http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 15  

PETITIONER: RAM AND SHYAM COMPANY

       Vs.

RESPONDENT: STATE OF HARYANA AND ORS

DATE OF JUDGMENT08/05/1985

BENCH: DESAI, D.A. BENCH: DESAI, D.A. ISLAM, BAHARUL (J)

CITATION:  1985 AIR 1147            1985 SCR  Supl. (1) 541  1985 SCC  (3) 267        1985 SCALE  (1)1237  CITATOR INFO :  R          1987 SC1109  (30,38)  RF         1988 SC 157  (8)  R          1989 SC 157  (5)

ACT:      Constitution of  India, 1950,  Article 226-Jurisdiction of  High   Court-Petitioner  to   exhaust  normal  statutory remedies-Insistence on-When  arises-Rule  of  exhaustion  of alternative remedies-Whether  a rule  of law  or a  rule  of convenience and discretion      Haryana Minor  Minerals (Vesting  of Rights)  Act, 1973 and Punjab  Minor Mineral  Concession Rules,  1964, Rule 130 (4)  (2)-Auction  of  minor  mineral  quarry-Chief  Minister declining to  confirm highest  bid-Awarding right to another person without  giving opportunity  to the highest bidder in the  earlier   auction,  High  Court,  whether  entitled  to Interfere in a writ      Administrative Law-Public  Property-Norms for  disposal of Principles of natural justice-Applicability of

HEADNOTE:      The  State   Government-respondent  No.   1  issued   a notification for  auctioning a minor mineral quarry situated in the  State. The  appellant offered the highest bid in the amount of  Rs. 3.87  lakhs per  annum as  rent/royalty.  The Presiding Officer  accepted the  bid of  the appellant.  The State Government  however under  the belief that the highest bid did  not represent  the adequate  lease rent,  exercised powers under  clause (4)  of sub-rule  2 of  Rule 130 or the Punjab Minor  Mineral Concession  Rules 1964 and declined to confirm the  same. Respondent  No. 4  wrote a  letter to the Chief Minister  casting  serious  aspersions  on  those  who participated in  the auction,  and made an offer that if the contract for  a period of 5 years is given he was willing to pay Rs. 4.5 lakhs per year. The Chief Minister accepted this offer.      Being aggrieved,  the appellant challenged the order of the Chief  Minister, in  a writ  petition  before  the  High Court, contending  that respondent No. 4 had participated in the  auction   and  made   false  allegations   against  the appellant, and without giving him any opportunity, the offer of respondent  No. 4  was accepted which has denied equality

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 15  

of  opportunity   to  the   appellant  in   the  matter   of distribution of the State largesse. The High Court following the decision of this Court in Assistant Collector of Central Excise v.  Jainson Hosiery  Industries,  [1979]  4  SCC  22, dismissed the writ petition on the ground that the appellant had an  alternative remedy  and that  he must have exhausted the  normal   statutory   remedies   before   invoking   the extraordinary jurisdiction under Article 226. 542      Being aggrieved,  the appellant filed an appeal to this Court and  during is hearing filed an affidavit, that if the Court orders  re-auction, and if the highest bid falls short of Rs.  4.5 lakhs  then he  would undertake  to  accept  the contract at  the value of Rs. 5.5 lakhs per annum. The Court held are auction and both the appellant and respondent No. 4 participated there  in and the appellant offered the highest bid at the value of Rs. 25 lakhs.      Allowing the Appeal, ^      HELD: 1.  (i) The  Court has imposed a restraint in its own wisdom on its exercise of jurisdiction under Article 226 where the  party invoking  the jurisdiction has an effective adequate alternative  remedy. It  has been  expressly stated that the  rule which  requires the exhaustion of alternative remedies is a rule of convenience and discretion rather than a rule  of law.  It does  not oust  the jurisdiction  of the Court  It   is  made  specifically  clear  where  the  order complained against  is alleged  to be  illegal or invalid as being contrary  to law,  a petition  at the  instance  of  a person adversely  affected would lie to the High Court under Article 226  and such  a petition  cannot be rejected on the ground that  an appeal  lies to  the higher  officer or  the State Government.  An appeal  in all cases cannot be said to provide in  all situations  an alternative effective remedy. [550 C-F]      In  the  instant  case,  power  was  exercised  by  the authority set up under the rules to grant contract. The High Court did  not pose  to itself  the question who would grant the relief when the impugned order is passed at the instance of a  Chief Minister  of the State. This is therefore a case in which  the High  Court was  justified in throwing out the petition on  the untenable  ground that the appellant had an effective alternative remedy. [550 G-H]      Assistant Collector of Central Excise v Jainson Hosiery Industries, [1979]  4 S.C.C.  22  and  The  State  of  Uttar Pradesh v Mohammad Nooh, [1958] S.C.R. 595, referred to.      (2) (i)  There is  a clear  distinction between the use and disposal  of private  property and  socialist  property. Owner of  private property may deal with it in any manner he likes without  causing injury  to  any  one  else.  But  the socialist or  if that word is jarring to some, the community or further  the public  property has  to be  dealt with  for public purpose and in public interest. Tho marked difference lies in  this that  while the  owner of private property may have a  number of  considerations which  may permit  him  to dispose of  his property  for a  song. On  the  other  hand, dispose at  of public  property partakes  the character of a trust in  that in its disposal their should be nothing hanky panky and  that it  must be  done at  the best price so that large  revenue   coming  into   the  offers   of  the  State administration would  serve public  purpose viz. the welfare state may  be able  to expand  its beneficient activities by the availability  of larger  funds. This  is subject  to one important limitation that socialist property may be disposed at a  price lower  than the market price or oven for a token

