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CASE NO.: Appeal (civil)  7560 of 2005

PETITIONER: M/s Puravankara Projects Ltd.                           \005.Appellant

RESPONDENT: M/s Hotel Venus International and Ors.          \005Respondents

DATE OF JUDGMENT: 02/02/2007

BENCH: Dr. ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT: J U D G M E N T (With Civil Appeal No.7561 of 2005)

Dr. ARIJIT PASAYAT, J.

       Challenge in these appeals is to the judgment of a  Division Bench of the Kerala High Court holding that the order  of cancellation dated 13.4.2005 passed by respondent No.2  was illegal and that respondent No.1 was entitled to further  time to furnish the bank guarantee after the order granting   exemption in terms of Section 81(3)(b) of the Kerala Land  Reforms Act, 1963 (in short the ’Act’) is issued.  

       The background facts in a nutshell are as follows:

       The State Government transferred 51.96 acres of land in  favour of Goshree Island Development Authority (in short the  ’GIDA) a non statutory State Government Undertaking to  enable it to sell it and to use the proceeds for its  developmental schemes. GIDA was authorized to sell the land  in public auction in part or in full. GIDA invited tenders on  several occasions but the tenders were cancelled.  Finally, as  per Notification dated 10.1.2005 fresh tenders were invited  and pre bid meeting was held on 10.2.2005. Tenders were  submitted, which were opened on 16.2.2005. In the tender  documents four options were indicated. The individual extent  of plots mentioned in option IV which was accepted by the  GIDA was less than the ceiling limit contemplated under  Section 82(d) of the Act i.e. 15 acres.  

       Respondent No.1 i.e. M/s Hotel Venus International  (hereinafter referred to as the ’Venus’)  was the successful  bidder in respect of plot Nos. D3, D4 and D5 and its sister  concerns were successful in respect of plots B, C3, C4 and C5  under Option IV. Appellant M/s Puravankara Projects Ltd.       was the second highest bidder in respect of plot Nos. D3, D4  and D5 measuring about 8.78 acres each. In the pre bid  meeting held on 10.2.2005 one of the queries raised by one of  the participants was as to when exemption notification under  Section 81(3)(b) of the Act would be obtained. The reply by the  Secretary, GIDA forms the foundation of several stands in the  present appeals.  The Secretary admittedly replied as follows:

       "GIDA had moved for general exemption  under Section 81(3)(b) of the Kerala Land  Reforms Act from the Government and the

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same will be obtained in a few days".     

On 28.2.2005 the General Council of GIDA accepted bids of  Venus for plot Nos. D3, D4 and D5 and confirmation letters of  the said acceptance were issued on 1.4.2005 from Cochin  addressed to the addressees in terms of Clause 19 of the  tender. The addressees were in Trivandrum  (Thiruvananthapuram).  

       By letter dated 31.3.2005 Venus insisted on an  exemption notification being obtained by GIDA as a pre  condition to fulfill the tender terms and conditions, more  particularly relating to furnishing of bank guarantee in terms  of Clause 10 of the tender. There is some dispute as to  whether the bidders had received the letters because the  postal endorsements indicate that on account of oral  instructions of the owner of Venus, the letters were delivered  on 28.4.2005 i.e. much after the normal period of delivery of  letters. Appellant knowing that Venus had not furnished the  bank guarantee in terms of Clause 10 of Tender Terms and  Conditions vide its letter dated 19.4.2005  matched the  highest offer in respect of the concerned plots and agreed to  pay the entire amount in a lump sum.  When GIDA did not  respond to the offer, the appellant moved the High Court of  Kerala by a Writ Petition (C) No.13735 of 2005 which relates to  C.A. 7561 of 2005. Prayer in the writ petition inter alia was for  a declaration that the tender of   Venus in relation to plot Nos  D3, D4 and D5 was to be treated as cancelled as the requisite  bank guarantee was not furnished. A consequential prayer  was made not to extend the time for furnishing bank  guarantee and for a direction to GIDA to consider the  appellant’s tender which till then was not accepted.

       Learned Single Judge of the High Court passed an  interim order restraining the alteration of the terms and  conditions contained in the tender until further orders. In the  meantime, Venus failed to furnish the bank guarantee and,  therefore, GIDA issued letters of cancellation of the letters of  confirmation issued earlier.  

