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PETITIONER: RAMANA DAYARAM SHETTY

       Vs.

RESPONDENT: THE INTERNATIONAL AIRPORT AUTHORITY OF INDIA AND ORS.

DATE OF JUDGMENT04/05/1979

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. TULZAPURKAR, V.D. PATHAK, R.S.

CITATION:  1979 AIR 1628            1979 SCR  (3)1014  1979 SCC  (3) 489  CITATOR INFO :  R          1980 SC 840  (15,16,20)  F          1980 SC1992  (10)  F          1980 SC2147  (63)  R          1981 SC 212  (18,31,32,34,36,37,38,39,41,42  E&R        1981 SC 487  (8,9,16)  R          1981 SC1694  (5)  R          1981 SC2001  (6,7)  MV         1982 SC1325  (12)  R          1983 SC 130  (16)  R          1983 SC 624  (8)  F          1983 SC 848  (11)  R          1983 SC1235  (8)  R          1984 SC 363  (22)  D          1984 SC 415  (6)  F          1984 SC 541  (13)  R          1984 SC 657  (16)  R          1984 SC1420  (5)  F          1985 SC1147  (12)  RF         1986 SC 180  (41)  RF         1986 SC 872  (71)  RF         1986 SC1035  (12)  RF         1986 SC1370  (10)  RF         1986 SC1527  (12,19,23)  R          1986 SC1571  (52,54,69,105)  E&R        1987 SC 251  (23)  E          1987 SC1080  (12,TO,17,26,28,29,30)  R          1987 SC1109  (30,35,36)  RF         1988 SC 157  (8,9,10)  RF         1988 SC 268  (30)  R          1988 SC 469  (7,8,10,TO,12)  APL        1989 SC  88  (7)  D          1989 SC1031  (12)  D          1989 SC1076  (11,19,20)  F          1989 SC1629  (13,14)  F          1989 SC1642  (25,27)  D          1989 SC2138  (64,100)  RF         1990 SC1277  (46)  RF         1990 SC1480  (29)  R          1991 SC 101  (237,257,263)  RF         1991 SC 537  (29)  RF         1991 SC1153  (12)  RF         1991 SC1173  (5)  D          1991 SC1579  (6)  RF         1992 SC   1  (133)

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RF         1992 SC  76  (2)  F          1992 SC1858  (19)

ACT:      International  Airport  Athority  Act  1971-Whether  an instrumentality of  State-Authority called for tenders for a job-If could accept a tender not conforming to conditions in notice.      Administrative     law-Statutory      body-When      an instrumentality of State.

HEADNOTE:      The first  respondent,  by  a  public  notice,  invited tenders for putting up and running a second class restaurant and two  snack bars  at the  International Air port, Bombay. the notice  stated in  Paragraph (1)  that sealed tenders in the prescribed  form were  invited  from  registered  second class hoteliers  having at  least five years’ experience for putting up  and running  a second  class restaurant  and two snack bars at the Bombay Airport for a period of three years Paragraph (8)  stated that  acceptance of  the tender  would rest with  the Airport Director who does not bind himself to accept any  tender and  reserves to  himself  the  right  to reject all  or any of the tenders received without assigning any reasons therefor.      out of  the six tenders received only the tender of the 4th respondents  was complete and offered the highest amount as licence  fee. All the other tenders were rejected because they were incomplete.      Since  the  fourth  respondents  did  not  satisfy  the description of  "registered second class hoteliers having at least S  years’ experience"  prescribed in para graph (1) of the tender notice, the 1st respondent called upon the fourth respondents to  produce documentary  evidence  whether  they were registered  second class  hotliers having  at  least  5 years’ experience.  The fourth respondents stated once again that  they  had  considerable  experience  of  catering  for various reputed  commercial houses,  clubs, messes and banks and that  they  had  Eating  Houses  Catering  Establishment (Canteen) Licence.  Satisfied with  the information given by the fourth  respondents, the first respondent accepted their tender on the terms and conditions set out in its letter.      The appellant  filed a  writ petition  before the  High Court challenging  the decision  of the  first respondent in accepting the  tender of  the fourth respondents. But it was rejected.      In appeal  to this  Court it was contended on behalf of the appellants  that (1)  the first  respondent which  is  a public authority  was bound  to  give  effect  to  the  most important condition  of eligibility  and acceptance  of  the tender by  the first  respondent was  in  violation  of  the standard  or  norm  of  eligibility  set  up  by  the  first respondent  and  (2)  had  the  appellant  known  that  non- fulfilment of  the condition  of eligibility would be no bar for considering  a tender  he too  would have  competed  for obtaining the contract. 1015      The fourth  respondents, on  the other  hand, contended that  the   requirement  A  that  the  tenderer  must  be  a registered second  grade hotlier was meaningless because the grading is  given by  the Bombay  City Municipal Corporation only to  hotels or  restaurants and  not to  persons running

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them and,  therefore there could be no second grade hotlier; (2) the  notice setting  out the  conditions of  eligibility having had  no stautory force, even if there was a departure from the  standard  or  norm  of  eligibility,  it  was  not justiceable and  the first  respondent was competent to give the conract  to anyone it thought fit; and (3) the 1 Airport Authority reserved  to itself the right to reject all or any of the tenders without assigning any reasons and, therefore, it was  competent  to  it  to  reject  all  the  tenders  or negotiate with  any person it considered fit to enter into a contract. ^      HELD: The  action of  the first respondent in accepting the tender  of the  fourth respondents,  who did not satisfy the standard  or norm,  was clearly  discriminatory since it excluded other  persons similarly situate from tendering for the contract  and  it  was  arbitrary  and  without  reason. Acceptance of  the tender  was invalid as being violative of the  equality   clause  of   the  Constitution  as  also  of administrative law inhibiting arbitrary action. [1056C]      (a) What  paragraph (  1 )  of the  notice required was that only  a person  running a registered second class hotel or restaurant  and having  at least  5 years’  experience as such should be eligible to submit the tender. The test of 1) eligibility laid  down in  this paragraph  was an  objective test and  not a  subjective one.  If a person submitting the tender did  not  have  atleast  five  years’  experience  of running a  second class hotel, he was eligible to submit the tender and  it would not avail him to say that though he did not satisfy  this condition  he  was  otherwise  capable  of running a  second class  restaurant and  therefore should be considered. This  was  in  fact  how  the  first  respondent understood  this   condition  of   eligibility.  The   first respondent did not regard this requirement as meaningless or unnecessary and  wanted to  be  satisfied  that  the  fourth respondents  had  fulfilled  this  requirement.  The  fourth respondents were  neither running  a second  grade hotel  or restaurant nor  did they  have  five  years’  experience  of running such  a hotel  or restaurant.  Therefore the  fourth respondents did  not satisfy  the condition  of  eligibility laid down in paragraph(l) of the noice. [1028 B-H]      (b) It  is not  possible to  justify the  action of the first respondent  on the  ground that it could have achieved the same  result by  rejecting all  the tenders and entering into  direct   negotiations  with   the  fourth  respondents Although there  was  no  statutory  or  administrative  rule requiring the  first respondent  to give  a contract only by inviting tenders and that on the terms of paragraph 8 of the tender notice,  it was  not bound  to accept any tender, the first respondent  did not  reject the  tenders outright  and enter into  direct negotiation  with the  fourth respondents for awarding  the contract.  The process  of  .  awarding  a contract by inviting tenders was not terminated or abandoned by the  first respondent by rejecting all the tenders but in furtherance  of   the  process  the  tender  of  the  fourth respondents was  accepted by  the first  respondent. Nor was the contract  given to the fourth respondents as a result of direct negotiations. [1029 D-G]      2(a) Today  with tremendous  expansion of  welfare  and social service functions, increasing control of material and economic resources  and large scale assumption of industrial and commercial activities by the State, the power of 1016 the executive  Government to  affect the lives of the people is  steadily   growing.  The  attainment  of  socio-economic