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 15  

price to  achieve some  defined constitutionally  recognised Public purpose,  one such being to achieve the goals set out in Part IV of the 543 Constitution. But  where disposal  is  for  augmentation  of revenue and  nothing else,  the State is under an obligation to secure  the best  market  price  available  in  a  market economy. [552 G-H; 553 A]      (ii) The  Government  is  not  free  like  an  ordinary individual, in  selecting recipient  for its largesse and it cannot chose  to deal  with any  person it  please a  in its absolute and  unfettered discretion.  The law  is now  well- settled that  the Government  need not deal with anyone, but if it  does so,  it must do so fairly and without discretion and without  unfair procedure.  Even though the State is not bound to accept the highest bid, this proposition of law has to be  read subject  to  the  observation  that  it  can  be rejected on  relevant and  valid  considerations,  one  such being that the concession is to be given to a weaker section of the  society who  could not outbid the highest bidder. In the absence of it, the approach must be as clearly laid down by the  Constitution Bench  of this Court in K. N. Guruswamy v. The  State of  Mysore and  Ors. [19551  SCR  305.  Before giving up  the auction  process and  accepting a private bid secretly offered,  the authority must be satisfied that such an offer  if given  in open  would not  be outmatched by the highest  bidder.   In  the  absence  of  such  satisfaction, acceptance of  an offer  secretly  made  and  sought  to  be substantiated on the allegations without the verification of their truth, which was not undertaken would certainly amount to arbitrary  action in  the matter of distribution of State largesse  which   by  the   decisions  of   this  Court   is impermissible. 1554 G-H; 556 A-B; 555 G-H]      Trilochan Mishra etc v. State of Orissa and Ors. [1971] 3 SCC  153, State  of Uttar Pradesh and Ors v. Vijay Bahadur Singh and Ors. [1982] 2 SCC 365 and State of Orissa and Ors. v. Harinarayan  Jaiswal and  Ors.  [1972]  3  SCR  784  held inapplicable.      Raman  Dayaram   Shetty  v  The  International  Airport Authority of  India and  Ors. [1979]  3 SCR 1014 and Kasturi Lal Lakshmi  Reddy v.  State of  Jammu and  Kashmir and Anr. [1980] 3 SCR 1338 relied upon.      3. Rule  28 of  Punjab  Minor  and  Mineral  Concession Rules, 1964  permits contract  for  winning  mineral  to  be granted by  the Government  by auction or tender. It is open to the State to dispose of the contract by tender. Even here the expression  ’tender’ does not mean a private secret deal between the  Chief Minister  and the  offerer. Tender in the context in  which the  expression is  used in rule 28, means ’tenders to  be invited  from intending  contractors.’ If it was intended  by the  use of the expression ’tender’ in Rule 28 that  contract can be disposed of by private negotiations with select individual, its validity will be open to serious question. The  language ordinarily  used in such rules is by public auction  or private  negotiations. The meaning of the expression ’private  negotiations’ must  take its colour and prescribe its  content by  the words which precede them. And at any  rate  disposal  of  the  State  property  in  public interest  must   be  by   such  method  as  would  grant  an opportunity to the public at large to participate in it, the State reserving to itself the right to dispose it of as best subserve the public weal. [559 F-H; 560 A-B 544      Nand Kishore  Saraf v.  State  of  Rajasthan  and  Anr. [1965] 3  SCR 173  and Fertilizer  Corporation Kamgar  Union

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 15  

(Regd). Sindri  and Ors. v. Union of India and Ors. [1981] 1 SCC 568 relied upon.      State of  Uttar Pradesh  v. Shiv Charan Sharma and Ors. etc. [1981] Supp. SCC 85 referred to.      4. In the instant case, it is clear that respondent No. 4 was not selected for any special purpose or to satisfy any Directive Principles  of State  Policy.  He  surreptitiously ingratiated himself  by a  back-door entry  giving  a  minor raise in  the bid  and  in  the  process  usurped  the  most undeserved benefit  which was  exposed to  the hilt  in  the court. A  unilateral offer, secretly made, not correlated to any reserved  price made  by  the  fourth  respondent  after making false  statement in  the letter  was accepted without giving any  opportunity to the appellant either to raise the bid or  to point  out the falsity of the allegations made by the fourth  respondent in  the letter as also the inadequacy of his  bid. The  appellant suffered  an unfair treatment by the  State   in  discharging  its  administrative  functions thereby violating  the fundamental principle of fair play in action. When he gave the highest bid, he could not have been expected  to   raise  his  own  bid  in  the  absence  of  a competitor. Any expectation to the contrary betrays a woeful lack of  knowledge of  auction process.  And then  some  one surreptitiously by  a secret  offer scored a march over him. No opportunity  was given  to him  either to  raise the bid. Application of  the minimum principles of natural justice in such a  situation must be read in the Statute and held to be obligatory. When  it is  said that  even  in  administrative action, the  authority must  act fairly, it ordinarily means in  accordance   with  the  principles  of  natural  justice variously described  as fair play in action. That having not been done, the grant in favour of the fourth respondent must be quashed. [554 H; 555 A-E; 560 D-E]