       The order of cancellation was challenged by Venus in  respect of the concerned Plots in Writ Petition Nos.  15032/2005, 15048/2005 and 15052/2005. It is to be noted  that the first two related to plot Nos. B, C3, C4 and C5. During  the pendency of the writ petitions, the General Council of  GIDA in its meeting on 21.5.2005 ratified the cancellation and  directed forfeiture of the earnest money deposited in respect of  the bids made by Venus in respect of the plots. In the said  meeting  in respect of plot Nos. D3, D4 and D5 it was resolved  to accept the offers made by the appellant who had offered the  same price as that offered by Venus earlier. The decision was  however made subject to the decision of the High Court in the  pending writ petitions.   

       The Notification of exemption of land in terms of Section  81(3)(b) of the Act was issued and published in the official  gazette on 20.5.2005. The learned Single Judge allowed the  writ petition filed by Venus essentially holding that the  exemption Notification should have preceded the tender and  Venus could not have been expected to comply with tender  conditions without an exemption Notification. The Writ   Petitions filed by the appellants were dismissed.  The writ  appeals preferred in respect of the writ petitions were

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dismissed affirming the judgment of the learned Single Judge  though on different grounds.  

       It is to be noted that a Division Bench of the High Court  had issued notice and passed interim order to maintain status  quo in respect of the concerned plots by order dated  18.8.2005.

       According to the appellants Venus had not come to Court  with clean hands. Both learned Single Judge and the Division  Bench proceeded on erroneous premises as if exemption was a  condition precedent to issuance of tender. In fact all concerned  knew that the exemption could be granted later on. The  exemption was necessary only when the total area exceeded  the prescribed limit. As noted above, the successful bidder  could be allotted a plot of land which was less than the ceiling  limit. It is submitted that Venus was aware that exemption  notification was not a condition precedent. Therefore, it had by  its letter dated 16.3.2005  addressed to the Chief Minister of  State expressed its willingness for execution of the sale deeds  in respect of the plots for which they had submitted tenders.  Prayer was made in respect of the benefit of stamp duty. In  that context they had clearly stated in the writ petition that  instead of waiting for instalments they had prepared to raise  their own resources to save a huge amount. In other words,  attempt of Venus was to save the stamp duty and absence of  the exemption order was not even taken as a ground for  permission to execute the sale deeds. The High Court, it is  submitted, had erroneously considered the terms of the tender  and the effect of Section 87 of the Act.  The High Court by its  judgment virtually re-wrote the terms of the tender document  and in essence introduced new aspects in the contract.    

       Section 87 had no application because it relates to cases  when a person either acquires any land after the notified date  under Section 83 of the Act  by gift, purchase, mortgage with  possession, lease, surrender or any other kind of transfer inter  vivos or by bequest or inheritance or by otherwise. It comes  into existence once there is acquisition of title or interest over  the property. The agreement for sale does not create any  interest in the property and, therefore, the High Court was not  justified in applying Section 87 to the facts of the case.  

       In response, learned counsel for Venus-respondent No.1  submitted that Section 81(3)(b) of the Act relates to exemption.  Section 82 specifies the ceiling area and, therefore, no person  can hold land in excess of the ceiling limit. There is a total  prohibition. Since the global tender notification was issued in  respect of the entire 51 acres 96 cents of land, it was obvious  that even if a bidder succeeds in the tender for more than 51  acres of land he cannot own or hold the land for any purpose  without the exemption. Clause 14 of Tender Terms and  Conditions provides that allottees can avail loan from the  banks/financial institutions for effecting payment and for that  purpose GIDA was requested to issue NOC. That being so, no  any bank or financial institution will advance any amount  without a clear title. In the absence of the exemption  notification legally the successful bidder cannot hold any land.  That actually would affect the generation of finances. In the  pre bid meeting a specific stand was raised as to when the  exemption notification is likely to be issued and the reply of  GIDA authorities was that it was to be obtained shortly. In the  absence of the exemption notification the requirement of  furnishing the bank guarantee could not have been insisted

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upon and both the learned Single Judge and the Division  Bench have therefore rightly held that the exemption  notification was a condition precedent. If a bidder is  constrained to fulfill the conditions regarding payment of bank  guarantee without exemption that would cause great hardship  and if there is non compliance, the inevitable result would be  that GIDA would forfeit the EMD for no fault of the tenderer.  Therefore, the High Court has rightly accepted the contention  of Venus that time for compliance would be computed only  from the date of exemption notification and the receipt of the  confirmation thereof.  When the parties entered into an  arrangement it is impliedly understood that there should be  an effective transfer of undisputed clear title to the transferee.   It is therefore submitted that the order of learned Single Judge  and the Division Bench do not warrant any interference.  

       A belated special leave petition has been filed by the  State taking the stand that there has been considerable  increase in price and cost of the land and the appellant should  not be allowed to get the land by matching price offered by  Venus. It is to be noted that the order of learned Single Judge  was not challenged either by the State Government or GIDA  and this fact has been noted by the Division Bench.  