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justice being  a conscious  end of  State policy, there is a vast and  inevitable increase  in the  frequency with  which ordinary citizens come into relationship of direct encounter with State  power-holders.  This  renders  it  necessary  to structure and restrict the power of the executive Government so as  to prevent  its arbitrary  application  or  exercise. Whatever be  the concept  of  the  rule  of  law,  there  is substantial agreement  in juristic  thought that  the  great purpose of  the rule  of law notion is the protection of the individual against  arbitrary exercise of power, wherever it is found.  It is unthinkable that in a democracy governed by the rule  of law  the executive  Government or  any  of  its officers should  possess arbitrary  power over the interests of the  individual. Every action of the executive Government must be  informed  with  reason  and  should  be  free  from arbitrariness. That  is the  very essence of the rule of law and its  bare minimal requirement. And to the application of this principle  it makes  no difference whether the exercise of the power involves affectation of some right or denial of some privilege. [1031 F-H]      (b) To.day  the Government,  in a welfare State? is the regulator and  dispenser of special services and provider of a large  number of  benefits.  The  valuables  dispensed  by Government  take   many  forms,   but  they  all  share  one characteristic.  They  are  steadily  taking  the  place  of traditional forms  of wealth.  These valuables  which derive from relationships  to Government are of many kinds: leases, licences,  contracts  and  so  forth.  With  the  inereasing magnitude and  range of  governmental functions  as we  move closer to  a wefare  State, more  and  more  of  our  wealth consists of  these new  forms. Some of these forms of wealth may be  in the nature of legal rights but the large majority of them  are in  the  nature  of  privileges.  But  on  that account, it  cannot be said that they do not enjoy any legal protection nor can they be regarded as gratuity furnished by the State so that the State may withhold, grant or revoke it at its pleasure. [1032 E-H]      (c)  The  law  has  not  been  slow  to  recognize  the importance of  this new  kind of  wealth  and  the  need  to protect individual interest in it and with that end in view, it has  developed new forms of protection. Some interests in Government largess,  formerly regarded  as privileges,  have been recognized as rights while others have been given legal protection not  only by  forging procedural  safeguards  but also  by   confining/structuring  and   checking  Government discretion in  the matter  of grant  of  such  largess.  The discretion of  the  Government  has  been  held  to  be  not unlimited in  that the  Government cannot  give or  withhold largess in  its arbitrary  discretion or  at its sweet will. [1033 C-D]      Viterolli v.  Saton 359  U.S. 535:  3 Law  Ed.  (Second Series) 1012,  Erusian Equipment and Chemicals Ltd. v. State of West Bengal, [1975] 2 SCR. 674 referred to.      (d) Therefore, where the Government is dealing with the public, whether  by way  of giving  jobs  or  entering  into contracts or  issuing quotas  or licences  or granting other forms of  largess. 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  norm which  is  not  arbitrary,  irrational  or irrelevant. The power or discretion of the Government in the matter  of   grant  of  largess  including  award  of  jobs, contracts  etc.,   must  be  con  fined  and  structured  by rational, relevant  and non-discriminatory  standard or norm and if  the Government departs from such standard or norm in

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any particular  case or  cases, the action of the Government would be liable to be struck 1017 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 non-irrational, unreasonable or discriminatory. [1034 F-H]      (e)  The  Government  which  represents  the  executive authority of  the State  may act through the instrumentality or  agency   of  natural   persons  or  it  may  employ  the instrumentality or  agency of JURIDICAL persons to carry out its functions.  With the  advent of  the welfare  state  the civil service,  which traditionally carried out functions of Government through  natural persons, was found inadequate to handle the  new tasks  of specialised  and highly  technical character. To  fill the  gap it  became necessary to forge a new instrumentality  or administrative  device for  handling these new  problems and  that is done by public corporations which has  become the  third arm of the Government. They are regarded as  agencies of the Government. In pursuance of the industrial policy  resolution of  the  Government  of  India corporations were  created by  the Government for setting up and management of public enterprises and carrying out public function.   The   corporations   so   created,   acting   as instrumentality or  agency of Government, would obviously be subject  to   the  same   limitations  in   the   field   of constitutional and  administrative law  as Government itself though in  the  eye  of  law  they  would  be  distinct  and independent legal  entities. It Government. acting,, through its officers is subject to certain constitutional and public law. limitations, it must follow a fortiori that Government, though the instrumentality or agency of corporations, should equally be subject to the same limitations. But the question is how  to determine  whether a  corporation  is  acting  is instrumentality or agency of Government. [1035A-C, F-H]      3(a ) The factors for determining whether a corporation has become  an instrumentality  or agency  of the Government are: does  the State give (my financial assistance and if so that is  the magnitude  of such  assistance ?  Is there  any control of the management and policies of the corporation by the State,  and what  is  the  nature  and  extent  of  such control? Does  the corporation  enjoy any State conferred or State protected  monopoly status  and whether  the functions carried out  by the  corporation are pubic functions closely related to  governmental functions?  It is  not possible  to particularise all  the relevant factors but no single factor will yield  a safisfactory  answer, to  the question and the court will  have to consider the cumulative. effect of these various factors  and establish  it by  its decision  on  the basis  of   a  particularised   enquiry   into   facts   and circumstances of each case. [1041 B-E]      (b) Sukhudev  v. Bhagatram  [1975] 3  S.C.R. 619 at 658 explained, Kerr  v. Eneck Pratt Free Library, 149 F. 2d 212, Jackson v. Metropolitan Edison Co. 419 U.S. 345, 42 L.ed. 2d 477, Evans  v. Newton  382 U.S. 296; 15 L.ed. 2d 373, Pfizer v. Ministry  of Health  [1964] 1 Ch. 614, New York v. United State 326  U.S. 572,  Cf. Helvering v. Gerhardt 304 U.S. 405 426, 427 referred to.      (c) Where a corporation is an instrumentality or agency of Government  it would be subject to some constitutional or public law  limitations ns  Government. The  rule inhibiting arbitrary action by Government must apply equally where such corporation is  dealing with  the public  and it  cannot act arbitrarily and c into relationship with any person it likes at its sweet will. Its action must be in conformity with

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some  principles   which  meets   the  test  of  reason  and relevance. [1041 H] 9-409 SC1/79 1018      Rajasthan Electricity  Board  v.  Mohan  Lal  [1967]  3 S.C.R. 377,  and Sukhdev v. Bhagatram [19751 3 S.C.R. 619 at 658 followed.      Praga Tools Corporation v. C.A. Imanuel (1969] 3 S.C.R. 773, Heavy  Engineering Mazdoor  Union  v.  State  of  Bihar [1969] 3  S.C.R. 995,  S. L.  Aggarwal v.  General  Manager, Hindustan Steel Limited [1970] 3 SCR 363, Sarbhajit Tewari v Union of lndia & Ors. [1975] 1 SCC 485; held inapplicable.      (d) It  is well  established that Art. 14 requires That action must  not be  arbitrary and  must be  based  on  some rational and relevant principle which is non-discriminatory. It  must   not  be   guided  by   extraneous  or  irrelevant considerations. The  State cannot  act arbitrarily  in enter into relationship,  contractual or  otherwise, with  a third party. Its  action must  conform to  some standard  or  norm which is rational and non-discriminatory. [1042 C]      E. P.  Rayappa v. State of Tamil Nadu [1974] 2 SCR 348, Maneka Gandhi  v.  Union  of  India  [1978]  2  S.C.R.  621, Rashbihari Panda  v. State of Orissa [1969] 3 S.C.R. 374, C. K. Achuthan  v. State  of Kerala  [1959] S.C.R. 78, referred to,      Trilochan Mishra  v. State  of orissa  & ors.  [1971  3 S.C.R. 153,  State of  Orissa v.  Harinarayan Jaiswal & ors. [1972] 2 S.C.R. 36, Rajasthan Electricity Board v. Mohan Lal [1967] 3  S.C.R. 377,  Praga Tools  Corporation  Dv.  c.  A. Imanuel [1969] 3 S.C.R. 773, Heavy Engineering Mazdoor Union v. State  of Bihar  [1969] 3  SCR, 995,  S. L.  Aggarwal  v. General Manager  Hindustan Steel  Limited [1970] 3 SCR. 363, Sarbhajit Tewari  v. Union of India & ors. [1975] 1 SCC 485, held in applicable.      4(a) The  International  Airport  Authority  Act,  1971 empowers the  Central Government  to constitute an authority called the  International Air  port Authority.  The  salient features of  the Act are: the Anthority, which is a body cor porate  having  perpetual  succession  and  a  common  seal, consists of  a Chairman  and certain  other Members  who are appointed by  the Central Government. The Central Government has power to terminate the appointment or to remove a member from the  Board of the Authority. Although the Authority has no share  capital of  its own,  capital  needed  by  it  for carrying out its functions is provided wholly by the Central Government. All  non-recurring, expenditure  Incurred by the Central Government for or in connection with the purposes of the airports  upto the  appointed date  and declared  to  be capital expenditure  by  the  Central  Government  shall  be treated as capital provided by the Central Government to the first respondent  and all  sums of  money due to the Central Government in  relation to  the airports  immediately before the appointed  date shall]  be deemed to be due to the first respondent. The  functions, which  until the  appointed date were being  carried out  by  the  General  Government,  were Transferred to  the Airport Athority by virtue of s. 16. The first respondent, according to s. 20, should pay the balance of its  annual net  profits to  the Central Government after making provision  for reserve funds, bad and doubtful debts, depreciation in  assets and  so on.  The  first  respondent, under s.  21, has  to submit for the approval of the Central Government a  statement of  the programme  of its activities during the  forthcoming financial  year.  Its  accounts  are audited by  the Comptroller  and  Auditor  General  and  the accounts Shall  be forwarded  to the Central Government. The