JUDGMENT:      CIVIL, APPELLATE JURISDICTION: Civil Appeal No. 3751 of 1982.      From the  Judgment and  Order dated  15.9.1982  of  the Punjab and Haryana High Court in L.P. A. No. 1232 of 1982.      Soli J.  Sorabjee Ram  K.B. Rohtagi and H.N. Salve, for the Appellant.      P.P.  Rao,   Arun  Madon,   R.  Venkataramani   and   A Marriarputtam for the Respondent No. 4.      L.N. Sinha,  Attorney General  and R.N.  Poddar for the Respondents.      The Judgment of the Court was delivered by 545      DESAI, J.  As the  matter brooked  no delay,  when  the arguments were  concluded, the  Court pronounced  the  order which reads as under -           "The appeal  is allowed  and the  decision of  the      High Court  of Punjab  and  Haryana  at  Chandigarh  in      L.P.A. No.  1232 of  1982 dated  September 15,  1982 as      well as  the decision  of the  learned Single  Judge in      Civil Writ  Petition No.  2321 of 1981 dated August 30,      1982.           The writ  petition filed  by the present appellant      succeeds. The order of the Director of Industries dated      May 25,  1981 granting  a quarry  lease to  M/s Pioneer      Crushing Co.  (respondent No.  4) in  respect of  Serai      Khawaja Plot  No. II  Quarry (except  the area of Green      Field colonies)  for the period ending with 31st March,      1984 is quashed and set aside.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 15  

         The first  respondent the State of Haryana and the      second  respondent   the  Director  of  Industries  are      directed under  and subject  to the relevant provisions      of the  Haryana Minor Minerals (Vesting of Rights) Act,      1973 read  with Punjab  Minor  and  Mineral  Concession      Rules, 1964  as applicable  to the  State of Haryana to      grant a  right to the appellant in the form of contract      usually entered into in similar cases to extract stones      from  Serai   Khawaja  Plot   No.  II  on  compensation      howsoever described  at the  rate of  Rs. 25  lacs per,      year for a period of five years commencing from January      I, 1983 and upto and inclusive and ending with December      31, 1987.           The appellant  herein is directed to appear before      the second  respondent within  a  weak  from  today  to      execute  the   contract  and/or   necessary  documents,      instruments and  to carry out all formalities including      the  making   of  deposits  and/or  payments,  if  any,      required to  be made  under the  relevant provisions of      the Act  and Rules. The fourth respondent is given time      upto December  31, 1982  to clear out from the area and      this time  is given  to him  as and  by  way  of  locus      penitentae to  wind-up his affairs as far as the quarry      involved in this appeal. 546           In the circumstances of the case, there will be no      order as to costs.           Reasons will follow." Here are the reasons.      It must  be confessed  that reasons  in support  of the decision are  delayed but  without offering an alibi for the tardiness, one  aspect which inhibited giving of the reasons may be  mentioned. My  learned colleague  suddenly left  the Court and  the doubt  nagged me  for some  time whether  one Judge alone  can give  the reasons.  It was an agreed order. Before pronouncing  the order  broad discussion  took  place which showed identity of views on all points involved in the matter. In this background to give reasons which appealed to us though  drawn up  by one  of us  would any  day provide a better choice  than not  to give  reasons because  it  would always annoy  and distress  the party  who  lost  the  legal battle whether there are legal or logical reasons in support of the order or it is merely an arbitrary exercise of power. However, what  happened in  the Court in the presence of all parties and  the learned  counsel is res ipsa loquiter. What started before the Court as a minor whisper, hardly audible, ended with  the experience in a whispering gallery where the whisper multiplied  at the  other  end  of  the  gallery  in volleying thunders.  There would  have  been  no  qualms  of conscience if  the matter was disposed of sub-silentio as to reasons because  of the  outcome of  the Court’s exercise of jurisdiction under  Art. 136. The reasons which dictated the choice  and   indicated  the  path  did  stand  in  need  of justification   because    the   end    product    justified interference. The  very outcome  would  provide  the  raison d’etre for  the  exercise  of  power.  Yet  to  bow  to  the tradition to  convince the  protagenis of  reasoned  orders, these are the reasons.      Factually  matrix   first.  The  State  of  Haryana  in exercise of  the power  conferred upon  it by Haryana Mioner Minerals (Vesting  of Rights)  Act,  1973  (’1973  Act’  for short) grants lease for winning minor mineral vestige in it. The grant  of the lease is regulated by Punjab Minor Mineral Concession  Rules,   1964  (’Rules’   for  short)  in  their application to  the State  of Haryana.  A  notification  was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 15  