       A few clauses in the Tender Terms and Conditions need  to be noted. They are Clauses 3, 7, 8, 10, 14 and 15 which  read as follows:

"3      The tenderers have to acquaint  themselves with regard to the nature and other  conditions of the land before submitting  tender. The Tender form quoting unit rate (rate  per cent) enclosed in sealed cover with the  superscription "Tender for goshree Land at  Marine Drive, Kochi" shall reach the Secretary,  Goshree Islands Development Authority, Park  Avenue, Kochi-682 011 before 3.00 P.M. on  16th February, 2005. Tender received after the  time fixed will not be considered. The tenders  will be opened by the Secretary, GIDA or an  officer authorized by him at 4.00 P.M. on the  same day at District Collector’s Camp office,  Club Road, Kochi-682 011 in the presence of  the bidders or their authorized representative  if present.

               xx                      xx              xx

7.      The tenders shall remain open for a  period of 90 days.

8.      The tenders received in each option, will  be evaluated by the General Council and  appropriate decision which is most  advantageous to GIDA will be taken. The  General Council is free to take any decision,  which it deems fit in the best interest of GIDA.

xx                              xx                      xx  

10.      Within 10 days of receipt of confirmation  letter, the bidder shall furnish two bank  guarantees each covering 20% of the bid  amount for a period of 180 days. On failure of

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compliance, the tender shall stand  cancelled  without further notice  and the earnest money  deposit shall be forfeited. If the tenderer to  whom the notice intimating confirmation is  sent, fails to respond within the specified time  of 10 days, GIDA will be free to consider any  other tender without any further notice.    

Xx                              xx                      xx     14.     If after payment of Ist instalment, the  allottee desires to avail loan from  banks/financial institutions for paying the 2nd  and 3rd instalments of sale value of the land,  GIDA will issue necessary NOC favouring the  bank/financial institution.

15.     Sale deed will be registered and  possession handed over to the purchaser on  payment of the full value of the land".  

       Sections 81(3)(b) and 87 on which much of the  controversy revolves round read as follows:

"81(3) The Government may, if they are  satisfied that it is necessary to do so in the  public interest.

(a)     xx              xx              xx              xx

(b) on account of any land being bona fide  required for the purpose of conversion into  plantation or for the extension or  preservation of an existing plantation or for  any commercial, industrial, education or  charitable purpose, by notification in the  Gazette, exempt such land from the  provisions of this Chapter, subject to such  restrictions and conditions as they deem fit  to impose:

               Provided that the land referred to in  clause (b) shall be used for the purpose for  which it is intended within such time as the  Government may specify in that behalf; and  where the land is not so used within the  time specified, the exemption shall cease to  be in force".           Section 87: Excess land obtained by gift, etc.,  to be surrendered:-(1) Where any person  acquires any land after the date notified under  section 83 by gift, purchase, mortgage with  possession lease, surrender or any other kind  of transfer intervivos or by bequest or  inheritance or otherwise and in consequence  thereof the total extent of land owned or held  by such person exceeds the ceiling area, such  excess shall be surrendered to such authority  as may be prescribed.

Explanation I.- Where any land is exempted by  or under section 81 and such exemption is in  force on the date notified under section 83,  such land shall, with effect from the date on

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which it ceases to be exempted, be deemed to  be land acquired after the date notified under  section 83.

Explanation II.-. Where, after the date notified  under section 83, any class of land specified in  Schedule II has been converted into any other  class of land specified in that Schedule or any  land exempt under section 81 from the  provisions of this Chapter is converted into  any class of land not so exempt and in  consequence thereof the total extent of land  owned or held by a person exceeds the ceiling  area, so much extent of land as is in excess of  the ceiling area, shall be deemed to be land  acquired after the said date.

(1A) Any person referred to in sub-section (1)  shall file a statement containing the  particulars specified in sub- section (1) of  section 85A within a period of three months of  the date of the acquisition.

(2) The provisions of sections 85 and 86 shall,  so far as may be, apply to the vesting in the  Government of the ownership or possession or  both of the lands required to be surrendered  under sub-section (1).