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first respondent  is required  to submit  an account  of its activities during  a financial  year and this report is laid before the  Houses of  Parliament by the Central Government. The  Central  Government  has  power  to  divest  the  first respodent temporarily from 1019 the management  of any airport and direct ut to entrust such management to any  other person. Power is conferred under s. 34  on   the  Central  Government  to  supersede  the  first respodent under  certain specified  circumtances. Section 35 gives power  to the Central Government to give directions in writing to  the Airport Authority on questions of policy and the Airport  Authority is  bound by such directions. Section 37 empowers  the  Airport  Authority  to  make  regulations. Section 39  provides that  contravention of  any  regulation made by the Airport Authority is punishable. [1052B-1054C]      (b) A  conspectus of  the provisions of the Act clearly shows that  every test  l down  by this  Court  in  deciding whether a  statuority authority  comes within the purview of Art. 12  of the constitution is satisfied in the case of the first respondent. they leave no room for doubt that it is an instrumentality or  agency of  the  Central  Government  and falls within  the definition  of  State.  Therefore,  having regard both to the constitutional mandate of Art. 14 and the judicially evolved  rule of  administrative law,  the  first respendent was  not entitled to act arbitrarily in accepting the tender  of the  fourth  respondents  but  was  bound  to conform to  the standard  or norm did down in paragraph I of tho notice  inviting tenders. The standard or norm laid down by the notice was reasonable and non-discriminatory and once it is  found that  such a standard or norm is laid down, the first respondent  was not  entitled to  depart from  it  and award the  contract to  the fourth  respondents who  did not satisfy the  condition of eligibility prescribed by standard or norm. If none of the tenderer satisfied the condition the first respondent  could have rejected the tender and invited fresh tenders  on the  basis of  less stringent  standard or norm, but  it could  not depart from the prescribed standard or norm. [1055 E-A]      (c) In  the instant  case the  appellant  had  no  real interest in  the result  of the  litigation. There can be no doubt that the litigation was commenced by the appellant not with a view to protection his own interest, but had been put up by  others for  depriving the  fourth respondents  of the benefit of  the contract  secured by them. The Writ Petition was filed  more than five months after the acceptance of the tender and  the position  would have  been different had tho appellant filed  it immediately  after the acceptance of the tender.  The   Fourth  respondents  have  incurred  a  large expenditure in  making necessary  arrangement under the bona fide belief  that their  tender had been legally and validly accepted. It  would be  most inequitous  to  set  aside  the contract at the instance of the appellant

JUDGMENT:      CIVIL APPELLATE  JURISIDICTION: Civil Appeal No. 895 of 1978.      Appeal by  Special Leave  from the  Judgment and  order dated 23-1-1978  of the  High Court  at Bombay in Appeal No. 234/77 arising out of Misc. Petition No. 1582/77.      Ashok H.  Desai, Y.  S.  Chitale,  Jai  Chinai,  P.  G. Gokhale and . R Agarwal for the Appellant. II      G. B. Pai, o. c. Mathur and D. N. Mishra for Respondent

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No. 1. 1020      F.S. Nariman, R. H. Dhebar, S. K. Dholakia, H H. Yagnik and . V. Desai for Respondent No. 4.      The Judgment of the Court was delivered by      BHAGWATI,  J.-This   appeal  by  special  leave  raises interesting questions of law in the area of public law. What are the  constitutional obligations  on the  State  when  it takes action  in exercise  of  its  statutory  or  executive power? Is  the State  entitled to  deal with its property in and manner  it likes  or award  a contract  to any person it chooses without any constitutional limitations upon it? What are the  parameters of  its statutory  or executive power in the matter  of awarding  a  contract  or  dealing  with  its propery  ?   The  questions  fell  in  the  sphere  of  both administrative law  and constitutional  law and  they assume special significance  in a modern welfare State which is com mitted to  egalitarian values  and dedicated  to the rule or law. But  these questions cannot be decided in the abstract. They can be determined only against the back-ground of facts and hence we shall proceed to State the facts giving rise to the appeal.      On or about 3rd January, 1977 a notice inviting tenders for putting up and running a second class restaurant and two Snack bars at the International Airport Bombay was issued by the 1st  respondent Which  is a  corporate body  constituted under the  International Airport  Authority Act, 43 of 1971. The notice  stated in  the clearest  terms in  paragraph (1) that "Sealed  tenders in  the prescribed  form are  here  by invited from Registered IInd Class Hoteliers having at least 5 years’  experience for putting up and running a IInd Class Restaurant and  two Snack  bars at this Airport for a period of 3 years". The latest point of time upto which the tenders could be  submitted to  the 1st  respodent was stipulated in Paragraph 7  of the  notice to  be 12  p.m. On 25th January, 1977 and it was provided that the tenders would be opened on the same  date at  12.30 hours.  Paragraph (8) of the notice made it  clear that  "the acceptance of the tender will rest with the  Airport Director  who does  not  bind  himself  to accept any  tender and  reserves to  himself  the  right  to reject all or ally of the tenders received without assigning any reasons  therefore "  There were six tenders received by the 1st respondent in response to the notice and one of them was from  the 4th  respondents of  offering a licence fee of Rs. 6666.66  per month, and the others were from Cafe Mahim, Central Catering  Service, one A. S. Irani, Cafe Seaside and Care Excelsior offering progressively decreasing licence fee very much  lower than  that offered  by the 4th respondents. The tenders were opened in the 1021 office of  the  Airport  Director  at  12.30  p.m.  On  25th January, 1977  and at  that time  the 4th  respondents  were represented by  their sole  proprietor Kumaria.  A. S. Irani was present  on behalf  of himself, Cafe Mahim, Cafe Seaside and Cafe  Excelsior and  there  was  one  representative  of Central Catering Service. The tenders of Cafe Mahim, Central Catering Service,  Cafe Seaside  and Cafe Excelsior were not complete since  they were  not accompanied by the respective income tax  certificates, affidavits  of immovable  property and solvency  certificates, as  required by  cl. (9)  of the terms and  conditions of  the tender form. The tenders of A. S. Irani  was also not complete as it was not accompanied by an affidavit  of immovable property held by him and solvency certificates. The  only tender  which was complete and fully complied with  the terms  and conditions  of the tender form

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was that  of the  4th respondents and the offer contained in that tender  was also  the highest  amongst all the tenders. Now it  is necessary  to point  out at this stage that while submitting their  tender the 4th respondents had pointed out in their  letter dated  24th January,  1977 addressed to the Airport Director  that they  had  10  years’  experience  in catering to  reputed commercial  houses,  training  centres, banks  and   factories  and   that  they   were  also  doing considerable outdoor catering work for various institutions. This letter  showed that  the 4th respondents had experience only  of  running  canteens  and  not  restaurants  and   it appeared that  they  did  not  satisfy  the  description  of "registered IInd  Class Hotelier  having at  least 5  years’ experience" as  set out  in  paragraph  (1)  of  the  notice inviting tenders.  The Airport  officer, therefore,  by  his letter  dated   15th  February,   1977  requested   the  4th respondents to  inform by return of post whether they were a "registered IInd  Class Hotelier  having at  least  5  years experience" and  to produce  documentary  evidence  in  this respect within  7 days.  The 4th  respondents pointed out to the Airport  officer by  their letter  dated 22nd  February, 1977 that they had, in addition to what was set out in their earlier letter  dated  24th  January,  1977,  experience  of running canteens  for Phillips  India Ltd.  and  Indian  oil Corporation and  moreover, they  held Eating  House  Licence granted by  the Bombay  Municipal Corporation since 1973 and had thus  experience of  10 years  in the  catering line. It appears that before this letter of the 4th respondents could reach Airport  officer, another  letter dated 22nd February, 1977  was  addressed  by  the  Airport  officer  once  again requesting  the   4th  respondents  to  produce  documentary evidence to  show if  they were  ’’a registered  Ilnd  Class Hotelier having  at  least  5  years  experience".  The  4th respondents thereupon  addressed another  letter dated  26th February, 1977  to the  Director pointing  out that they had considerable experience  of  catering  for  various  reputed commercial houses, 1022 clubs, messes  and banks  and They also held an Eating House Catering Establishment  (Canteen) Licence  as also a licence issued under  the Prevention  of Food  Adulteration Act. The 4th respondents  stated that  their sole  proprietor Kumaria had started  his career in catering line in the year 1962 at Hotel Janpath,  Delhi and  gradually risen  to  his  present position and  that he had accordingly "experience equivalent to that  of a  IInd Class  or even 1st Class hotelier." This position was  reiterated by the 4th respondents in a further letter dated 3rd March, 1977 addressed to the Director. This information given by the 4th respondents appeared to satisfy the 1st  respondent and  by a  letter dated 19th April, 1977 the  1st   respondent  accepted   the  tender   of  the  4th respondents on  the terms  and conditions  set out  in  that letter.  The   4th  respondents  accepted  these  terms  and conditions by  their  letter  dated  23rd  April,  1977  and deposited with  the 1st  respondent by was of security a sum of Rs.  39,999.96 in  the form  of fixed Deposit Receipts in favour of  the Ist respondent and paid to the 1st respondent a sum  of Rs. 6666.66 representing licence fee for one month and  other   amounts  representing  water,  electricity  and conservancy charges. The 4th respondents thereafter executed and handed  over to  the Ist  respondent an agreement in the form attached  to the  tender on  1st  May,  1977.  The  4th respondents  also   got  prepared  furniture,  counters  and showcases as  also uniforms  for the  staff, purchased inter alia deep  freezers, water  coolers, electrical  appliances,