issued on  December 26,  1980 specifying  that minor mineral quarries at  various places  in Faridabad  District would be auctioned on  February 20, 1981. At the auction held on that day, appellant-Ram & Shyam Company 547 gave the  highest bid  for Sarai  Khawaja Plot No. II in the amount of  Rs 1,52,000 p.a. The presiding Officer conducting the auction  accepted the  bid but  the State Government did not confirm  the same.  A fresh  auction was  notified to be held on May 4, 1981. The appellant participated and gave the bid for the same plot, his highest bid rising to Rs 3,87,000 for a  period of three years. The same routine followed. The Presiding Officer  accepted the bid and the State Government declined to  confirm the same. Then there happened something which  cannot   have  any   parallel  or   precedent  in   a constitutional  democracy  like  ours  but  one  could  have profitably drawn  parallel from  the administration  of  old princely States.  Respondent No.  4 wrote a letter dated May 9, 1981  (Anx. R-1 in the High Court) addressed to the Chief Minister, Haryana  State setting  out therein the history of various auctions,  and casting  serious aspersions  on those who participated  in the  auction inter alia saying that the bidders at  the auctions have formed a syndicate and want to monopolise the business by not outbidding each other so that the State  gets uneconomical  rent/royalty. It  was  further alleged that  ’the  goondas  and  anti-social  elements  are assisting those  monopolists/bidders and successfully pushed out a  party like  respondent  No.  4.  The  letter  further proceeds to  make an offer/that if the contract for a period of five  years is  given to  respondent No.  4 in respect of Sarai Khawaja  Plot No.  2, it is willing to pay Rs 4,50,000 per year.  There is also an offer for Sarai Khawaja Plot No. 1 with  which we  are not concerned. Promptly this offer was accepted by the Chief Minister. The appellant challenged the action of the Chief Minister in Writ Petition No. 2321/81 in the Punjab and Haryana High Court inter alia contending that those who formed the firm styled as M/s Pioneer Crushing Co. respondent No.  4, had  participated in the auction and Then made false  allegations against  the appellant whose bid was the highest  and without  giving him  any  opportunity,  the offer of  respondent No.  4 was  accepted which  has  denied equality of  opportunity to  the appellant  in the matter of distribution of State largesse.      A  learned   Single  Judge   issued  a  notice  to  the respondents calling  upon them  to show  cause why rule nisi may not be issued. In response to the notice, respondent No. 4  appeared   and  contended  that  the  petitioner  had  an alternative remedy  and on  this short  ground, the  learned Single Judge rejected the writ petition. A Division Bench of the High  Court in  the Letters  Patent Appeal  filed by the appellant 548 concurred with  the learned  Single Judge  and dismissed the appeal. Hence this appeal by special leave.      At this stage it would be advantageous to refer in some details what  transpired at  the hearing  of this  appeal in this Court. Let us at once recapitulate what happened in the court because  that by  itself provides a tell-tale piece of evidence compelling the court to interfere and set aside the impugned order.  Mr. L.N  Sinha,  learned  Attorney  General raised a  sort of  a preliminary  objection that  this Court should not  assist the syndicalists to join hands to deprive the  State  of  its  legitimate  revenue.  Then  he  made  a pertinent observation  a interposing  an objection  when Mr. Sorabjee, learned  counsel for the petitioner was making his

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 15  

submissions. The question posed was: if the Court interferes and quashes  the grant  in favour  of the fourth respondent, the only option open to the court would be to direct a fresh auction. He  posed the  further question that if at the time of re-auction,  the highest  bid  does  not  reach  upto  Rs 4,50,000 p.a.  for which  the lease is granted to the fourth respondent, would  the Court make good the loss ? Apart from the rhetoric  of the  question,  the  issue  raised  was  of primary  importance.   We,  therefore,  asked  Mr.  Sorabjee whether  his   client  is   willing  to  make  an  affidavit incorporating  therein   that  if   the  highest  bid  at  a reauction, if  the court  so  directs,  falls  short  of  Rs 4,50,000 the  appellant would  agree and undertake to accept the contract  at the  value of  Rs  5,50,000  p.a.  Such  an affidavit was immediately filed. In order to give the fourth respondent to  whom contract  under the  impugned order  was given, an  opportunity whether  he would  like to  raise his offer. Mr.  P.P.  Rao  voiced  his  apprehension  about  his contentions. We  assured him  that without  prejudice to his contentions, it  would be  open to  his client  to raise his offer. What transpired may be tabulated in a chart: Appellant’s offer                       Respondent’s offer      1.   5.50 lacs                     2. 6 lacs      3.   6.50 lacs                     4. 7 lacs      5.   7.53 lacs                     6. 8 lacs      7.   8.50 lacs                     8. 9 lacs      9.   10 lacs                       10. 10.50 lacs 549      Court intervened  at this stage and said that the raise      must be minimum at the rate of Rs 1 lac.      11.  12 lacs                       12. 14 lacs      13.  15 lacs                       14. 16 lacs      15.  17 lacs                       16. 18 lacs      17.  19 lacs                       18. 20 lacs      19. 21 lacs                        20. 22 lacs      21. 25 lacs.      Shock and  surprise was visible on the face of each one in the  court. Shock  was induced  by the  fact that  public property was  squandered away for a song by persons in power who holds  the position  of trust. Surprise was how judicial intervention can  serve larger  public interest.  One  would require multi-layered blind-fold to reject the appeal of the appellant or  any tenuous  ground so that the respondent may enjoy and aggrandize his unjust enrichment. On this point we say no more.      Before we deal with the contentions, let us have a look at the relevant provisions of the Act and the Rules.      Rule 28(1)  of the  Rules provides  that contracts  for extraction of minor mineral may be granted by the Government by auctioning  or tendering  for a  maximum period  of  five years after  which no  extension shall  be granted’ Sub-rule (2) provides  that ’the  amount to  be paid  annually by the contractor to  the Government shall be determined in auction or  by  tender  to  be  submitted  for  acceptance,  by  the authority competent  to grant the contract.’ Rule 29 confers power on  the Presiding  Officer to reject or accept any bid or tender  without assigning  any reason  to the  bidders or tenderers. However, where the highest bid or tender is  rejected,  the reason  shall however,  be reported  to  the Government. Rule  30 provides  for notifying of the proposed auction on the notice board of the Director, Mining Officers and at least in one newspaper having wide circulation in the locality nearest  to the  area in  question in  the regional language as  also in  the Government Gazette. Sub-cl. (4) of sub-r. (2)  of Rule  30  provided  that  ’no  bid  shall  be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 15  