       It is clear that the Division Bench of the High Court was  of the view that duty is cast on the Government as well as  GIDA to inform the prospective bidders as to whether they  propose to place any restriction or condition in granting  exemption under Section 81(3)(b). The High Court also noted  that both the Government and the GIDA were aware of the  necessity of issuing a statutory notification in the gazette  under Section 81(3)(b) of the Act failing which the entire  contract would be rendered void and unworkable. Once the  Government refuses exemption the entire contract would be  frustrated, as also, the restrictions or conditions the  Government may impose in a given case may not be  acceptable to the parties. Disregard of statutory requirements  may render the contract illegal and when the contract is  entered into in violation of these statutory requirements it  would be opposed to public policy and may violate Section 23  of the Indian Contract Act, 1872 (in short the ’Contract Act’).   Therefore, it was held that notification under Section 81(3)(b)  should have come before inviting the global tender so that the  bidders were in a position to know the restrictions and  conditions which Government would impose while granting  exemption. That being so, learned Single Judge’s view is  affirmed by the Division Bench of the High Court.  

       Clauses 10 and 15 in the tender document which have  been extracted above are of considerable significance. Clause  10 provides the mode of payment. Clause 13 provides that in  case of non payment of 1st instalment, the bank guarantee  can be invoked. Clause 15 provides that the sale deed is to be  registered on payment of the full value of the land.  

       Section 87 deals with acquisition of title after the notified  date. Section 87(1)(a) deals with action to be taken within a  period of three months from the date of acquisition.  The bank  guarantee was to be furnished within a period of 10 days. The  High Court held that the contract was un- enforceable in view

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of Section 87 of the Act is not correct. The High Court mis- construed the scope of Section 87 of the Act. The reason that  the bank guarantee was not given is of no consequence.  In  fact as rightly submitted by learned counsel for the appellant,  Venus itself being conscious that the exemption notification  was not necessary before furnishing of bank guarantee,  requested for immediate registration of the sale deed. The only  reason indicated was that if it is done before a particular date  considerable amount of stamp duty would be saved.  At that  stage, GIDA was never even intimated by Venus that it had no  money or that it was awaiting for bank finances or that there  was any necessity to obtain exemption notification. It appears  even the stands regarding the availability of finances are  different at different points of time.  

       In the pre bid meeting also admittedly there was no  demand to change the condition regarding the exemption  notification being obtained first. GIDA’s stand was very  specific. It never treated the exemption notification to be a  condition precedent.  

       Clause 11 also throws considerable light on the actual  intention. The same when read with Clause 14 makes the  position clear that if after payment of first instalment the  allottee desires to avail loan from a bank or financial  institution for paying the second and third instalments of the  sale value of the land, GIDA will issue NOC in favour of  bank/financial institution.  Therefore, only after the payment  of the first instalment, the question of GIDA issuing NOC  arises, that too when the allottee desires to avail loan for  paying the second and third instalments.  

       Clause 13 provides for forfeiture in case of non payment  of the first instalment and permits the bank guarantee to be  invoked without further notice. It specifically provides for  furnishing of bank guarantee in respect of the required  percentage of the bid amount and permits cancellation of the  tender and forfeiture of the amount deposited.  

       The High Court also has held that the exemption  notification can be treated as part of implied terms. It is to be  noted that the Government itself permitted GIDA to sell the  property initially. Section 23 of the Contract Act has really no  application to the facts of the case.  Section 87 as noted above,  deals with acquisition after the date of notification and permits  filing of the statement subsequently in terms of Sub-section  (1A) of Section 87. Illegality is attached to a case where a  person continues to hold the land and there is a requirement  of surrender after acquisition.   

       There is a vital distinction between the administrative  and contractual law decisions.  

       It is to be noted that there was no privity of contract  between Government and the bidders. The tender conditions  inter alia contained provisions relating to signing of contract  and payment of money. There can be no implied terms so far  as the Government is concerned. Terms can be claimed to be  implied by the parties to the contract.  Thus, it was open to  the contracting parties to say that subject to obtaining  exemption notification, the contract would be given effect to. It  is not so in the present case.  

       Government by a contract cannot be compelled to grant  permission. The statutory parameters have to be kept in view.

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A condition may be there, as appears to be in present case, to  take steps to obtain permission. An agreement may fail  because of absence of permission. Then it becomes  unenforceable.  

       Certain decisions of this Court are relevant. In W.B. State  Electricity Board v. Patel Engineering Co. Ltd. and Ors. (2001  (2) SCC 451) it was held that the conditions cannot be  changed. The relevant paragraphs are 24, 30 and 31. They  read as follows:

"24. The controversy in this case has arisen at  the threshold. It cannot be disputed that this  is an international competitive bidding which  postulates keen competition and high  efficiency. The bidders have or should have  assistance of technical experts. The degree of  care required in such a bidding  is greater than  in ordinary local bids for small works. It is  essential to maintain the sanctity and integrity  of process of tender/bid and also award of a  contract. The appellant, Respondents 1 to 4  and Respondents 10 and 11 are all bound by  the ITB which should be complied with  scrupulously. In a work of this nature and  magnitude where bidders who fulfil  prequalification alone are invited to bid,  adherence to the instructions cannot be given  a go-by by branding it as a pedantic approach,  otherwise it will encourage and provide scope  for discrimination, arbitrariness and  favouritism which are totally opposed to the  rule of law and our constitutional values. The  very purpose of issuing rules/instructions is to  ensure their enforcement lest the rule of law  should be a casualty. Relaxation or waiver of a  rule or condition, unless so provided under the  ITB, by the State or its agencies (the appellant)  in favour of one bidder would create justifiable  doubts in the minds of other bidders,  would  impair the rule of transparency and fairness  and provide room for manipulation to suit the  whims of the State agencies in picking and  choosing a bidder for awarding contracts as in  the case of distributing bounty or charity. In  our view such approach should always be  avoided. Where power to relax or waive a rule  or a condition exists under the rules, it has to  be done strictly in compliance with the rules.  We have, therefore, no hesitation in concluding  that adherence to the ITB or rules is the best  principle to be followed, which is also in the  best public interest.

30. Though clause 29 in this case appears to  be similarly worded as in the bid documents in  Spina case a close reading of these clauses  shows that no power of waiver is reserved in  the case on hand. That apart, the nature of the  error in these two cases is entirely different.  There, the error was apparent $ 400 for $ 4,  non-material and waivable by the Corporation;  in the present case the errors pointed out  above are not simply arithmetical and clerical mistake but a deliberate mode of splitting the

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bid which would amount to rewriting the  entries in the bid document and cannot be  treated as non-material. Therefore, the  judgment in Spina case does not help  Respondents 1 to 4.

31. The submissions  that remains to be  considered is that as the price bid of  respondents 1 to 4 is lesser by 40 crores and  80 crores than that of respondents 11 and 10  respectively, public interest demands that the  bid of respondents 1 to 4 should be  considered. The Project undertaken by the  appellant is undoubtedly for the benefit of the  public. The mode of execution of the work of  the Project should also ensure that the public  interest is best served. Tenders are invited on  the basis of competitive bidding for execution  of the work of the Project as it serves dual  purposes. On the one hand it offers a fair  opportunity to all those who are interested in  competing for the contract relating to  execution of the work and, on the other hand it  affords the appellant a choice to select the best  of the competitors on a competitive price  without prejudice to the quality of the work.  Above all, it eliminates favouritism and  discrimination in awarding public works to  contractors. The contract is, therefore,  awarded normally to the lowest tenderer which  is in public interest. The principle of awarding  contract to the lowest tenderer applies when  all things are equal. It is equally in public  interest to adhere to the rules and conditions  subject to which bids are invited. Merely  because a bid is the lowest the requirements of  compliance with the rules and conditions  cannot be ignored. It is  obvious that the bid of  respondents 1 to 4 is the lowest of bids offered.  As the bid documents of respondents 1 to 4  stand without correction there will be inherent  inconsistency between the particulars given in  the annexure and the total bid amount, it (sic  they) cannot be directed to be considered along  with the other bids on the sole ground of being  the lowest."   

In Directorate of Education and Ors. v. Educomp  Datamatics Ltd. and Ors. (2004 (4) SCC 19) it was observed as  follows:

"9. It is well settled now that the courts can  scrutinise the award of the contracts by the  Government or its agencies in exercise of their  powers of judicial review to prevent  arbitrariness or favouritism. However, there  are inherent limitations in the exercise of the  power of judicial review in such matters. The  point as to the extent of judicial review  permissible in contractual matters while  inviting bids by issuing tenders has been  examined in depth by this Court in Tata

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Cellular v. Union of India (1994 (6) SCC 651).  After examining the entire case-law the  following principles have been deduced: (SCC  pp. 687-88, para 94)

"94. The principles deducible from  the above are:

(1) The modern trend points to  judicial restraint in administrative  action.

(2) The court does not sit as a court  of appeal but merely reviews the  manner in which the decision was  made.

(3) The court does not have the  expertise to correct the  administrative decision. If a review  of the administrative decision is  permitted it will be substituting its  own decision, without the necessary  expertise which itself may be fallible.

(4) The terms of the invitation to  tender cannot be open to judicial  scrutiny because the invitation to  tender is in the realm of contract.  Normally speaking, the decision to  accept the tender or award the  contract is reached by process of  negotiations through several tiers.  More often than not, such decisions  are made qualitatively by experts.