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icecream  cabinets,   espresso  coffee  machines,  crockery, cutlery and  other articles  and things and also engaged the necessary staff  for the  purpose of  running the restaurant and the two Snack bars But the Ist respondent could not hand over  possession   of  the   requisite  sites   to  the  4th respondents, since  A. S.  Irani was  running his restaurant and snack bars on these sites under a previous contract with the 1  st respondent and though that contract had come to an end, A.  S. Irani  did not deliver possession of these sites to  the  Ist  respondent.  The  4th  respondents  repeatedly requested the 1st respondent and the Airport Director who is the 2nd respondent in the appeal, to hand over possession of the sites  and pointed  out to  the that  the 4th repondents were incurring  losses by  reason of  delay in  delivery  of possession, but  on account  of the  intransigence of  A. S. Irani the  Ist respondent  could not  arrange to  hand  over possession of the sites to the 4th respondents.      Meanwhile one  K. S,  Irani who  owned  Cafe  Excelsior filed Suit  No. 6544 of 1977 in the City Civil Court, Bombay against the  respondents challenging the decision of the Ist respondent to  accept the  tender of the 4th respondents and took out  a notice  of  motion  for  restraining  the  1  st respondent from taking any further steps pursuant to 1023 the acceptance  of the  tender. K.  S. Irani obtained an ad- interim injunction against the respondents but after hearing the respondents, the City Civil Court vacated the ad-interim injunction and  dismissed the  notice of  motion by an order dated 10th  october, 1977.  An appeal was preferred by K. S. Irani against  this order,  but the  appeal was dismissed by the  High   Court  on   19th  october,   1977.   Immediately thereafter, on  the same day, the Ist respondent handed over possession of  two, sites to the 4th respondents and the 4th respondents proceeded  to set up snack bars on the two sites and started  business of  catering at  the two  snack  bars. These two  sites handed  over to  the 4th  respondents  were different from  the sites occupied by A.S. Irani, because A. S. Irani  refused to  vacate the sites in his occupation. So far as  the site  for the  restaurant was concerned, the Ist respondent could  not hand  over the possession of it to the 4th  respondents  presumably  because  there  was  no  other appropriate site available other than the one occupied by A. S. Irani.  Since A. S. lrani refused to hand over possession of the  sites occupied  by him  to the  Ist respondent, even though his  contract had  come to  an end,  and continued to carry on  the business  of running  the restaurant  and  the snack  bars   on  these   sites,  the   Ist  respondent  was constrained to  file suit  No. 8032  of 1977  against A.  S. Irani in the City Civil Court at Bombay and in that suit, an injunction was obtained by the 1st respondent restraining A. S. Irani  from running  or conducting the restaurant and the snack bars or from entering the premises save and except for winding up  the restaurant  and the  snack bars. A. S. Irani preferred  an   appeal  against   the  order   granting  the injunction, but  the appeal  was rejected  and ultimately  a petition for  special leave to appeal to this Court was also turned down on 31st July, 1978.      This was, however, not to be the end of the travails of the 4th respondents. for, as soon as the appeal preferred by K. S.  Irani against  the order  dismissing  his  notice  of motion was rejected by the High Court on 19th October, 1977, A. S.  Irani filed  another suit being suit No. 8161 of 1977 in the City Civil Court, Bombay on 24th October,1977 seeking mandatory injunction  for removal  of the two snack bars put up by  the 4th  respondents. This was one more attempt by A.

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S. Irani  to prevent  the 4th respondents from obtaining the benefit  of   the  contract  awarded  to  them  by  the  Ist respondent. He,  however, did  not succeed  in obtaining ad- interim injunction and we are told that the notice of nation taken out by him is still pending in the City Civil Court.      It will  thus be  seen that  A. S.  Irani failed in his attempts to  prevent the  4th respondents from obtaining the contract and enjoying its 1024 benefit. The  4th respondents  put up  two snack bars on the sites provided by the 1st respondent and started running the two snack  bars from  1 9th  october? 1977.  The  restaurant however, could  not be put up on account of the inability of the Ist  respondent to  provide appropriate  site to the 4th respondents and,  therefore, the  licence fee  for  the  two snack bars had to be settled and it was fixed at Rs. 4.50O/- per month  by mutual  agreement between  the parties. But it seems that  the 4th respondents were not destined to be left in peace  to run  the two  snack bars  and  soon  after  the dismissal of the appeal of A. S. Irani on l9th october, 1977 and the  failure of  A. S.  Irani to  obtain an  ad  interim mandatory injunction  in the  suit filed  by him against the 1st and  the  4th  respondents,  the  appellant  filed  writ petition No.  1582 of  1977 in  the  High  Court  of  Bombay challenging the decision of the 1st respondent to accept the tender of  the 4th  respondents. The writ petition was moved before a  Single Judge  of the  High Court  on 8th November, 1977 after  giving prior  notice to the respondent and after hearing the  parties, the  learned  Single  Judge  summarily rejected the  writ  petition.  The  appellant  preferred  an appeal to  the Division  Bench of the High Court against the order rejecting the writ petition and on notice being issued by the Division Bench, the 1st and the 4th respondents filed their respective  affidavits in  reply showing cause against the admission  of  the  appeal.  The  Division  Bench  after considering the  affidavits and hearing the parties rejected the appeal  in limine  on 21st February, 1978. The appellant thereupon filed  a petition  for special  leave to appeal to this Court  and since  it was felt that the questions raised in the appeal were of seminal importance, this Court granted special leave  and decided  to hear  the appeal  at an early date after  giving a  further opportunity  to the parties to file their respective affidavits. That is how the appeal has now come  before us for final hearing with full and adequate material placed before us on behalf of both the parties.      The main  contention urged  on behalf  of the appellant was that in paragraph (1) of the notice inviting tenders the 1st respondent  had stipulated a condition of eligibility by providing that  a person  submitting  a  tender  must  be  a "registered IInd  class Hotelier  having at  least  5  years experience." This  was a  condition  of  eligibility  to  be satisfied by every person submitting a tender and if in case of any  person, this condition was not satisfied, his tender was ineligible  for being  considered. The  1st  respondent, being  a  State  within  the  meaning  of  Art.  12  of  the Constitution or  in any  event a public authority, was bound to give  effect to the condition of eligibility set up by it and was not entitled to depart from it at its own sweet will 1025 without rational  justification.  The  4th  respondents  had experience of  catering only  in canteens and did not have 5 years’  experience   of  running   a  IInd  class  hotel  or restaurant and  hence they  did not satisfy the condition of eligibility and  yet the  1st respondent accepted the tender submitted by  them. This  was clearly  in violation  of  the