regarded as  accepted unless  confirmed by Government.’ Rule 58 confers 550 power on  the Government  to relax  any of the provisions of the Rules  in the  interest of mineral development or better working of the mine.      Before we deal with the larger issue, let me put out of the way the contention that found favour with the High Court in rejecting  the writ petition. The learned Single Judge as well as  the Division  Bench recalling  the observations  of this Court  in Assistant  Collector  of  Central  Excise  v. Jainson  Hosiery   Industries  rejected  the  writ  petition observing that ’the petitioner who invokes the extraordinary jurisdiction of the court under Art. 226 of the Constitution must have  exhausted the normal statutory remedies available to him’.  We remain  unimpressed. Ordinarily it is true that the court  has imposed  a restraint in its own wisdom on its exercise of  jurisdiction under  Art. 226  where  the  party invoking  the   jurisdiction  has   an  effective,  adequate alternative remedy. More often, it has been expressly stated that the  rule which  requires the exhaustion of alternative remedies is a rule of convenience and discretion rather than rule of  law. At  any rate it does not oust the jurisdiction of the  Court. In  fact in  the very decision relied upon by the High  Court in  The State  of Uttar  Pradesh v. Mohammad Nooh it  is observed  that there  is no rule, with regard to certiorari as  there is with mandamus, that it will lie only where there  is no other equally effective remedy. It should be made  specifically clear  that where the order complained against is  alleged  to  be  illegal  or  invalid  as  being contrary to  law, a  petition at  the in  stance  of  person adversely affected  by it, would lie to the High Court under Art. 226  and such  a petition  cannot be  rejected  on  the ground that  an appeal  lies to  the higher  officer or  the State Government.  An appeal  in all cases cannot be said to provide in  all situations  an alternative  effective remedy keeping aside  the nice distinction between jurisdiction and merits. Look  at the  fact situation in this case. Power was exercised formally  by the  authority set up under the Rules to grant  contract but  effectively and  for  all  practical purposes by  the Chief Minister of the State. To whom do you appeal in a State administration against the decision of the Chief Minister  ? The clutch of appeal from Ceasar to Ceasar wife can  only be bettered by appeal from one’s own order to oneself. Therefore  this is  a case  in which the High Court was not at all justified in throwing out the petition on the untenable ground 551 that the  appellant had an effective alternative remedy. The High Court  did not  pose to  itself the question, who would grant relief  when the  impugned  order  is  passed  at  the instance of the Chief Minister of the State. To whom did the High Court  want the appeal to be filed over the decision of the Chief  Minister. There  was no answer aud that by itself without anything  more would  be sufficient to set aside the judgment of the High Court.      Turning to  the  merits  of  the  case,  the  arguments covered a  much larger canvass than was anticipated when the hearing  opened.   It  was  submitted  that  India  being  a Sovereign  Socialist   Secular  Democratic   Republic,   the property of  the Union or of the Slate is socialist property which would  imply that  it is  community property and every citizen of  this country has vital interest in its effective use and legitimate disposal.      It was  never disputed  nor could it have been disputed

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 15  

that minerals  vest in the state. The minor minerals vast in the State where the land from which they are to be extracted is situated  and minerals  other than minor minerals vast in the Union.  ’Minor minerals’  have been defined in The Mines and Minerals  (Regulation and  Development).  Act,  1957  to mean, ’building stores, gravel, ordinary clay, ordinary sand other than  sand used for prescribed purposes, and any other mineral which the Central Government may, by notification in the Official  Gazette, declare to be a minor mineral.’ Minor minerals vest  in the  state in  which the land is situated. The first  respondent State  of  Haryana  notified  that  an auction would  be held  for mineral  quarries  of  Faridabad District. The  appellant gave  his bid  at  the  auction  so notified. It  is an  admitted  position  that  his  was  the highest bid.  Anyone conversant  with auction  would not  be naive enough  to believe  that one can go on raising his own bid. His  was the  highest bid in the amount of Rs. 3,87,000 p.a. Though  the Presiding  Officer accepted  the bid of the appellant, being  the highest  bid at  the auction,  yet the State Government  in the  exercise of the power conferred by cl. (4)  of sub-r.  (2) of  Rule 30  declined to confirm the same presumably  under the  belief that  the highest bid did not represent  the  adequate  lease  rent  which  the  State Government was  entitled to  get. The  right  of  the  State Government not  to confirm the bid as also its action of not confirming  the   highest  bid   of  the  appellant  is  not questioned. Therefore,  various decisions  laying down  that the Government  is not  bound to  accept the  highest bid to which our attention was drawn 552 by Mr.  P.P. Rao,  learned counsel for the fourth respondent are of  no relevance  in this  case. This Court in Trilochan Mishra etc.  v. State  of Orissa  & Ors.    State  of  Uttar Pradesh &  Ors. v.  Vijay Bahadur  Singh & Ors. and State of Orissa &  Ors. v.  Harinarayan Jaiswal  & Ors. held that the Government is  under no obligation to accept the highest bid and that  no rights  accrue to the bidder merely because his bid happened to be the highest. The Court also observed that the Government  had  the  right,  for  good  and  sufficient reason, not  to accept  the highest bid but even to prefer a tenderer other  than the  highest bidder.  In Vijay  Bahadur Singh’s case  the Court  further  observed  that  the  power conferred on  the Government  by the act to refuse to accept the higher  bid, cannot  be confined  to inadequacy  of  bid only. There  may be  variety of  other good  and  sufficient reasons to  reject the  same. The appellant has no grievance that even  though his  was the highest bid, the same was not accepted nor  Mr. Sorabjee  on his  behalf contends that the highest bid  of the  appellant was rejected on grounds which are either  irrelevant or  extraneous. This aspect therefore need not detain us any more.      Let us  put into  focus the clearly demarcated approach that distinguishes  the use and disposal of private property and socialist  property. Owner  of private property may deal with it in any manner he likes without causing injury to any one else.  But the  socialist or  if that word is jarring to some, the community or further the public property has to be dealt with  for public  purpose and  in public interest. The marked difference  lies in  this that  while  the  owner  of private property  may have  a number of considerations which may permit him to dispose of his property for a song. On the other  hand,   disposal  of  public  property  partakes  the character of a trust in that in its disposal there should be nothing hanky  panky and  that it  must be  done at the best price so  that larger revenue coming into the coffers of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 15  

