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PETITIONER: FOOD CORPORATION OF INDIA

       Vs.

RESPONDENT: KAMDHENU CATTLE FEED INDUSTRIES

DATE OF JUDGMENT03/11/1992

BENCH: [J.S. VERMA, YOGESHWAR DAYAL AND N. VENKATACHALA, JJ.]

ACT: Constitution of India, 1950: Article  14-Contractual   transactions  of   State  or   its instrumentality-Essential      requisites-Non-arbitrariness, fairness in  action  and  due  consideration  of  legitimate expectation-Ignoring  the   highest  bid-  Negotiations  for higher offer and acceptance thereof-Validity of.  Administrative Law: Doctrine  of   legitimate  expectation-Forms   part  of  non arbitrariness and  Rule of  Law- To  be  determined  in  the larger public interest Open to judicial review.

HEADNOTE: The appellant-Corporation  invited tenders  for sale of stocks of  damaged food-grains. The respondent’s bid was the highest. Since  the appellant  was not  satisfied about  the adequacy of  the amount  offered even in the highest tender, it  invited   all  the   tenders  to   participate  in   the negotiations,  instead  of  accepting  the  highest  tender. During the course of negotiations, the respondent refused to revise the  rates in  its offer. On the basis of the highest bid made  during the negotiations, the appellant disposed of the stocks of damaged foodgrains, rejecting the highest tenders. The  respondent,  whose  tender  was  the  highest, challenged the  decision of  the appellants by filing a Writ Petition before  the High  Court. It  was contended that the action of the appellant was arbitrary and hence violative of Art. 14  of the  Constitution. The  High Court  accepted the contention and allowed the Writ Petition. Being aggrieved by the  High   Court’s   decision   the   appellant-Corporation preferred the present appeal. It was  contended on behalf of the appellant that there being no  right in  the person submitting the highest tender to claim  acceptance thereof,  and since  all tenderers were given equal  opportunity to  participate in the negotiations and to  revise the  bid before acceptance, the action of the appellant was not arbitrary. The Respondent  contended that  since no cogent reasons were  indicated  for  rejecting  all  the  tenders  and  for deciding to  dispose of  the stock  by negotiating  with the tenderers for  procuring a higher price, such a decision was arbitrary. Allowing the appeal, this Court, HELD: 1.1.  In contractual sphere as in all other State actions, the  State and  all its  instrumentalities have  to conform to  Article 14  of the  Constitution of  which  non- arbitrariness is a significant facet. There is no unfettered