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standard or  norm of  eligibility set up by the 1 respondent and the action of the 1st respondent in accepting the tender of the 4th respondents was clearly invalid. Such a departure from the  standard or  norm of eligibility had the effect of denying equal  opportunity to  the appellant  and others  of submitting their  tenders and  being considered for entering into contract  for putting up and running the restaurant and two snack  bars. The  appellant too was not a registered 2nd class hotelier  with 5 years’ experience and was in the same position as  the 4th respondents vis-a-vis this condition of eligibility and  he also could have submitted his tender and entered  the   field  of  consideration  for  award  of  the contract, but  he did not do so because of this condition of eligibility which  he admittedly did not satisfy. The action of the  1st respondent  in accepting  the tender  of the 4th respondents  had,   therefore  the  effect  of  denying  him equality of  opportunity in  the matter of consideration for award of  the contract  and hence it was unconstitutional as being in  violation of  the equality clause. This contention of the  appellant was  sought  to  be  met  by  a  threefold argument on  behalf of the 1 st and the 4th Respondents. The first head  of the argument was that grading is given by the E Bombay  City  Municipal  Corporation  only  to  hotels  or restaurants and not persons running them and hence there can be a  2nd grade  hotel or  restaurant but  not a  2nd  grade hotelier and  the requirement in paragraph (1) of the notice that a  tenderer must be a registered 2nd grade hotelier was therefore a  meaningless requirement  and it  could  not  be regarded as  laying clown  any condition  of eligibility. It was also  urged that in any event what paragraph (] ) of the notice required  was not that a person tendering must have 5 years’ experience  of running  a 2nd  grade  hotel,  but  he should have  sufficient experience  to be  able to run a 2nd grade hotel  and the 4th respondents were fully qualified in this respect  since they  had over  10 years’  experience in catering to  canteens of  well known  companies,  clubs  and banks. It  was further  contended in  the  alternative  that paragraph (8)  of  the  notice  clearly  provided  that  the acceptance of  the  tender-  would  rest  with  the  Airport Director who  did not  bind himself to accept any tender and reserved to  himself the  right to  reject all or any of the tenders without  assigning any  reasons therefor and it was, therefore, competent to the 1st respondent to reject all the tenders and  to nogotiate  with any person it considered fit to enter 1026 into a contract and this is in effect and substance what the 1st respondent  did when  he accepted  the tender of the 4th respondents. The  second head of argument was that paragraph (1) of  the notice  setting out the condition of eligibility had  no   statutory  force  nor  was  it  issued  under  any administrative rules  and, therefore,  even if there was any departure from  the standard  or norm of eligibility set out in that  paragraph, it  was  not  justiciable  and  did  not furnish any  cause  of  action  to  the  appellant.  It  was competent to  the 1st respondent to give the contract to any one it  thought fit  and it was not bound by the standard or norm of  eligibility set out in paragraph (l) of the notice. It was  submitted that  in any  event the  appellant had  no right to  complain that  the 1st  respondent had  given  the contract to  the 4th  respondents in breach of the condition of eligibility laid down in paragraph (1) of the notice. And lastly, under  the third  head of argument, it was submitted on behalf.  Of the  1st and  the 4th respondents that in any view of  the matter,  the writ petition of the appellant was

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liable to  be rejected  in the exercise of its discretion by the Court,  since the appellant had no real interest but was merely a  nominee of A. S. Irani who had been putting up one person after  another to  start litigation  with a  view  to preventing the award of the contract to the 4th respondents. The appellant  was also guilty of laches and delay in filing the writ  petition and  the  High  Court  was  justified  in rejecting the  writ petition  in limine particularly in view of the  fact that  during the  period between  the  date  of acceptance of  the tender and the date of filing of the writ petition, the  4th respondents had spent an aggregate sum of about Rs.  1,25,000/- in  making arrangements for putting up the restaurant  and two  snack bars.  These were  the  rival contentions urged  on behalf of the parties and we shall now proceed to  discuss them  in the  order in which we have set them out.      Now it  is clear  from paragraph (1) of the notice that tenders  were   invited  only  from  "registered  2nd  Class hoteliers having  at least  5 years’ experience". It is only if a  person was  a registered  2nd Class hotelier having at least 5  years’ experience  that he  could, on  the terms of paragraph (1)  of the notice, submit a tender. Paragraph (1) of the  notice prescribed  a condition  of eligibility which had to  be satisfied by every person submitting a tender and if, in  a given  case, a  person submitting a tender did not satisfy this  condition, his  tender was  not eligible to be considered. Now  it is true that the terms and conditions of the tender  form did not prescribe that the tenderer must be a registered  IInd Class  hotelier having  at least 5 years’ experience nor  was any  such stipulation to be found in the form c f the agreement 1027 annexed to  the  tender  but  the  notice  inviting  tenders published in  the newspapers clearly stipulated that tenders may be  submitted only  by registered  llnd Class  hoteliers having at  least 5  years’ experience and this tender notice was also  included amongst  the  documents  handed  over  to prospective tenderers  when they  applied for  tender forms. Now the  question is,  what is the meaning of the expression "registered Ilnd  Class hotelier",  what category of persons fall within  the meaning  of this  description ?  This is  a necessary enquiry  in order  to determine  whether  the  4th respondents were  eligible to  submit a  tender. It is clear from the affidavits and indeed there was no dispute about it that different grades are given by the Bombay City Municipal Corporation to  hotels and restaurants and, therefore, there may be  a registered Ilnd Class Hotel but no such grades are given to persons running hotels and restaurants and hence it would be  inappropriate to speak of a person as a registered llnd Class  hoteIier. But  on that account would it be right to reject the expression "registered IInd Class hotelier" as meaningless and  deprive paragraph  (1) of the notice of any meaning and  effect. We  do not  think such  a view would be justified by any canon of construction. It is a well settled rule of  interpretation applicable  alike to documents as to statutes that,  save for  compelling  necessity,  the  court should not  be prompt to ascribe superfluity to the language of a  document "and  should be rather at the outset inclined to suppose  every word intended to have some effect or be of some use".  To reject words as insensible should be the last resort of  judicial interpretation,  for it is an elementary rule based  on common  sense that  no  author  of  a  formal document intended  to be  acted upon by the others should be presumed to  use words without a meaning. The court must, as far as possible, avoid a construction which would render the

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words used  by the  author of  the document  meaningless and futile or  reduce silence  any part of the document and make it altogether inapplicaple. Now, here the expression used in paragraph (1)  of the  notice  was  "registered  IInd  Class hotelier" and  there can  be no  doubt that  by using,  this expression  the  Ist  respondent  intended  to  delineate  a certain category  of persons who alone should be eligible to submit a tender. The Ist respondent was not acting aimlessly or insensibly  in insisting upon this requirement nor was it indulging, in  a meaningless  and futile  exercise. It had a definite purpose in view when it laid down this condition of eligibility in  paragraph (1) of the notice. It is true that the phraseology  used by  the Ist  respondent to express its intention was  rather inapt  but  it  is  obvious  from  the context that the expression "registered llnd Class hotelier" was loosely  used to denote a person conducting or running a IInd Class  hotel or restaurant. It may be ungrammatical but it docs not offend common-sense to describe a 1028 person running a registered IInd grade hotel as a registered IInd grade  hotelier. This  meaning is  quite reasonable and does not  do any violence to the language and makes sense of the provision  contained in  paragraph (1) of the notice. We must,  in   the  circumstances,   hold  that,  on  a  proper construction, what  paragraph (1) of the notice required was that only  a person running a registered llnd Class hotel or restaurant and  having at  least 5 years’ experience as such should be  eligible to submit a tender. This was a condition of eligibility and it is difficult to see how this condition could be said to be satisfied by any person who did not have five years’  experience of  running a  IInd Class  hotel  or restaurant.  The  test  of  eligibility  laid  down  was  an objective test  and not a subjective one. What the condition of eligibility  required has  that the  person submitting  a tender must  have 5  years’ experience of running a II Class hotel, as this would ensure by an objective test that he was capable of  running a  Il Class restaurant and it should not be left  to the  Ist respondent  to decide in its subjective discretion that  the person tendering was capable of running such a  restaurant. If  therefore,  a  person  submitting  a tender did  not have at least 5 years’ experience of running a II  Class hotel,  he was not eligible to submit the tender and it  would not  avail him  to say  that though he did not satisfy this  condition, he was otherwise capable of running a  IInd   Class  restaurant   and  should,   therefore,   be considered. This  was in fact how the 1 st respondent itself understood this  condition  of  eligibility.  When  the  4th respondents submitted  their tender  along with Their Letter dated 24th  January, 1977,  it appeared  from the  documents submitted by  the 4th  respondents that  they did not have 5 years’ experience  of running a II Class restaurant. The 1st respondent by  its letter  dated l5th February 1977 required the 4th  respondents to produce documentary evidence to show that they were "registered II Class hotelier having at least 5 years’ experience." The 1st respondent did not regard this requirement of eligibility as meaningless or unnecessary and wanted to  be satisfied  that the  4th respondent did fulfil this   requirement.   Now,   unfortunately   for   the   4th respondents, the  had over  lO years’  experience of running can teens  but at the date when they submitted their tender, they cannot  running a  II grade hotel or restaurant nor did they have  5 years’  experience of  running such  a hotel or restaurant. Even if the experience of the 4th respondents in the catering line were taken into account from 1962 onwards, it would  not cover  a total  period of  more than 4 years 2