State administration  would serve  public purpose  viz.  the welfare  State   may  be  able  to  expand  its  beneficient activities by  the availability  of larger  funds.  This  is subject to  one important limitation that socialist property may be  disposed at  a price  lower than the market price or even  for   a  token   price   to   achieve   some   defined constitutionally recognised  public purpose,  one such being to achieve 553 the goals  set out in Part IV of the Constitution. But where disposal is  for augmentation  of revenue  and nothing else, the State  is under  an obligation to secure the best market price available  in a  market economy  An owner  of  private property need  not auction  it nor is he bound to dispose it of at  a current  market price.  Factors  such  as  personal attachment,  or   affinity   kinship,   empathy,   religious sentiment or  limiting the  choice to whom he may be willing to sell,  may permit  him to sell the property at a song and without demur.  A welfare  State as  the owner of the public property has  no such  freedom while disposing of the public property. A welfare State exists for the largest good of the largest number  more so  when it proclaims to be a socialist State dedicated  to eradication  of poverty. All its attempt must be  to obtain  the best available price while disposing of its property because the greater the revenue, the welfare activities will  get a fillip and shot in the arm. Financial constraint may  weaken the  tempo  of  activities.  Such  an approach serves  the  larger  public  purpose  of  expanding welfare activities  primarily  for  which  the  Constitution envisages The  setting  up  of  a  welfare  State.  In  this connection we  may profitably refer to Ramana Dayaram Shetty v. The  International Airport  Authority of India and Ors in which Bhagwati, J. speaking for the Court observed:           "It must,  therefore. be  taken to be the law that      where  the  Government  is  dealing  with  the  public,      whether by  E way  of  giving  jobs  or  entering  into      contracts or  issuing quotas  or licences  or  granting      other forms  of largesse,  the  Government  cannot  act      arbitrarily at  its sweet  will  and,  like  a  private      individual, deal  with any  person it  pleases, but its      action must  be in  conformity with  standard or  norms      which is  not arbitrary,  irrational or irrelevant. The      power or  discretion of the Government in the matter of      grant of  largesse including  award to jobs, contracts,      quotas, licences  etc., must be confined and structured      by rational,  relevant and  non-discriminatory standard      or  norm  and  if  the  Government  departs  from  such      standard or  norm in  any particular case or cases, the      action of  the Government  would be liable to be struck      down, unless it can be shown by the Government that the      departure was  not arbitrary,  but was  based  on  some      valid principle  which in  itself was  not  irrational,      unreasonable or discriminatory. 554      At another  place it  was observed  that the Government must act  in public  interest, it  cannot act arbitrarily or without reason and if it does so, its action would be liable to be  invalidated. It  was further observed that the object of holding  the auction  is generally  to raise  the highest revenue. The  Government is  entitled to  reject the highest bid if it thought that the price offered was inadequate. But after  rejecting  the  offer,  it  is  obligatory  upon  the Government to  act fairly  and at  any rate  it  cannot  act arbitrarily. Following  this line of thought, in Kasturi Lal Lakshmi Reddy  v. State  of Jammu  & Kashmir  and Anr. while

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 15  

upholding the  order of  the Government  of Jammu  & Kashmir dated April  27, 1979  allotting to the second respondent 10 to 12  lacs blazes annually for extraction of resin from the inaccessible  chir  forests  in  Poonch,  Reasi  and  Ramban Divisions of the State for a period of 10 years on the terms and conditions set out in the order, observed as under:           "Where any  governmental action  fails to  satisfy      the  test   of  reasonableness   and  public   interest      discussed above  and is  found to  be  wanting  in  the      quality of  reasonableness or lacking in the element of      public interest,  it would  be liable to be struck down      as invalid.  It must  follow as  a necessary  corollary      from this proposition that the Government cannot act in      a manner  which would  benefit a  private party  at the      cost of  the  State;  such  an  action  would  be  both      unreasonable  and  contrary  to  public  interest.  The      Government,  therefore,   cannot  for  example  give  a      contract or  sell or  lease  out  its  property  For  a      consideration  less   than  The  highest  that  can  be      obtained for  it, unless  of  course  there  are  other      considerations which render it reasonable and in public      interest to do so.                                        " (emphasis supplied) At one  stage, it  was observed  that the  Government is not free like an ordinary individual, in selecting recipient for its largesse and it cannot choose to deal with any person it pleases in  its absolute  and unfettered discretion. The law is now  well-settled that  the Government need not/deal with anyone, but  if it does so, it must do so fairly and without discretion and  without unfair  procedure. Let  it  be  made distinctly clear  that respondent No. 4 was not selected for any special  purpose or to satisfy ally Directive Principles of State Policy. He 555 surreptitiously ingratiated  himself by  a  back-door  entry giving a  minor raise  in the bid and in the process usurped the most undeserved benefit which was exposed to the hilt in the court. Only a blind can refuse to perceive it.      Approaching the  matter from  this angle,  can there be any doubt  that the appellant whose highest bid was rejected by the Government should have no opportunity to improve upon his bid more so when his bid was rejected on the ground that it did  not represent  adequate market consideration for the concession to  extract minor  mineral. A  unilateral  offer, secretly made,  not correlated to any reserved price made by the fourth  respondent after  making false  statement in the letter was  accepted Without  giving any  opportunity to the appellant either  to raise  the bid  or  to  point  out  the falsity of  the allegations made by the fourth respondent in the letter  as also the inadequacy of his bid. The appellant suffered an unfair treatment by the State in discharging its administrative functions  thereby violating  the fundamental principle of  fair play  in action. When he gave the highest bid, he could not have been expected to raise his own bid in the absence of a competitor. Any expectation to the contrary betrays a  woeful lack  of knowledge of auction process. And then some  one surreptitiously  by a  secret offer  scored a march over  him. No  opportunity was  given to him either to raise the  bid or  to controvert  and correct  the erroneous statement.      What happened  in this  case must open the eyes both of the Government  as well  as the  people  at  large.  How  an uncontrolled  exercise  of  executive  power  to  deal  with socialist property  in which entire community’s interest was sacrificed so  as to cause huge loss to the public exchequer