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discretion in  public  law.  A  public  authority  possesses powers   only to  use them for public good. This imposes the duty to  act fairly  and  to  adopt  a  procedure  which  is ‘fairplay in action’. Due observance of this obligation as a part  of   good  administration   raises  a   reasonable  or legitimate expectation in every citizen to be treated fairly in his interaction with the State and its instrumentalities, with this  element forming  a   necessary component  of  the decision making  process in  all State  actions. To  satisfy this requirement  of non-arbitrariness in a State action, it is  necessary  to  consider  and  give  due  weight  to  the reasonable-or legitimate  expectations of the persons likely to be  affected by  the decision  or else that unfairness in the exercise  of the  power may amount to an abuse or excess of power apart from affecting the bona fides of the decision in a  given case.   The decision so made would be exposed to challenge on  the ground  of arbitrariness. Rule of law does not completely  eliminate  discretion  in  the  exercise  of power, as it is unrealistic, but provides for control of its exercise by judicial review. [328-A-D] 12. The  mere reasonable or legitimate expectation of a citizen, in  such a  situation,  may  not  by  itself  be  a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how  the requirement of due consideration of a legitimate expectation  forms   part   of   the   principle   of   non- arbitrariness, a  necessary concomitant  of the rule of law. Every legitimate expectation is a  relevant factor requiring due consideration in a fair decision making process. Whether the expectation  of the claimant is reasonable or legitimate in the  context is a question of fact in each case. Whenever the question arises, it is to be determined not according to the claimant’s  perception but  in  larger  public  interest wherein other  more important  considerations  may  outweigh what would otherwise have been the legitimate expectation of the claimant.  A bona  fide decision of the public authority reached in this manner would satisfy the requirement of non- arbitrariness and withstand judicial scrutiny. [328-E-G] 2.1. Even  though the  highest tenderer  can  claim  no right to  have his   tender  accepted, there  being a  power while inviting  tenders to  reject all the tenders, yet that power cannot  be exercised  arbitrarily and  must depend for its validity  on the  existence of  cogent reasons  for such action. The  object of  inviting tenders  for disposal  of a commodity is to procure the highest price while giving equal opportunity to  all  the  intending  bidders  to    compete. Procuring the highest price for the commodity is undoubtedly in public interest since the amount so collected goes to the public fund. Accordingly, inadequacy of the price offered in the highest  tender would be a cogent ground for negotiating with the  tenderers giving  them equal opportunity to revise their bids  with a  view to  obtain  the  highest  available price. Retaining the option to accept the highest tender, in case the   negotiations  do not yield a significantly higher offer would  be fair to the tenderers besides protecting the public interest.  A  procedure  wherein  resort  is  had  to negotiations   with    the   tenderers   for   obtaining   a significantly higher  bid during  the period when the offers in the  tenders remain  open for acceptance and rejection of the tenders  only in  the event  of a significant higher bid being obtained  during negotiations would ordinarily satisfy this requirement.  This procedure involves giving due weight to the  legitimate expectation of the highest bidder to have his tender  accepted unless  outbid by  a higher  offer,  in which case  acceptance of  the highest offer within the time

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the offers  remain open  would be  a reasonable  exercise of power for public good. [329-E-H; 330-A] Shanti Vijay  & Co.  etc. v.  Princess Fatima  Fouzia & Ors. etc., [1980] I S.C.R. 459, relied on. Council of  Civil Service Unions and Others v. Minister for the  Civil Service,  1985 A.C.  374 (H.L.),  and  In  re Preston, 1985 A.C. 835 (H.L.), referred to. 22. In  the  instant  case,  the  respondent’s  highest tender was  super seded  only by  a significantly higher bid made during  the negotiations with all tenderers giving them equal opportunity  to compete  by revising  their bids.  The fact that  it was  a significantly  higher bid  obtained  by adopting the  right course is sufficient to demonstrate that the action  of the  appellant satisfied  the requirement  of non-arbitrariness, and it was taken for the cogent reason of inadequacy of the price offered in the highest tender, which reason was  evident to  all tenderers invited to participate in the negotiations and to revise their bids. The High Court was in error in taking the contrary view. [330-D-E]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4731 of  1992.      From the Judgment and Order dated 21.7.92 of the C.W.N. 7419 of 1992.      Y.P. Rao for the Appellant.      Ashok Sen,  H.L. Aggarwal,  and K.K. Gupta (NP) for the Respondent.      The Judgment of the Court was delivered by      VERMA, J. Leave granted.      The appeal  by special  leave under  Article 136 of the Constitution is against the judgment and order dated 21.7.92 by which  the Civil Writ  Petition No. 7419 of 1992 has been allowed by  the Punjab  & Haryana  High Court  directing the appellant  Food   Corporation  of  India  to  allot  to  the respondent the  necessary stocks  of damaged  rich for which the tenders  had been  invited by  the appellant,  since the respondent was the highest bidder.      The appellant  invited tenders  for sale  of stocks  of damaged  foodgrains   in  accordance   with  the  terms  and conditions contained  in the  tender notice  (Annexure ‘A’). The tenders  were required to be submitted upto 2.45 p.m. on 18.5.92; the  tenders were  to be  opened on 18.5.92 at 3.00 p.m.; and offers were to remain open for acceptance upto and inclusive of  17.7.92. The  respondent submitted  its tender for a  stock of damaged rice  within the time specified, but the respondent’s  tender was conditional and the full amount of  earnest  money  required  by  the  terms  was  also  not deposited. It  is, however,  not necessary  to  mention  the particulars of these two deficiencies in respondent’s tender since they  appear to  have been waived by the appellant and are not  relied on  before us  to  support  the  appellant’s action. The  respondent’s bid  in the  tender was admittedly the highest  as found  on opening,  the tenders.  lt appears that the  appellant was  not satisfied about the adequacy of the amount  offered in  the highest  tenders for purchase of the stocks  of damaged foodgrains and, therefore. instead of accepting  any  of  the  tenders  submitted,  the  appellant invited all  the tenderers to participate in the negotiation on 9.6.92.  The  respondent  refused  to  revise  the  rates offered in  its tender.  It was  Rs.  245  per  quintal  for certain lots  of this  stock;, while  the highest offer made during  the   negotiations  was   Rs.  275.72  per  quintal.