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months so  far as  catering experience  in llnd Grade hotels and restaurants  is concerned.  The 4th respondents thus did not satisfy  the  condition  of  eligibility  laid  down  in paragraph (1)  of the  notice and in fact this was implidely conceded by 1029 the 4th  respondents in  their letter  dated 26th  February, 1977  where   A  they   stated  that  they  had  "experience equivalent to  that  of  a  2nd  class  or  even  1st  class hotelier."  The   4th  respondents  were,  accordingly,  not eligible for  submitting a  tender and the action of the 1st respondent in accepting their tender was in contravention of paragraph (1) of the notice.      It was  suggested on  behalf of  the 1st  and  the  4th respondents  that   there  was  nothing  wrong  in  the  1st respondent giving  the contract to the 4th respondents since it was  competent to  the 1st  respondent to  reject all the tenders received  by it  and to  negotiate directly with The 4th respondents  for giving them the contract and it made no difference that  instead of  following this procedure, which perhaps might  have resulted in the 4th respondents offering a smaller  licence fee  and the  1 st respondent suffering a loss in  the process,  true 1  st  respondent  accepted  The tender of  the 4th respondents. We do not think there is any force in  this argument.  It  is  true  that  there  was  no statutory  or   administrative  rule   requiring   the   1st respondent to  give a  contract only by inviting tenders and hence the  1st respondent  was entitled  to reject  all  the tenders and, subject to the constitutional norm laid down in Art 14,  negotiate directly  for entering  into a  contract. Paragraph (8)  of the notice also made it clear that the 1st respondent was  not bound  to accept  any tender  and  could reject all  the tenders  received by  it. But  here the  1st respondent did  not reject  the tenders  outright and  enter into  direct  negotiations  with  the  4th  respondents  for awarding the contract. The process of awarding a contract by inviting tenders  was not terminated or abandoned by the 1st respondent by  rejecting all  the tenders but in furtherance of the  process, the  tender  of  the  4th  respondents  was accepted by  the 1st  respondent. The contract was not given to the  4th respondents  as a result of direct negotiations. Tenders were  invited and  out of  the tenders received, the one submitted  by the  4th respondents  was accepted and the contract was given to them. It is, therefore not possible to justify the  action of the 1st respondent on the ground that the 1st  respondent could  have achieved  the same result by rejecting  all   the  tenders   and  entering   into  direct negotiations with the 4th respondents.      That  takes   us  to  the  next  question  whether  the acceptance of  the tender of the 4th respondents was invalid and liable to be set aside at the instance of the appellant. It  was   contended  on  behalf  GI  the  1st  and  the  4th respondents that  the appellant had no locus to maintain the writ petition  since no  tender was  submitted by him and he was a mere stranger. The argument was that if the appellant 1030 did not  enter the  field of  competition  by  submitting  a tender, what did it matter to him whose tender was accepted; what grievance  could he  have if  the  tender  of  the  4th respondents was  wrongly accepted. A person whose tender was rejected might very well complain that the tender of someone else was wrongly accepted, but it was submitted, how could a person who  never tendered  and who  was at  no time  in the field, put  forward such a complaint ? This argument, in our opinion, is  mis-conceived and  cannot be  sustained  for  a

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moment. The grievance of the appellant, it may be noted, was not that  his tender  was rejected  as a  result of improper acceptance of the tender of the 4th respondents, but that he was  differentially   treated   and   denied   equality   of opportunity with the 4th respondents in submitting a tender. His complaint  was that if it were known that non-fulfilment of  the   condition  of  eligibility  would  be  no  bar  to consideration of  a tender,  he also  would have submitted a tender and  competed for  obtaining a  contract. But  he was precluded from submitting a tender and entering the field of consideration by  reason of  the condition  of  eligibility, while so  far as  the 4th  respondents were concerned, their tender was entertained and accepted even though they did not satisfy the  condition of  eligibility and  this resulted in inequality   of   treatment   which   was   constitutionally impermissible. This  was the grievance made by the appellant in the  writ petition and there can be no doubt that if this grievance were well founded, the appellant would be entitled to maintain  the writ petition. The question is whether this grievance was  justified in  law and  the acceptance  of the tender of  the 4th  respondents was  vitiated by  any  legal infirmity.      Now, there  can be  no doubt that what paragraph (1) of the notice  prescribed was  a condition of eligibility which was required  to be  satisfied by  every person submitting a tender. The  condition of  eligibility was  that the  person submitting  a   tender  must  be  conducting  or  running  a registered 2nd class hotel or restaurant and he must have at least 5  years’ experience as such and if he did not satisfy this condition  of  eligibility  his  tender  would  not  be eligible for consideration. This was the standard or norm of eligibility laid  down by  the 1 st respondent and since the 4th respondents  did not  satisfy this  standard or norm, it was not  competent to  the 1st  respondent to  entertain the tender of  the 4th respondents. It is a well settled rule of administrative law  that  an  executive  authority  must  be rigorously held  to the  standards by which it professes its actions to  be judged and it must scrupulously observe those Standards on  pain of invalidation of an act in violation of them. This rule was enunciat- 1031 ed by  Mr Justice Frankfurter in Viteralli v. Seton(l) where the learned Judge said:           "An executive  agency must  be rigorously  held to      the standards  by which  it professes  its action to be      judged. Accordingly,  if dismissal  from employment  is      based on  a define(l  procedure, even  though  generous      beyond the  requirement that  bind  such  agency,  that      procedure   must   be   scrupulously   observed.   This      judicially evolved  rule of  administrative law  is now      firmly established  and, if  I may  add, rightly so. He      that takes  the procedural  sword shall perish with the      sword. This Court  accepted the  rule as  valid and  applicable  in India in  A. S.  Ahuwalia v.  Punjab(2)  and  in  subsequent decision given  in  Sukhdev  v.  Bhagatram,(3)  Mathew,  J., quoted  the   above-referred  observations  of  Mr.  Justice Frankfurter with  approval. It  may be noted that this rule, though supportable  also as  emanation from Article 14, does not rest  merely on  that article.  It  has  an  independent existence  apart   from  Article   14.  It   is  a  rule  of administrative law  which has  been judicially  evolved as a check against  exercise of  arbitrary power by the executive authority. If  we  turn  to  the  judgment  of  Mr.  Justice Frankfurter and  examine it,  we find that he has not sought

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to draw support for the rule from the equality clause of the United States  Constitution, but evolved it purely as a rule of administrative  law. Even in England, the recent trend in administrative law  is in  that direction as is evident from what  is   stated  at   pages   540-41   in   Prof.   Wade’s Administrative Law  4th edition.  There is  no reason why we should hesitate  to  adopt  this  rule  as  a  part  of  our continually  expanding  administrative  law.  To-  day  with tremendous  expansion   of  welfare   and   social   service functions,  increasing  control  of  material  and  economic resources and  large  scale  assumption  of  industrial  and commercial  activities  by  the  State,  the  power  of  the executive Government  to affect  the lives  of the people is steadily growing.  The attainment  of socio-economic justice being a  conscious end  of State policy, there is a vast and inevitable increase  in the  frequency with  which  ordinary citizens come  into relationship  of direct  encounter  with State power-holders.  This renders it necessary to structure and restrict  the power of the executive Government so as to prevent its arbitrary application or (1) 359 U. S. 535: 3 Law.Ed. (Second series) 1012 (2) [1975] 3. S. C. R. 82. (3) [1975] 3. S. C. R. 619. 1032 exercise. Whatever  be the  concept  of  the  rule  of  law, whether it  be the meaning given by Dicey in his "The Law of the Constitution"  or the  definition given  by Hayek in his "Road to  Serfdom’ and  ’Constitution  of  liberty"  or  the exposition set-forth  by Harry Jones in his "The Rule of Law and the  Welfare State", there is, as pointed out by Mathew, J., in  his article  on "The  Welfare State, Rule of Law and Natural  Justice"   in  "democracy  Equality  and  Freedom," "substantial agreement  is in justice thought that the great purpose of  the rule  of law notion is the protection of the individual against  arbitrary exercise of power, wherever it is found".  It is  indeed unthinkable  that in  a  democracy governed by  the rule of law the executive Government or any of its  officers should  possess arbitrary  power  over  the interests of  the individual.  Every action of the executive Government must  be informed  with reason and should be free from arbitrariness.  That is the very essence of the rule of law and its bare minimal requirement. And to the application of  this  principle  it  makes  no  difference  whether  the exercise of  the power  involves affection  of some right or denial of some privilege.      To-day the  Government, is  a  welfare  State,  is  the regulator and  dispenser of special services and provider of a  large  number  of  benefits,  including  jobs  contracts, licences, quotas,  mineral rights  etc. The Government pours forth wealth,  money, benefits,  services, contracts, quotas and licences.  The valuables  dispensed by  Government  take many forms,  but they all share one characteristic. They are steadily taking  the place  of traditional  forms of wealth. These valuables which derive from relationship to Government are of  many kinds.  They comprise social security benefits, cash grants  for political sufferers and the whole scheme of State and local welfare. Then again, thousands of people are employed in  the State and the Central Governments and local authorities. Licences  are required before one can engage in many kinds of business or work. The power of giving licences means power  to withhold  them and this gives control to the Government or  to the  agents of  Government on the lives of many people. Many individuals and many more businesses enjoy largess in the form of Government contracts. These contracts often resemble subsidies. It is virtually impossible to lose