(5) The Government must have  freedom of contract. In other words,  a fair play in the joints is a  necessary concomitant for an  administrative body functioning in  an administrative sphere or quasi-  administrative sphere. However the  decision must not only be tested by  the application of Wednesbury  principle of reasonableness  (including its other facts pointed out  above) but must be free from  arbitrariness not affected by bias or  actuated by mala fides.

(6) Quashing decisions may impose  heavy administrative burden on the  administration and lead to increased  and unbudgeted expenditure."  

10. In Air India Ltd. v. Cochin International  Airport Ltd. (2000 (2) SCC 617), this Court  observed: (SCC p. 623, para 7)

"The award of a contract, whether it  is by a private party or by a public  body or the State, is essentially a  commercial transaction. In arriving

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at a commercial decision  considerations which are paramount  are commercial considerations. The  State can choose its own method to  arrive at a decision. It can fix its  own terms of invitation to tender  and that is not open to judicial  scrutiny. It can enter into  negotiations before finally deciding  to accept one of the offers made to  it. Price need not always be the sole  criterion for awarding a contract. It  is free to grant any relaxation, for  bona fide reasons, if the tender  conditions permit such a relaxation.  It may not accept the offer even  though it happens to be the highest  or the lowest. But the State, its  corporations, instrumentalities and  agencies are bound to adhere to the  norms, standards and procedure  laid down by them and cannot  depart from them arbitrarily.  Though that decision is not  amenable to judicial review, the  court can examine the decision- making process and interfere if it is  found vitiated by mala fides,  unreasonableness and  arbitrariness."  

11. This principle was again re-stated by this  Court in Monarch Infrastructure (P) Ltd. v.  Commr, Ulhasnagar Municipal Corpn. (2000  (5) SCC 287)  It was held that the terms and  conditions in the tender are prescribed by the  Government bearing in mind the nature of  contract and in such matters the authority  calling for the tender is the best judge to  prescribe the terms and conditions of the  tender. It is not for the courts to say whether  the conditions prescribed in the tender under  consideration were better than the ones  prescribed in the earlier tender invitations".

In Har Shankar and Ors. v. The Dy. Excise and Taxation  Commr.  and Ors. (1975 (1) SCC 737) the case of a bid with  full knowledge was considered. It was observed as follows:

"15. Learned counsel for the respondents  raised a preliminary objection to the  maintainability of the writ petitions filed by the  appellants to the grant of reliefs claimed by  them. He contends that the appellants who  offered their bids in the auctions did so with  knowledge of the terms and conditions  attaching to the auctions and they cannot, by  their writ petitions, be permitted to wriggle out  of the contractual obligations arising out of the  acceptance of their bids. This objection is well- founded and must be accepted.

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16. Those interested in running the country  liquor vends offered their voluntarily in the  auctions held for granting licences for the sale  of country liquor. The terms and conditions of  auctions were announced before the auctions  were held and the bidders participated in the  auction without a demur and with full  knowledge of the commitments which the bids  involved. The announcement of conditions  governing the auctions were in the nature of  an invitation to an offer to those who were  interested in the sale of country liquor. The  bids given in the auctions were offers made by  prospective vendors to the Government. The  Government’s acceptance of those bids was the  acceptance of willing offers made to it. On  such acceptance, the contract between the  bidders and the  Government became  concluded and a binding agreement came into  existence between them. The successful  bidders were then granted licences evidencing  the terms of contract between them and the  Government, under which they became  entitled to sell liquor. The licensees exploited  the respective licences for a portion of the  period of their currency, presumably in  expectation of a profit. Commercial  considerations may have revealed an error of  judgment in the initial assessment of  profitability of the adventure but that is a  normal incident of all trading transactions.  Those who contract with open eyes must  accept the burdens of the contract along with  its benefits. The powers of Financial  Commissioner to grant liquor licences by  auction and to collect licence fees through the  medium of auctions cannot by writ petitions be  questioned by those who, had their venture  succeeded, would have relied upon those very  powers to found a legal claim, Reciprocal  rights and obligations arising out of contract  do not depend for their enforceability upon   whether a contracting party finds it prudent to  abide by the terms of the  contract. By such a  test no contract could ever have a binding  force".