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Similarly, as  against the respondent’s offer of Rs. 201 per quintal in  respect of  some other  lots, the  highest offer made during  the negotiation  was Rs. 271.55 per quintal. On this basis,  the appellant  was  to  receive  an  additional amount of  Rs. 8  lakhs by  accepting the highest offer made during the negotiations over the total amount offered by the respondent for  the stock  of  damaged  rice.  Overall,  the appellant was  offered an  excess amount of Rs. 20 lakhs for the entire  stock of damaged foodgrains in the highest offer made during  the negotiations, inasmuch as against the total amount   Rs.90 lakhs which the appellant would have received by acceptance  of the  highest tenders, the appellant was to receive the  amount of Rs. 1 crore 10 lakhs by accepting the highest offers made during the negotiations in which all the tenderers,  including   the  respondent,  were  given  equal opportunity to participate.      The respondent  filed the  above Writ  Petition in  the High Court challenging the appellant’s refusal to accept the highest tender submitted by it for the stock of damaged rice claiming that the appellant having chosen to invite tenders, it could  not thereafter  dispose of  the stocks  of damaged foodgrains by subsequent negotiations rejecting the highest tenders on  the ground  that a  higher bid  was obtained  by negotiations. This  action of  the appellant, was alleged to be arbitrary  and, therefore,  in  substance,  violative  of Article 14  of the  Constitution.  The  High  Court  by  its impugned order  accepted this  contention of  the respondent and allowed the Writ Petition. Hence, this appeal.      It is  not disputed  that according  to the  terms  and conditions on  which the  appellant had invited tenders, the appellant had  reserved the  right to reject all the tenders and, therefore,  the highest  tender was  not  bound  to  be accepted. Learned  counsel for  the appellant submitted that there being  no right  in the  person submitting the highest tender to claim acceptance of the tender, in a case like the present. where  all the  tenderers including the respondent, were invited  for negotiation and given equal opportunity to participate and  to revise  the bid before acceptance of the highest bid  offered during  negotiation which  resulted  in obtaining an  additional amount of Rs. 8 lakhs for the stock relating to  respondent’s tender  and an overall gain of Rs. 20  lakhs  in  disposal  of  the  entire  stock  of  damaged foodgrains, the  action of the appellant could not be termed arbitrary. In  reply, Shri A.K. Sen, learned counsel for the respondent contended  that even though the appellant had the right to  reject any  tender, including  the highest tender, and thereafter  negotiate with  all the tenderers to procure the highest  price for  the commodity, yet this right has to be exercised  reasonably and not arbitrarily, otherwise, the credibility of  the procedure  of sale  by inviting  tenders would be  lost. Shri Sen submitted that the  decision not to accept any  tender and to negotiate thereafter for obtaining a higher  price than  that quoted in the highest bid, cannot be taken  on the whim and caprice of the concerned authority and can  be only  for cogent  reasons indicated while taking the decision,  or else,  the decision would be arbitrary. On this basis,  Shri Sen  further submitted that in the present case, no cogent reasons were indicated for rejecting all the tenders  and   deciding  to  dispose  of  the  commodity  by negotiation with the tenderers for procuring a higher price. He also  added that  the mere  fact that  a higher price was obtained by negotiation would not justify the decision if it was not  taken in  the manner permissible. This was the only submission of  Shri Sen  to support the decision of the High Court.

