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PETITIONER: HAJI T.M. HASSAN RAWTHER

       Vs.

RESPONDENT: KERALA FINANCIAL CORPORATION.

DATE OF JUDGMENT17/11/1987

BENCH: SHETTY, K.J. (J) BENCH: SHETTY, K.J. (J) RAY, B.C. (J)

CITATION:  1987 SCALE  (2)1067

ACT:      Indian Contract Act, 1872: Auction-Disposal of property by State  or instrumentality  of the State-Resort to private negotiation  instead   of  public   auction   justified   in compulsive situations.      Constitution of  India, Article  14: Property  owned by State or  instrumentality of  State-sale  of-Through  public auction or  by inviting  tenders-Action to be fair and above board-Nothing  to  be  done  to  give  impression  of  bias, favouritism or nepotism.

HEADNOTE: %      The respondent, a State Government Corporation obtained decree for  certain amount  against  the  appellant  and  in execution proceedings  a tea  estate was brought for sale by court auction  in 1969,  but in  the absence of a bidder the respondent itself  had to purchase it at a higher price. The respondent, however,  could take  possession of  the  estate only in  1982. It  then invited  tenders for the sale of the estate. The  appellant offered  Rs.6,00,000. The  next  best offer was for Rs.4,15,550 and the third for Rs.2,07,451. The highest offer  was accepted, but the appellant could not pay the amount  except the  earnest money,  even after  repeated extension of  time and  offer  to  receive  the  balance  in instalments. The  respondent then  negotiated with  the next highest bidder,  who enhanced the offer to Rs.4,50,000 which was accepted  by the  respondent. The property, however, was sold to  a partnership  firm in  which the said bidder was a partner.      The  appellant   thereupon   moved   the   High   Court complaining that  the respondent  in selling the property to the firm  had deviated  from the normal practice of inviting the tenders from the public and that the Corporation being a public authority  was bound to act reasonably and fairly and it ought not be have arbitrarily selected the purchaser. The High Court declined to interfere.      Dismissing the appeal, ^      HELD: The  action of  the respondent  in  offering  the property to the person next in order by private negotiations and selling the same at 1080

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his request to the partnership firm was perfectly justified. [1087G]      The public  property owned  by  the  State  or  by  any instrumentality of  the State  should be  generally sold  by public auction  or by  inviting tenders, not only to get the highest price  for the  property but also to ensure fairness in the  activities of the State and public authorities. They should act fairly. Their actions should be legitimate. Their dealings should be above board. Their transactions should be without aversion  or affection  and should not be suggestive of discrimination, bias, favouritism or nepotism. Ordinarily these facts  would be  absent if  the matter  is brought  to public auction  or sale  by  tenders.  Though  that  is  the ordinary rule,  it is  not an  invariable rule. There may be situations necessitating  departure from  the rule, but then such instances  must be  justified by compelling reasons and not by just convenience. [1086H; 1087A-C]      In the  instant case,  the respondent  dealt  with  the property in all fairness. It invited tenders for the sale of the property under the notification. The appellant submitted the highest  tender in response to the said notification. He was granted  all concessions  and facilities  for payment by instalments but  he failed.  If the  appellant could not act according to  his  tender,  there  was  no  reason  why  the property should not be offered to the person who was next in order. The respondent, therefore, did not do anything unfair with the  second bidder  after it  had got the tender amount raised substantially. [1087D-F]      K.N. Guruswamy  v. The State of Mysore & Ors., [1955] 1 SCR 305  at 312;  Mohinder Singh  Gill &  Anr. v.  The Chief Election Commissioner,  New Delhi  & Ors., [1978] 2 SCR 272; R.D. Shetty  v. The International Airport Authority of India JUDGMENT: State of  Jammu and  Kashmir &  Anr.,  [1980]  3  SCR  1338; Fertilizer Corporation  Kamagar Union v. Union of India, AIR 1981 SC  344; Ram  and Shyam  Company v.  State of Haryana & Ors., [1985]  Suppl. SCR  541 and Shri Sachidanand Pandey v. State of W. B. AIR 1987 SC 1109, applied.