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money on  them and  many enterprises are set up primarily to do business  with Government.  Government owns  and controls hundreds of  acres of  pubic Land  valuable for  mining  and other  purposes.   These   resources   are   available   for utilisation by  private corporations  and individuals by way of lease or licence. All these mean growth in the Government largess and with the increasing 1033 magnitude and  range of  governmental functions  as we  move closer to  a welfare  State, more  and more  of  our  wealth consists of  these new  forms. Some of these forms of wealth may be  in the nature of legal rights but the large majority of them are in the nature of privileges But on that account, can it be said that they do not enjoy any legal protection ? Can they  be regarded  as gratuity furnished by the State so that the  State may  withhold, grant  or revoke  it  at  its pleasure ? Is the position of the Government in this respect the same as that of a private giver? We do not think so. The law has  not been  slow to  recognise the importance of this new kind  of wealth  and  the  need  to  protect  individual interest in  it and  with that end in view, it has developed new  forms  of  protection.  some  interests  in  Government largess,  formerly   regarded  as   privileges,  have   been recognised as  rights while  others have  been  given  legal protection not  only by  forging procedural  safeguards  but also  by   confinding/structuring  and  checking  Government discretion in  the matter  of grant  of  such  largess.  The discretion of  the  Government  has  been  held  to  be  not unlimited in  that the  Government cannot  give or  withhold largess in its arbitrary discretion or at its sweet will. It is insisted,  as pointed out by Prof. Reich in an especially stimulating article  on "The  New Property"  in 73  Yale Law Journal 733,  "that Government  action be based on standards that are  not arbitrary  or unauthorised."  "The  Government cannot be  permitted to  say that it will give jobs or enter into contracts or issue quotas or licences only in favour of those  having   grey  hair  or  belonging  to  a  particular political party  or professing a particular religions faith. The Government  is still  the Government when it acts in the matter of granting largess and it cannot act arbitrarily. It does not stand in the same position as a private individual      We agree  with the  observations of  Mathew, J.,  in V. Punnan Thomas v. State of Kerala(1) that: "The Government is not and  should not be as free as an individual in selecting the recepients  for its  largess. Whatever its activity, the Government is  still the  Government and  will be subject to restraints,  inherent   in  its  position  in  a  democratic society. A  democratic Government  cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it  will deal".  The same point was made by this court in Erusian  Equipment and  Chemicals Ltd.  v. State  of West Bengal(2) where  the question was whether black-listing of a person without      (1) AIR 1969 Kerala 81.      (2) [1975] 2 S.C.R. 674.      10-409 SCI/79 1034 giving him  an opportunity to be heard was bad ? Ray, C. J., speaking on  behalf of  himself and  his colleagues  on  the Bench pointed  out that  black-listing on  a person not only affects  his  reputation  which  is  in  Poundian  terms  an interest both  of personality and substance, but also denies him equality  in the  matter of  entering into contract with the  Government  and  it  cannot,  therefore,  be  supported without fair  hearing. It was argued for the Government that

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no person has a right to enter into contractual relationship with the  Government and  the  Government,  like  any  other private individual,  has the  absolute right  to enter  into contract with  any one  it pleases.  But the Court, speaking through  the  learned  Chief  Justice,  responded  that  the Government is not like a private individual who can pick and choose the person with whom it will deal, but the Government is still  a Government  when it enters into contract or when it is  administering largess and it cannot, without adequate reason, exclude any person from dealing with it or take away largess arbitrarily.  The learned  Chief Justice  said  that when  the  Government  is  trading  with  the  public,  "the democratic form  of Government  demands equality and absence of arbitrariness  and discrimination  in such  transactions. The activities  of the Government have a public element and, therefore, there  should be fairness and equality. The State need not enter into any contract with anyone, but if it does so, it  must do so fairly without discrimination and without unfair procedure."  This proposition  would hold good in all cases of  dealing by  the Government  with the public, where the interest sought to be protected is a privilege. It must, therefore, be  taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into  contracts or  issuing quotas  or licences  or granting other  forms of  largess, 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  largess including award  of 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  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.      Now, it is obvious that the Government which represents the executive  authority of  the State,  may act through the instrumentality 1035 Or  agency   of  natural   persons  or  it  may  employ  the instrumentality or  agency of juridical persons to carry out its functions.  In the  early days,  when the Government had limited functions,  it  could  operate  effectively  through natural persons constituting its civil service and they were found adequate  to discharge  governmental functions,  which were of  traditional  vintage.  But  as  the  tasks  of  the Government multiplied  the advent  of the  welfare State, it began to  be increasingly  felt that  the framework of civil service was  not sufficient  to handle  the new  tasks which were often  of specialised  and highly  technical character. The inadequacy  of the  civil service to deal with these new problems came  to be  realised and  it became  necessary  to force a  new instrumentality  or administrative  device  for handling these  new problems.  It was in these circumstances and with  a view  to supplying this administrative need that the public  corporation came  into being as the third arm of the Government.  As early  as 1819  the Supreme Court of the United States  in Mac  Cullough v. Maryland(1) held that the Congress has  power to charter corporations as incidental to or in  aid of  governmental functions and, as pointed out by Mathew, J.,  in Sukhdev  v. Bhagat  Ram (supra) such federal

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corporations  would   ex-hypothesi  be   agencies   of   the Government. In  Great Britain  too,  the  policy  of  public administration through  separate corporations  was gradually evolved and  the conduct  of basic  industries through giant corporations has  now become  a permanent  feature of public life. So  far as  India is  concerned, the  genesis  of  the emergence of  corporations as  instrumentalities or agencies of Government  is to  be found  in the  Government of  India Resolution on  Industrial Policy dated 6th April, 1948 where it  was   stated  inter   alia  that  "management  of  State enterprises will  as a  rule be through the medium of public corporation under  tile statutory  control  of  the  Central Government who  will assume  such powers as may be necessary to ensure this." It was in pursuance of the policy envisaged in this  and subsequent  resolutions on  Industrial  Policy. that corporations  were created by Government for setting up and management  of public enterprises and carrying out other public functions. Ordinarily these functions could have been carried out by Government departmentally through its service personnel,  but   the  instrumentality   or  agency  of  the corporations was resorted to in these cases having regard to the nature  of the  task to  be performed.  The corporations acting as  instrumentality or  agency  of  Government  would obviously be subject to the same limitations in the field of constitutional and  administrative law as Government itself, though (1) 4 Wheat 315 1036 in  the   eye  of  the  law,  they  would  be  distinct  and independent legal entities. If Government acting through its officers is subject to certain constitutional and public law limitations, it  must  follow  a  fortiori  that  Government acting through the instrumentality or agency of corporations should equally  be subject  to the same limitations. But the question is how to determine whether a corporation is acting as instrumentality or agency of Government. It is a question not entirely free from difficulty.      A corporation may be created in one of two ways. It may be either established by statute or incorporated under a law such as the Companies Act 1956 or the Societies Registration Act 1860.  Where  a  Corporation  is  wholly  controlled  by Government not  only  in  its  policy  making  but  also  in carrying out  the functions  entrusted  to  it  by  the  law establishing it  or by  the Charter  of  its  incorporation, there can be no doubt that it would be an instrumentality or agency of  Government. But ordinarily where a corporation is established by  statute, it  is autonomous  in its  working, subject only to a provision, often times made, that it shall be bound  by any  directions that may be issued from time to time by  Government in  respect of  policy matter. So also a corporation incorporated  under law is managed by a board of directors or  committee of management in accordance with the provisions of  the statute  under which  it is incorporated. When does  such a  corporation become  an instrumentality or agency of  Government ?  Is the  holding of the entire share capital of  the Corporation  by Government  enough or  is it necessary that in addition, there should be a certain amount of direct  control exercised  by Government and, if so, what should be  the nature of such control ? Should the functions which the  corporation is  charged to  carry out possess any particular characteristic  or feature,  or is  the nature or the functions  immaterial ?  Now, one thing is clear that if the entire  share capital  of the  corporation  is  held  by Government, it  would go  a long way towards indicating that the  corporation   is  an   instrumentality  or   agency  of