The difference between administrative law and  contractual law was succinctly stated in Indian Oil  Corporation Ltd. v. Amritsar Gas Service and Ors. (1991 (1)  SCC 533).  It was noted in paras 9, 10 and 11 as follows:

"9.  The argument advanced by Shri Harish  Salve on behalf of the appellant-Corporation to  the validity of the award are these. The first  contention is that the validity of the award has  to be tested on the principle of private law and  the law of contracts and not on the touchstone  of constitutional limitations to which the  Indian Oil Corporation Ltd., as an  instrumentality of the State may be subject  since the suit was based on breach of contract  alone and the arbitrator who proceeded only  on that basis to grant the reliefs. It is urged  that for this reason the further questions of

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public law do not arise on the facts of the  present case. The next contention is that the  relief of restoration of the contract granted by  the arbitrator is contrary to law being against  the express prohibition in Sections 14 and 16  of the Specific Relief Act. It is urged that the  contract being admittedly revokable at the  instance of either party in accordance with  clause 28 of the agreement, the only relief  which can be granted on the finding of breach  of contract by the appellant-Corporation is  damages for the notice period of 30 days and  no more. It was then urged that the reasons  given in the award for granting the relief of  restoration of the distributorship are  untenable, being contrary to law. Shri Salve  contended that the propositions of law  indicated in the award and applied for   granting the reliefs disclose an error of law  apparent on the face of the award. It was also  urged that the onus of proving valid  termination of the contract was wrongly placed  by the arbitrator on the appellant-Corporation  instead of requiring the plaintiff-respondent 1  to prove that the termination was invalid. It  was also contended that the failure of the  arbitrator to consider and decide the  appellant-Corporation’s counter-claim when  the whole suit was referred for decision  constitute  legal misconduct.

10. In reply, Shri Sehgal on behalf of  respondent 1 contended that there is a  presumption of  validity of award and the  objections not taken specifically must be  ignored. This argument of Shri Sehgal relates  to the grievance of the appellant relating to  placing the onus on the appellant-Corporation  of proving validity of the termination. This  contention of Shri Sehgal must be upheld  since no such specific ground is taken in the objections of the appellant. Moreover, there  being a clear finding by the arbitrator of  breach of contract by invalid termination, the  question of onus is really of no significance.  The other arguments of Shri Sehgal are that  the termination of distributorship casts stigma  on the partners of the firm; counter claim of  the appellant-Corporation was rightly not  considered since it was not made before the  order of the reference; the reference made   being of all disputes in the suit, the nature of  relief to be granted was also within the  arbitrator’s jurisdiction; and interest also must  be awarded to the respondent.

11. We may at the outset mention that it is not  necessary in the present case to go into the  constitutional limitations of Article 14 of the  Constitution to which the appellant- Corporation as an instrumentality of the State   would be subject particularly in view of the  recent decisions of this Court in Dwarkadas  Marfatia and Sons v. Board of Trustees of the  Bombay, Mahabir Auto Stores v. Indian Oil

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Corporation and Shrilekha Vidyarathi v. State  of U.P.. This is on account of the fact that the  suit was based only on breach of contract and  remedies flowing therefrom and it is on this  basis alone that the arbitrator has given his  award. Shri Salve is therefore right in  contending that the further questions of public  law basis on Article 14 of the Constitution do  not arise for decision in the present case and  the matter must be decided strictly in the  realm of private law rights governed by the  general law relating to contracts with reference  to the provisions of the Specific Relief Act  provided for non-enforceability of certain types  of contracts. It is, therefore, in this  background that we proceed to consider and  decide the contentions raised before us".  

In essence, it was held that tender terms are contractual and  it is the privilege of the Government which invites its tenders  and Courts did not have jurisdiction to judge as to how the  tender terms would have to be framed.

       By observing that there was implied term which is not  there in the tender, and postponing the time by which the  bank guarantee has to be furnished, in essence the High  Court directed modification of a vital term of the contract.  

In M/s New Bihar Biri Leaves Co. and Ors. v. State of  Bihar and Ors. (1981 (1) SCC 537) it was observed at para 48  as follows:

"48. It is a fundamental principle of general  application that if a person of his own accord,  accepts a contract on certain terms and works  out the contract, he cannot be allowed to  adhere to and abide by some of the terms of  the contract which proved advantageous to  him and repudiate the other terms of the same  contract which might be disadvantageous to  him. The maxim is qui approbat non reprobate  (one who approbates cannot reprobate). This  principle, though originally borrowed from  Scots Law, is now firmly embodied in English  Common Law. According to it, a party to an  instrument or transaction cannot take  advantage of one part of a document or  transaction and reject the rest. That is to say,  no party can accept and reject the same  instrument or transaction (Per Scrutton, L.J.,  Verschures Creameries Ltd. v. Hull @  Netherlands Steamship Co. (1921 (2) KB 608;  see Douglas Menzies v. Umphelby (1908 AC  224, 232; see also Stround’s Judicial  Dictionary,  Vol. I, page 169, 3rd Edn.)"

       In Assistant  Excise Commissioner and Ors. v. Isaac  Peter and Ors. (1994 (4) SCC 104) this Court highlighted that  the concept of administrative law and fairness should not be

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mixed up with fair or unfair terms of the contract.  