&      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 914 of 1987.      From the  Judgment and  Order dated  22.8.1984  of  the Kerala High Court in O.P. No. 6806 of 1984.      Abdul Khader and E.M.S. Anam for the Appellant. 1081      G. Vishwanath Iyer, N. Sudhakaran for the Respondent.      The Judgment of the Court was delivered by      JAGANNATHA SHETTY,  J. A  tea estate  of 100 acres with some  buildings,  machinery  and  equipments  was  given  as security  to   the  Kerala   Financial   Corporation   ("The Corporation") against  the loan  taken by  the appellant.  A part of  the loan  remained outstanding  and  the  appellant could not clear it. The Corporation thereupon filed O.A. No. 8/64 before  the District  Court of Kottayam for recovery of the  arrears   and  obtained   decree  for   an  amount   of Rs.1,20,000. In execution of the decree, the said tea estate was brought  for sale by court auction. On November 5, 1969, the auction  sale was  held. There  was no  bidder.  So  the Corporation itself  had to  purchase the  property for about Rs.1,65,000. There  was long  standing dispute  between  the workmen of  the estate  and the previous management relating to payment  of their  wages. The Corporation therefore could

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not take possession of the estate. An extent of 85 acres out of 100  acres of the estate was in possession of the workmen as per settlement arrived at between the Labour Commissioner and the  District Collector. The workmen used to collect the income  therefrom  towards  their  wages.  This  arrangement continued for  about thirteen years. On January 7, 1982, the Corporation  got   possession  of  the  entire  estate.  The Corporation  wanted  to  recover  its  amount.  It  was  not interested in  the property.  It therefore,  invited tenders for the  sale of  the estate.  On March  19, 1982,  a tender notification  was   published  in   dailies  like   Malayala Manorama, Mathrubhoomi  and Deepika  newspapers. In response to the  notification, the  daughter-in-law of  the appellant was  the   only  tenderer.   She  offered  Rs.5,10,505.  The Corporation accepted  the tender.  It was subsequently found that the  daughter-in-law was  no better than the appellant. She also could not pay any amount.      On January  18, 1983,  the  Corporation  again  invited tenders for  the sale  of the property. The notification was published in  the said  newspapers as  it was  done earlier. This time,  the Corporation received these tenders: (i) T.M. Hassan Rawther (Appellant before us) for Rs. six lakhs; (ii) P.M.  Jacob  for  Rs.4,15,550  and  (iii)  K.K.  Mathew  for Rs.2,07,451.  Since  the  appellant  submitted  the  highest offer, the  Corporation naturally had to accept it. On March 2, 1983,  the acceptance  was communicated to the appellant. He must  have thanked  his stars for getting back his family property which  was so dear to him or which was according to him so valuable. But there was no such anxiety shown. He did not pay anthing except the earnest money of Rs.40,000. 1082 The Corporation,  however, extended  the  time  for  payment again and  again. The  Corporation also gave him instalments for payment  of the  balance price.  All the  efforts of the Corporation failed to induce the appellant.      The Corporation  wanted to  get back  its money. It was not interested  in retaining  the property. So it negotiated with P.M.  Jacob who  had submitted his tender alongwith the appellant in  response to the notification dated January 18, 1983. He  had then  offered Rs.4,16,550.  His tender was the next best.  After negotiation,  he enhanced the offer to Rs. four and  a half  lakhs. The  Corporation  accepted  it  and decided to  sell the  property to  P.M. Jacob.  The property however, was  sold to M/s. Gumraj Plantations at the request of P.M. Jacob. M/s. Gumraj Plantations is a partnership firm in which P.M. Jacob is one of the partners.      The appellant  who could not purchase the said property by any  means filed  suit O.S.  No. 229/84 before the Munsif Court Thidupuzha  to restrain  the Corporation  from selling the property.  He could  not get relief in the suit since by then the  sale deed  was executed  in favour  of M/s. Gumraj Plantations. Subsequently, he moved the High Court of Kerala complaining that  the Corporation while selling the property for Rs.  four and  a half  lakhs to M/s. Gumraj Plantations, had deviated  from the  normal practice  of inviting tenders from the  public. He  contended that the Corporation being a public authority  was bound to act reasonably and fairly and it ought not to have arbitrarily selected the purchaser. The High Court found no substance in those submissions. The High Court observed:                "The  submission  made  by  the  petitioner’s           counsel is  that the decision to sell the property           by  private   negotiations  is  arbitrary  and  is           therefore liable  to be  interfered with  by  this           court. This  is clearly  a case where in execution