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    In our  view, Shri  A.K. Sen is right in the first part of  his  submission.  However,  in  the  present  case,  the respondent does  not get  any benefit  therefrom.  The  High Court’s decision  is based  on the  only  ground  that  once tenders have  been invited  and the  highest bidder has come forward to  comply with  the conditions  stipulated  in  the tender notice,  it is  not permissible  to  switch  over  to negotiation with  all the  tenderers and  thereby reject the highest  tender.   According  to  the  High  Court,  such  a procedure is  not countenanced  by the  rule of law. This is not the same, as the submission of Shri Sen which is limited to permissibility  of such  a course  only on cogent grounds indicated while  deciding to switch over to the procedure of negotiation after  receiving  the  tenders  to  satisfy  the requirement of non arbitrariness, a necessary concomitant of the rule  of law.  The proposition  enunciated by  the  High Court which forms the sole basis of its decision is too wide to be  acceptable and  has  to  be  limited  in  the  manner indicated hereafter.      In contractual  sphere as  in all  other State actions, the State  and all  its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a significant  facet. There  is no  unfettered discretion in public law:  A public authority possesses powers only to use them for public good. This impose the duty to act fairly and to adopt  a procedure  which is  ‘fairplay in  action’.  Due observance  of   this  obligation   as  a   part   of   good administration raises a reasonable or legitimate expectation in every  citizen to  be treated  fairly in  his interaction with the  State and its instrumentalities, with this element forming a necessary component of the decision making process in all  State actions.  To satisfy  this requirement of non- arbitrariness in a State action, it is, therefore, necessary to consider  and  give  due  weight  to  the  reasonable  or legitimate expectations of the persons likely lo be affected by the  decision or  else that unfairness in the exercise of the power  may amount  to an  abuse or excess of power apart from affecting  the bona  fides of  the decision  in a given case. The  decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion  in the  exercise of  power, as  it  is unrealistic, but  providers for  control of  its exercise by judicial review.      The mere  reasonable or  legitimate  expectation  of  a citizen, in  such a  situation,  may  not  by  itself  be  a distinct enforceable  right, but  failure to   consider  and give due weight to it may render the decision arbitrary, and this is  how the  requirement  of  due  consideration  of  a Legitimate expectation  forms part  of the principle of non- arbitrariness, a  necessary concomitant  of the rule of law. Every legitimate  expectation is a relevant factor requiring due consideration  a fair  decision making  process. Whether the expectation  of the claimant is reasonable or legitimate in the  context is a question of fact in each case. Whenever the question arises, it is to be determined not according to the claimant’s  perception but  in  larger  public  interest wherein other  more important  considerations  may  outweigh what would otherwise have been the legitimate expectation of the claimant.  A bona  fide decision of the public authority reached in  this manner  would satisfy  the   requirement of non-arbitrariness  and   withstand  judicial  scrutiny.  The doctrine of  legitimate expectation  gets assimilated in the rule of  law and operates in our legal system in this manner and to this extent.      In Council  of  Civil  Service  Unions  and  Others  v.