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 15  

would have  gone unnoticed  but for  the  vigilance  of  the appellant who no doubt is not altruistic in its approach but its business  interests goaded  it to  expose the  unsavoury deal. Conceding  that on  weighty and  valid considerations, the highest  bid can to rejected by the State one such which can be  foreseen is  that the highest bid does not represent the adequate  market price  of the  concession,  yet  before giving up  the auction  process and  accepting a private bid secretly offered,  the authority must be satisfied that such an offer  if given  in open  would not  be outmatched by the highest  bidder.   In  the  absence  of  such  satisfaction, acceptance of  an offer  secretly  made  and  sought  to  be substantiated on the allegations without the verification of their the  truth, which  was not undertaken, would certainly amount to  arbitrary action in the matter of distribution of State largesse which by the decisions of this Court is 556 impermissible. Even  though repeatedly,  this Court has said that the  State is not bound to accept the highest bid, this proposition of law has to be read subject to the observation that  it   can   be   rejected   on   relevant   and   valid considerations, one  such being that the concession is to be given to  a weaker  section of  the society  who  could  not outbid the  highest  bidder.  In  the  absence  of  it,  the approach must  be as  clearly laid  down by the Constitution Bench of this Court in K.N. Guruswamy v. The State of Mysore & Ors. In that case, the appellant and the fourth respondent were rival  liquor contractors  for the  sale of  the liquor contract for  the year  1953-54 in  the State of Mysore. The contract was  auctioned by the Deputy Commissioner under the authority conferred upon him by the Mysore Excise Act, 1901. The appellant’s  bid was  the highest  and the  contract was knocked down in his favour subject to formal confirmation by the Deputy  Commissioner. The  fourth respondent was present at the  auction but  did not  bid. Instead  of that  he went direct to  the Excise  Commissioner and made a higher offer. The Excise  Commissioner cancelled the sale of favour of the appellant and  directed  the  Deputy  Commissioner  to  take action under  the relevant  rule. The  latter  accepted  the tender of the respondent. The appellant moved the High Court for a writ of mandamus which was dismissed. In appeal by the certificate, it  was urged  on behalf  of the State that the Deputy Commissioner  acted within  the ambit  of his  powers under  the   relevant  rule   which  gave  him  an  absolute discretion either  to re-auction  or to act otherwise and no fetters are  placed upon  the ’otherwise’  method. The court negatived   this   contention   observing   that   arbitrary improvisation of  an ad hoc procedure to meet the exigencies of a  particular case  is ruled out. Therefore, the grant of the contract  to the  fourth respondent was wrong. Repelling the contention  that a  writ petition at the instance of the appellant would  not be maintainable, the Constitution Bench observed as under:           "The next  question is  whether the  appellant can      complain of  this by  way of a writ. In our opinion, he      could have  done so  in an ordinary case. The appellant      is interested  in these contracts and has a right under      the laws of the State to receive the same treatment and      be given  the same chance as anybody else. Here we have      Thimmappa who  was present  at the  auction and who did      not bid-not  that it  would make  any difference  if he      had, 557      for the  fact remains that he made no attempt to outbid      the appellant. If he had done so it is evident that the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 15  

    appellant would  have raised his own bid. The procedure      of tender  was not  open  here  because  there  was  no      notification and  the furtive method adopted of setting      a matter  of this  moment behind  the  backs  of  those      interested and anxious to compete is unjustified. Apart      from all  else, that  in itself would in this case have      resulted in  a loss  to the  State because,  as we have      said, the mere fact that the appellant has pursued this      with such  vigour shows  that he would have bid higher.      But deeper  considerations are  also at  stake, namely,      the  elimination   of  favouritism   and  nepotism  and      corruption: not that we suggest that occurred here, but      to permit  what has  occurred in  this case would leave      the  door  wide  open  to  the  very  evils  which  the      Legislature in  its wisdom has endeavored to avoid. All      that  is   part  and   parcel  of  the  policy  of  the      Legislature. None of it can be ignored. We would there-      fore in  the ordinary  course have  given the appellant      the writ  he seeks.  But, owing  to the time which this      matter has  taken to  reach us (a consequence for which      the appellant  is in  no way  to blame, for he has done      all he could to have an early hearing), there is barely      a fort  night of  the contract left to go. We were told      that  the  excise  year  for  this  contract  (1953-54)      expires early  in  June.  A  writ  would  therefore  be      ineffective and  as it  is not  our practice  to  issue      meaningless writs we must dismiss this appeal and leave      the appellant content with an enunciation of the law."      Fact of  no two cases are alike, but if one attempts to compare  the   situation,  the  conclusion  is  inescapable. Appellant’s bid was the highest bid. It was in the amount of Rs. 3,87,000  p.a. Respondent  No. 4  approached  the  Chief Minister with  a slightly  higher bid  of Rs.  4,50,000  per year.  This   was  granted  without  any  reference  to  the appellant to raise his bid. Such a thing, if allowed to pass once is  bound to be repeated because this method is open to the abuse  of favouritism  and  nepotism  and  the  loss  of revenue in this case to the State is enormous. What happened in tho  court staggered  everyone. Learned  Attorney General Shri L.N.  Sinha, who questioned the competence of the court to deal  with  the  matter  when  he  witnessed  the  rising crescendo of the auction in the 558 court and  the bid  reached Rs. 12 lacs per year, he quietly left the  court frankly  stating that  he does  not wish any contention to  be raised  on behalf of the State of Haryana. Apprehension voiced  by the Constitution Bench has literally come true  in this case. This view of the Constitution Bench was reaffirmed in Nand Kishore Saraf v. State of Rajasthan & Anr., the only distinguishing feature of the case being that the highest  bid of  the  appellant  was  rejected  and  the contract was  given to  Dharti  Dan  Shramik  Theka  Sahkari Samiti Ltd.,  a cooperative  Society of  the workmen. Though the court  did not  so specifically  state,  it  upheld  the rejection of  the highest bid of the appellant on the ground that  the   benefit  of   the  concession  was  given  to  a cooperative society  formed by  the weaker  section  of  the society and  thereby it serves the public purpose as set out in Art.  41 of the Directive Principles of the State Policy. In Fertilizer  Corporation Kamgar  Union (Regd),  Sindri and Ors. v. Union of India & Ors., Krishna Iyer, J. speaking for himself and Bhagwati, J. Observe as under:           "A pragmatic  approach to social justice compel us      to interpret constitutional provisions, including those      like Articles  32 and  226, with  a view  to  see  that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 15  