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         proceedings the  decreeholder  has  purchased  the           property and  thereafter the  property was sold in           public auction to the petitioner, who purchased it           for Rs.  six lakhs  but failed  to  pay  the  sale           amount in  spite of  the fact  that this court and           afterwards  the   corporation  had   shown   great           indulgence towards  the petitioner. This is not at           all a  fit case for interference under Art. 226 of           the Constitution."      Being aggrieved  by the judgment of the High Court, the appellant has preferred the present appeal. On May 18, 1985, this Court 1083 while entertaining  the appeal  issued notice limited to the question whether  the sale of the property should be made by general auction.  This Court  further directed  that in  any event, the  appellant will  not be allowed to participate in the auction.      Very interesting  turn of  events.  The  appellant  who miserably failed  to secure  the property for himself is now interested in  securing the  best price for the Corporation. He says  that this is a public interest litigation. His case is that  the Corporation in all fairness must dispose of the property by public auction. It could not have bargained with P.M. Jacob and sold the property to M/s. Gumraj Plantations.      Before the  High Court, the appellant attacked the sale also on  the ground  that  it  was  actuated  by  extraneous considerations.  He   alleged  that   the  corporation   had succumbed to  the pressure  of some  influential persons for the  sale   of  the   property  in  favour  of  M/s.  Gumraj Plantations. The  appellant made  these allegations  but did not  substantiate   it.  He   did  not  give  the  names  of influential  persons   who  had   brought  pressure  on  the Corporation. He did not even state as to how the Corporation officials had  shown undue  interest with P.M. Jacob or with the other  partners of  M/s. Gumraj  Plantations for sale of the property.  It is  not proper  to make such light hearted and vague  allegations against  the  statutory  authorities. These allegations,  in our  opinion,  are  uncharitable  and unfounded.      The only  question that  arises  for  consideration  is whether  on   the  facts   and  in  the  circumstances,  the Corporation was  not justified  in selling  the property  by private negotiations in favour of M/s. Gumraj Plantations at the instance of P.M. Jacob. It is needless to state that the Government or public authorities should make all attempts to obtain the  best available  price while  disposing of public properties. They  should not  generally enter  into  private arrangements for  the purpose. These principles may be taken as well  established by  the  following  decisions  of  this Court: (i) K.N. Guruswamy v. The State of Mysore and others, [1955] 1  SCR 305 at 312; (ii) Mohinder Singh Gill & Anr. v. The Chief  Election  Commissioner,  New  Delhi  and  others, [1978] 2  SCR 272;  (iii) R.D.  Shetty v.  The International Airport Authority of India and Ors., [1979] 3 SCR 1014; (iv) Kasturi Lal  Lakshmi Reddy v. State of Jammu and Kashmir and Anr., [1980]  3 SCR 1338; (v) Fertilizer Corporation Kamagar Union v. Union of India, AIR 1981 SC 344; (vi) Ram and Shyam Company v.  State of  Haryana and  Ors. [1985] Supp. SCR 541 and (vii)  Shri Sachidanand Pandey v. State of W.B. AIR 1987 SC 1109. 1084      In R.D.  Shetty v.  The International Airport Authority of India  and Ors.  [1979] 3  SCR 1014  at 1041 Bhagwati, J. speaking for the Court observed:

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              "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           sweetwill, but  its action  must be  in conformity           with some principle which meets the test of reason           and relevance.                This  rule   also  flows  directly  from  the           doctrine of equality embodied in Art 14. It is now           well settled  as a result of the decisions of this           Court in  E.P. Rayappa  v. State of Tamil Nadu and           Maneka Gandhi  v. Union  of India  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 protected  by Art. 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."      In Kasturi  Lal Lakshmi Reddy v. State of J & K, [1980] 3 SCR 1338 at 1355 Bhagwati, J. again speaking for the Court reiterated what  he said  earlier to  R.D. Shetty  case. The learned Judge went on to state: 1085                "Every action taken by the Government must be           in public  interest;  the  Government  cannot  act           arbitrarily and without reason and if it does, its           action would  be liable  to be invalidated. If the           Government awards  a contract  or  leases  out  or           otherwise deals  with its  property or  grants any           other largess, it would be liable to be tested for           its validity  on the touch-stone of reasonableness           and public  interest and  if it  fails to  satisfy           either test,  it  would  be  unconstitutional  and           invalid." The learned Judge continued (at p. 1357):                "But one basic principle which must guide the           Court in  arriving at  its determination  on  this           question is  that there  is always  a  presumption           that the  Governmental action is reasonable and in           public  interest   and  it   is  for   the   party           challenging  its  validity  to  show  that  it  is           wanting in  reasonableness or is not informed with           public interest. This burden is a heavy one and it           has to  be discharged  to the  satisfaction of the           Court by  proper and  adequate material. The Court

