer to the decision of Radhakrishna Agarwal v. State of Bihar, AIR 1977 SC 1496, where it is laid down th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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