    effective policing of the corridors of power is carried      out by  the court  until other ombudsman arrangements-a      problem with  which Parliament  has been  wrestling for      too long-  emerges. I  have dwelt at a little length on      this policy  aspect and  the court  process because the      learned Attorney  General challenged  the  petitioner’s      locus standi  either  qua  worker  or  qua  citizen  to      question in court the wrong doings of the public sector      although he  maintained that  what had been done by the      Corporation  was   both  bona   fide  and  correct.  We      certainly agree  that judicial  interference  with  the      administration cannot  be meticulous in our Montesquien      System of  separation of powers. The court cannot usurp      or abdicate, and the parameters of judicial review must      be  clearly   defined  and   never  exceeded.   If  the      Directorate of  a Government  company has acted fairly,      even if  it has  faltered  in  its  wisdom,  the  court      cannot, as a super-auditor, take the Board of Directors      to I l task. The function is limited to testing whether      the 559      administrative action  has been  fair and free from the      taint  of   unreasonableness  and   has   substantially      complied with  the norms  of procedure  set for  it  by      rules of public administration." In a  concurring opinion,  Chandrachud,  CJ.  Observed  that sales of  public property,  when the intention is to get the best price, ought to take place publicly.      In State  of Uttar Pradesh v. Shiv Charan Sharma & Ors. etc., this  court observed  that public  auction  with  open participation  and   a  reserved   price  guarantees  public interest being fully subserved.      Even though  later on, learned Attorney General did not invite us  to examine  any specific  contention on behalf of the State of Harayana, it may in passing be stated that with regard  to   transactions  with  the  State,  the  principle enunciated in Sec. 55(5) (a) of the Transfer of Property Act would apply  with greater  vigour. Proceeding  along it  was submitted that  if that is accepted and if it appears to the court that  the State of Haryana did not appear to have full appreciation of  the value  of the  property and  the  other party i.e.  respondent No. 4 by reason of its profession was aware  of   the  same   and  the  resulting  transaction  is materially unfair,  then  such  a  case  falls  outside  the principle enunciated by the decision of this court, on which reliance was  placed on  behalf of  the respondent No. 4. We consider it unnecessary in the facts of this case to examine this aspect.      The position  that emerge  is this. Undoubtedly rule 28 permits contracts  for winning  mineral to be granted by the Government by auction or tender. It is true that auction was held. It  is  equally  true  that  according  to  the  State Government, the  highest bid  did not  represent the  market price of  the concession. It is open to the State to dispose of the contract by tender. Even here the expression ’tender’ does not mean private secret deal between the Chief Minister and  the  offerer.  Tender  in  the  context  in  which  the expression is  used in  rule 28, meant tenders to be invited from intending  contractors.’ If  it was intended by the use of the  expression ’tender’  in rule 28 that contract can be disposed of  by private negotiations with select individual, its validity will be open to serious question. The 560 languages ordinarily used in such rules is by public auction or private  negotiations.  The  meaning  of  the  expression

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 15  

’private negotiations’  must take  its colour  and prescribe its content by the words which precede them. And at any rate disposal of the state property in public interest must be by such method  as would  grant an opportunity to the public at large to  participate in  it, the  State reserving to itself the right to dispose it of as best subserve the public weal. Viewed  from  this  angle,  the  disposal  of  the  contract pursuant to the letter by the fourth respondent to the Chief Minister is  objectionable for  more than  one  reason.  The writer has indulged into allegations, the truth of which was not verified  or asserted.  The highest bidder whose bid was rejected on  the ground  that the  bid did not represent the market price,  was not given an opportunity to raise his own bid when  privately a  higher offer  was  received.  If  the allegations made  in the  letter influenced  the decision of the Chief  Minister, fair-plan  in action  demands that  the appellant should  have been  given an opportunity to counter and correct  the same. Application of the minimum principles of natural  justice in  such a situation must be reading the statute and held to be obligatory. When it is said that even in administrative  action, the authority must act fairly, it ordinarily  means  in  accordance  with  the  principles  of natural justice  variously described  as fair play in action That having not been done, the grant in favour of the fourth respondent must be quashed.      Apart from  various considerations  herein examiner, if any other  view is  taken in  the facts and circumstances of this case,  it may  provide a  classic  example  of  ostrich burying its face in sand and declining to see the reality. M.L.A.                                       Appeal allowed, 561