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Minister for  the Civil  Service, 1985  A.C. 374  (H.L.) the House of  Lords indicated the extent to which the legitimate expectation  interfaces   with  exercise   of  discretionary power. The impugned action was upheld as reasonable, made on due consideration  of all  relevant  factors  including  the legitimate  expectation   of  the   applicant,  wherein  the considerations of  national security  were found to outweigh that  which   otherwise  would   have  been  the  reasonable expectation of  the applicant. Lord Scarman pointed out that ‘the controlling  factor in determining whether the exercise of prerogative  power is  subject  to judicial review is not its source  but its  subject-matter’. Again in In re preston 1985 A.C. 835 (H.L.) it was stated by Lord Scarman that ‘the principle of  fairness has  an important place in the law of judicial review’  ant ‘unfairness  in the purported exercise of a  power can  be such  that it  is an  abuse of excess of power’. These decisions of the House of Lords give a similar indication of the significance of the doctrine of legitimate expectation. Shri  A.K. Sen  referred to  Shanti Vijay & Co. etc. v.  Princess Fatima Fouzia & Ors. etc., [1980] 1 S.C.R. 459,  which   holds  that   court  should   interfere  where discretionary power  is not exercised reasonably and in good faith.      From the  above, it  is  clear  that  even  though  the highest tenderer  can claim  no right  to  have  his  tender accepted, there  being a  power while  inviting  tenders  to reject all  the tenders,  yet the  power to  reject all  the tenders cannot  be exercised arbitrarily and must depend for its validity  on the  existence of  cogent reasons  for such action. The  object of  inviting   tenders for disposal of a commodity is to procure the highest price while giving equal opportunity  to   all  the  intending  bidders  to  compete. Procuring the highest price for the commodity is undoubtedly in public interest since the amount so collected goes to the public fund. Accordingly, inadequacy of the price offered in the highest  tender would be a cogent ground for negotiating with the  tenderers giving  them equal opportunity to revise their bids  with a  view to  obtain  the  highest  available price. The  inadequacy may  be for  several reasons known in the commercial field. Inadequacy of the prince quoted in the highest tender  would be  a question  of fact  in each case. Retaining the  option to  accept the highest tender, in case the negotiations  do not  yield a significantly higher offer would be fair to the tenderers besides protecting the public interest. A  procedure wherein resort is had to negotiations with the  tenderers for obtaining a significantly higher bid during the period when the offers in the tenders remain open for acceptance  and rejection  of the  tenders only  in  the event of  a significant  higher bid  being  obtained  during negotiations would ordinarily satisfy this requirement. This procedure involves  giving  due  weight  to  the  legitimate expectation  of  the  highest  bidder  to  have  his  tender accepted unless  outbid by  a higher  offer, in  which  case acceptance of  the highest  offer within the time the offers remain open would be a reasonable exercise  power for public good.      In the present case, the last date upto which the offer made in  the tender  was to  remain open  for acceptance was 17.7.92. After opening the tenders on 18.5.92, the appellant decided to  negotiate with  all the tenderers on 9.6.92 when significantly  higher  amount,  as  indicated  earlier,  was offered above  the amount  quoted in  the highest tender. In such a  situation, if  the negotiations  did not  yield  the desirable result  of obtaining a significantly higher price, the appellant  had the  option to  accept the highest tender

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before the  last date,  viz., 17.7.92  upto which  the offer made therein  was to  remain open  for acceptance.  In  this manner, the  respondent’s higher  tender was superseded only by a  significantly higher  bid made during the negotiations with all  tenderers giving them equal opportunity to compete by revising their bids. The fact that it was a significantly higher bid obtained by adopting this course is sufficient in the facts of the present case to demonstrate that the action of  the   appellant  satisfied   the  requirement   of  non- arbitrariness, and  it was  taken for  the cogent  reason of inadequacy of the price offered in the highest tender, which reason was  evident to all  tenderers invited to participate in the negotiations and to revise their bids. The High Court was in error in taking the contrary view. Consequently, this  appeal is allowed. The impugned judgment of the  High Court  is set  aside, resulting in dismissal of the respondent’s writ petition, No costs,  G.N.                                      Appeal allowed.