       It was stated in no uncertain terms that duty to act fairly  which is sought to be imported into a contract to modify  and/or alter its terms and/or to create an obligation upon the  State Government which is not there in the contract is not  covered by any doctrine of fairness or reasonableness. The  duty to act fairly and reasonably is a doctrine developed in  administrative law field to ensure the rule of law and to  prevent failure of justice when the action is administrative in  nature.  

       Just as the principles of natural justice ensure fair  decision where function is quasi-judicial the doctrine of  fairness is evolved to ensure fair action when the function is  administrative.  But the said principle cannot be invoked to  amend, alter or vary the expressed terms of the contract  between the parties.  

       So far as the principles relating to implied terms are  concerned the position has been stated by Chitty on  Contracts, 28th Edn. Chapter 13.  They read as follows:  

       "A term will not however thus be implied  unless the court is satisfied that both parties  would, as reasonable men have agreed to it  had it been suggested to them\005\005..The Court  will only imply a term if it is one which must  necessarily have been intended by them, and  in particular will be reluctant to make any  implications, "where the parties have entered  into a carefully drafted written contract  containing detail terms agreed between  them"\005\005\005A term ought not to be implied  unless it is in all the circumstances equitable  and reasonable . But this does not mean that a  term will be implied merely because in all the  circumstances it would be reasonable to do so  or because it would improve the contract or  make its carrying out more convenient. "the  touchstone is always necessity and not merely  reasonableness". \005\005"A term will not be  implied if it would be inconsistent with the  express wording of the contract".  

       In Halsbury’s Laws of England, 4th Edn, Vol. 9, the  expression "implied terms" reads as follows:                 "In practice, logically implied terms and  the other three types of implied terms tend to  merge imperceptibly into each other, all the  categories being justified to some extent by  reference to the intention of the parties; and  the distinctions between classes of implied  terms tend to be based on convention rather  than logic. The conventional distinction which  will be adopted here, are as follows: (1) terms  implied by custom; (2) terms implied by law;  (3) other terms implied by the courts. The  relationship between the parties may be a  matter of profound importance in determining  whether a contract contains a term implied  under one of these heads.  

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               xx              xx              xx              xx         Implication by law- There are many cases  where apart from local custom or usage, the  common law has recognized a general custom that  certain terms be incorporated into particular types  of contract. In some of these cases, the rules having  been decided by the courts, they have been put into  statutory form; for example the implied terms in  sale of goods, conveyances of interests in land, in  contracts of marine insurance or in contractual  licences to enter property.  Frequently, such  statutorily implied terms are expressed to give way  to a contrary intention; but there are other cases  where the terms implied by statute cannot be  excluded by any contrary agreement.  Yet a further  step in the process is that where statute law has in  a particular field codified terms implied at common  law, the courts may import those statutory terms  into similar transactions by way of analogy. For  instance, the statutorily implied term as to fitness  in a sale of goods has been imported by analogy into  contracts for the manufacturer of dentures, repair  of a motor car, the erection of scaffolding, the  dyeing of a woman’s hair but the courts have shown  themselves much more reluctant to import similar  terms as to fitness into contracts for the sale or  lease of interests in land\005\005.The conclusion would  appear to be that terms implied by law are not  happily described as "implied terms": they are  rather duties which (frequently subject to a contrary  intention) are imposed by the law on the parties to  particular types of contract. In deciding whether to  create such duties, the courts tend to look, not to  the intention of the parties, but to consideration of  public policy\005\005\005..An implied warranty, or as it  has been called, a covenant in law, as distinguished  from an express contract or express warranty is  really founded on the presumed intention of the  parties and upon reason. The implication which the  law draws from what must obviously have been the  intention of the parties, it draws with the object of  giving efficacy to the transaction and preventing  such failure of consideration as cannot have been  within the contemplation of either side.     

                         In view of what we have stated above, it is not necessary  to deal with the grievance raised by the State Government in  its belated Special Leave Petition.  

Judged at from any angle the order of the learned Single  Judge as affirmed by the Division Bench cannot be maintained  and is set aside.   

       The appellants had stated their willingness to match the  amount offered by Venus and also to pay interest in terms of  the contract. It has been stated that the whole amount shall  be paid and they shall not give any bank guarantee. Let the  amounts offered by Venus be paid by the appellants within a  period of one month from today with interest @12% p.a. from  the date of allotment. The amount, if any deposited by Venus  will be refunded with interest @ 9% from the date of deposit  within a period of six weeks.

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The appeals are allowed but without any order as to  costs.