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         cannot lightly assume that the action taken by the           Government  is   unreasonable  or  without  public           interest because  as we  said above,  there are  a           large number  of policy  considerations which must           necessarily weigh  with the  Government in  taking           action and  therefore, the  Court would not strike           down  governmental   action  as  invalid  on  this           ground, unless  it is  clearly satisfied  that the           action is  unreasonable or not in public interest.           But where  it is  so satisfied  it  would  be  the           plainest duty  of the Court under the Constitution           to invalidate the governmental action. This is one           of the  most important  functions of the Court and           also one of the most essential for preservation of           the rule of law."      In Fertilizer  Corporation case (AIR 1981 SC 344 at 350 this Court speaking through Chandrachud, C.J., observed:                "We want  to make  it clear  that we  do  not           doubt the  bona fides  of the  authorities, but as           far as  possible, sales  of public  property, when           the intention  is to  get the best price, ought to           take  place   publicly.  The   vendors   are   not           necessarily bound  to accept  the highest  or  any           other offer,  but the  public at  least  gets  the           satisfaction that the Government has 1086           put all  its cards  on the  table. In  the instant           case, the  officers who  were concerned  with  the           sale   have   inevitably,   though   unjustifiably           attracted the  criticism that during the course of           negotiations the  original bid was reduced without           a justifying  cause. We  had willy-nilly  to spend           quite some  valuable time  in satisfying ourselves           that the  reduction in  the price  was a necessary           and fair  consequence  of  the  reduction  in  the           quantity of  the goods  later offered  for sale on           March 31, 1980. One cannot exclude the possibility           that a  better price might have been realised in a           fresh public auction but such possibilities cannot           vitiate the  sale or  justify the  allegations  of           malafides."      In Shri Sachidanand Pandey v. State of West Bengal, AIR 1987  SC   1109  at  1133,  O.  Chinnappa  Reddy,  J.  after considering almost  all the  decisions of  this Court on the subject summarised the propositions in the following terms:                "On a  consideration of  the  relevant  cases           cited at the bar the following propositions may be           taken as  well established:  State owned or public           owned property  is not  to be  dealt with  at  the           absolute  discretion  of  the  executive.  Certain           percepts and principes have to be observed. Public           interest is  the paramount  consideration. One  of           the methods  of securing  the public interest when           it  is   considered  necessary  to  dispose  of  a           property,  is  to  sell  the  property  by  public           auction or by inviting tenders. Though that is the           ordinary rule, it is not an invariable rule. There           may  be  situations  where  there  are  compelling           reasons necessitating  departure from the rule but           then  the   reasons  for  the  departure  must  be           rational  and   should  not   be   suggestive   of           discrimination. Appearance of public justice is as           important as doing justice. Nothing should be done           which gives  an appearance  of  bias,  jobbery  or           nepotism."

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    After applying  these tests,  the learned Judge finally upheld the  action of West Bengal Government in not inviting tenders, or  in not holding a public auction but negotiating straightway at  arms length  with Taj  Group of  Hotels  for giving about four acres of land for establishing a five star hotel.      The public  property owned  by  the  State  or  by  any instrumentality of  the State  should be  generally sold  by public auction or by inviting 1087 tenders. This  Court has  been insisting upon that rule, not only to  get the  highest price for the property but also to ensure fairness  in the  activities of  the State and public authorities.  They  should  undoubtedly  act  fairly.  Their actions should be legitimate. Their dealings should be above board. Their  transactions should  be  without  aversion  or affection. Nothing  should be  suggestive of discrimination. Nothing should  be done by them which gives an impression of bias, favouritism  or  nepotism.  Ordinarily  these  factors would be  absent if  the matter is brought to public auction or sale  by tenders. That is why the Court repeatedly stated and reiterated  that the State owned properties are required to be  disposed of  publicly. But that is not the only rule. As O.Chinnappa  Reddy, J.  Observed "that though that is the ordinary rule,  it is  not an invariable rule." There may be situations necessitating  departure from  the rule, but then such instances  must be  justified by compulsions and not by compromise. It  must be  justified by compelling reasons and not by just convenience.      What is  the position  in the  present case.  Here is a case where  the Corporation  invited tenders for the sale of the property  under notification dated January 18, 1983. The appellant submitted  the highest  tender in  response to the said notification.  He was given all concessions for payment of the tender amount. But he did not. He negotiated with the Managing Director  of the  Corporation  for  facilities  for payment by  instalments. That was also granted to him. There again he failed. If the appellant could not act according to his tender,  we fail  to see  why the property should not be offered  to   the  person   who  was   next  in  order.  The Corporation, in our opinion, did not do anything unfair with P.M.Jacob. The Corporation got the tender amount raised from Rs.4,16,550 to Rs.4,50,000. It shows the fairness with which the Corporation dealt with the property.      On a  consideration of  all the facts and circumstances of the  case, we  are  satisfied  that  the  action  of  the Corporation  in  offering  the  property  to  P.M.Jacob  and selling the  same at  his request to M/s. Gumraj Plantations was perfectly justified and cannot be found fault with      In the result the appeal fails and is dismissed. In the circumstances, however, we make no order as to costs. P.S.S.                                     Appeal dismissed. 1088