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Government. But,  as is  quite often the case, a corporation established by  statute may  have no shares or shareholders, in which  case it  would be  a relevant  factor to  consider whether the  administration is  in the  hands of  a board of directors appointed by Government, though this consideration also may  not  be  determinative,  because  even  while  the directors  are   appointed  by   Government,  they   may  be completely free  from governmental  control in the discharge of their  functions. What  then are  the tests  to determine whether a corporation established by statute or incorporated under law is an instrumentality or agency of Government ? It is not possible to formulate an all- 1037 inclusive or  exhaustive test  which would adequately answer this question  ’there is  no cut  and dried  formula,  which would provide  the correct  division  of  corporations  into those which  are instrumentalities or agencies of Government and those which are not.      The analogy of the concept of State action as developed in the  United States may not, however, be altogether out of place while  considering this question. The decisions of the court in  the United  States seem  to suggest that a private agency, if  supported by  extraordinary assistance  given by the  State,  may  be  subject  to  the  same  constitutional limitations as  the State.  Of course, it may be pointed out that "the State’s general common law and statutory structure under which  its people  carry on their private affairs, own property and  contract, each  enjoying equality  in terms of legal capacity,  is  not  such  State  assistance  as  would transform  private   conduct  into  State  action".  But  if extensive and  unusual financial assistance is given and the purpose  of   the  Government   in  giving  such  assistance coincides with  the purpose  for which  the  corporation  is expected to use the assistance and such purpose is if public character, it  may be  a relevant circumstance supporting an extensive that  the corporation  is  an  instrumentality  or agency of Government. The leading case on the subject in the United States  is Kerr  v. Eneck  Pratt Free Library(1). The Library system  in question  in this case was established by private donation  in 1882,  but by  1944, 99 per cent of the system’s budget  was supplied  by the  city,  title  to  the library property  was held by the city, employees there paid by the  city payroll  officer and  a high  degree of  budget control was  exercised or  available to the city government. On these  facts the  Court of  Appeal required  the trustees managing the  system to  abandon a  discriminatory admission policy for  its library  training courses.  It will  be seen that in  this case  there was  considerable amount  of State control of  the library  system  in  addition  to  extensive financial assistance  and it is difficult to say whether, in the absence  of such  control it would have been possible to say that  the  action  of  the  trustees  constituted  State action. Thomas  P. Lewis  has expressed  the opinion  in his article on  "The meaning  of State  Action" (60 Colombia Law Review 1083)  that in  this case  "it is  extremely unlikely that absence of public control would have changed the result as long  as  99%  of  the  budget  of  a  nominally  private institution  was  provided  by  government.  Such  extensive governmental support  should  be  sufficient  identification with the  Government  to  subject  the  institution  to  the provisions of the Fourteenth Amendment".      (1) 149 F. 2d. 212. 1038 It may,  therefore,  be  possible  to  say  that  where  the financial assistance  of the  State is  so much  as to  meet

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almost entire  expenditure  of  the  corporation,  it  would afford   some    indication   of   the   corporation   being impregegnated  with   governmental  character.   But   where financial assistance  is not  so extensive,  it may  not  by itself, without  anything more  render  the  corporation  an instrumentality or  agency of government, for there are many private institutions  which  are  in  receipt  of  financial assistance from  the State  and merely on that account, they cannot be  classified as  State  agencies.  Equally  a  mere finding  of   some  control   by  the  State  would  not  be determinative  of   the  question   "since   a   State   has considerable measure  of control under its police power over all types  of business  operations". But ’a finding of State financial support plus an unusual degree of control over the management and  policies might lead one to characteristic an operation as  State action" vide Sukhdev v. Bhagatram(1). So also the  existence of  deep and pervasive State control may afford an  indication that the Corporation is a State agency or instrumentality.  It may  also be  a relevant  factor  to consider whether  the  corporation  enjoys  monopoly  status which is  State conferred  or State  protected. There can be little  doubt   that  State  conferred  or  State  protected monopoly status  would be  highly relevant  in assessing the aggregate weight  of the  corporation’s ties  to the  State. Vide  the   observations  of  Douglas,  J.,  in  Jackson  v. Metropolitan Edison Co.(2)      There is  also another  factor which may be regarded as having a  bearing on  this  issue  and  it  is  whether  the operation  of   the  corporation   is  an  important  public function. It  has been held in the United States in a number of cases  that the concept of private action must yield to a conception of  State action where public functions are being per formed.  Vide Arthur  S. Miller: "The Constitutional Law of the  Security State" (10 Stanford Law Review 620 at 664). It was  pointed out  by Douglas,  J., in  Evans v. Newton(3) that "when  private individuals or groups are endowed by the State with  powers or functions governmental in nature, they become agencies  or  instrumentalities  of  the  State".  Of course, with  the growth  of the  welfare State,  it is very difficult to define what functions are governmental and what are not, because, as pointed out by Villmer, L.J., in Pfizer v.Ministry of Health,(4) there has been, since mid-Victorian times, "a  revolution in  political thought  and  a  totally different conception  prevails today  as to what is and what is not within the functions of Government".      (I) [1975] 3 S. C. R. 619 at 658.      (2) 419 U. S. 345: 42 L. ed. 2nd 477      (3) 382 U S. 296: 15 L. ed 2nd 373.      (4) [1964] I Ch. 614. 1039 Douglas, J., also observed to the same effect in New York v. United  States(1):   "  A  State’s  project  is  as  much  a legitimate governmental  activity whether  it is traditional or akin to private enterprise, or conducted for profit." Cf. Helverillg v.  Gerhardt(2). A State may deem it as essential to its  economy that  it own and operate a railroad, a mill, or an  irrigation system  as it  does  to  own  and  operate bridges, street  lights, or  a sewage  disposal plant.  What might have  been viewed  in an earlier day as an improvident or even dangerous extension of state activities may today be deemed indispensable.  It may  be noted  that besides the so called traditional  functions, the  modern State  operates a multitude of  public enterprises  and discharges  a host  of other public  functions. If the functions of the corporation are of public importance and closely related to governmental

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functions, it  would be a relevant factor in classifying the corporation as  an instrumentality  or agency of Government. This is  precisely what  was pointed  out by  Mathew, J., in Sukhdev v.  Bhagatram (supra)  where the  learned Judge said that  "institutions   engaged  in  matters  of  high  public interest or performing public functions are by virtue of the nature  of  the  functions  performed  government  agencies. Activities which  are too  fundamental to the society are by definition too  important not  to be  considered  government functions."      This was  one of  the principal  tests applied  by  the United States  Supreme Court  in  Marsh  v.  Alabama(3)  for holding that  a corporation  which owned  a Company town was subject to the same constitutional limitations as the State. This case involved the prosecution of Marsh, a member of the Johevah’s witnesses sect, under a state trespass statute for refusing to  leave the  side walk  of the company town where she was  distributing her religious pamphlets. She was fined $ 5/- and aggrieved by her conviction she carried the matter right upto the Supreme Court contending successfully that by reason of  the  action  of  the  corporation  her  religious liberty  had  been  denied.  The  Supreme  Court  held  that administration of  private property  such as  a town, though privately carried  on, was, nevertheless, in the nature of a public  function   and  that   the  private  rights  of  the corporation   must,    therefore,   be    exercised   within constitutional limitations  and the  conviction for trespass was reversed.  The dominant  theme of  the majority  opinion written by  Mr. Justice  Black was  that the property of the corporation used  as a  town not recognisably different from other towns,  lost  its  identification  as  purely  private property. It was said that a town may      (l) 326 U.S. 572.      (2) 304 U.S. 405, 426, 427.      (3) 326 U.S. 501: 19 L. ed. 265. 1040 be privately owned and managed but that does not necessarily aIlow the corporation to treat it as if it was wholly in the private  sector   and  the   exercise  of   constitutionally protected rights  on the  public ,street  of a  company town could not  be denied  by the  owner. "The more an owner, for his advantage,  opens up  his property for use by the public in general,  the more  do his rights become circumscribed by the statutory and constitutional rights of those who use it. . .  Thus, the  owners of  privately held  bridges, ferries, turnpikes and  railroads may not operate them as freely as a farmer does  his farm.  Since these facilities are built and operated primarily  to benefit  the public  and since  their operation is essentially a public function, it is subject to state  regulation".  Mr.  Justice  Frankfurter,  concurring, reduced the  case to simpler terms. He found in the realm of civil liberties the need to treat a town, private or not, as a town. The function exercised by the corporation was in the nature of  municipal function and it was, therefore, subject to the constitutional limitations placed upon State action.      We find  that the  same test  of public or governmental character of  the function  was applied by the Supreme Court of the United States in Evans v. Newton (supra) and Smith v. Allwight.(1) But  the decisions  show that even this test of public or governmental character of the function is not easy of application  and does  not invariably lead to the correct inference because  the range  of  governmental  activity  is broad and  varied and merely because an activity may be such as may legitimately be carried on by Government, it does not mean that  a  corporation,  which  is  otherwise  a  private

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entity, would  be an instrumentality or agency of Government by reason  of carrying  on such  activity. In  fact,  it  is difficult to  distinguish between governmental functions and non-governmental functions.  Perhaps the distinction between governmental and non-governmental functions is not valid any more in a social welfare State where the laissez faire is an outmoded concept and Herbert Spencer’s social statics has no place.  The   contrast  is   rather   between   governmental activities which  are private  and private  activities which are governmental.  (Mathew, J.  Sukhdev v. Bhagatram (supra) at p.  652). But  the public  nature  of  the  function,  if impregnated with governmental character or "tied or entwined with Government"  or  fortified  by  some  other  additional factor, may  render the  corporation an  instrumentality  or agency of  Government.  Specifically,  if  a  department  of Government is  transferred to  a corporation,  it would be a strong factor supportive of this inference.      (1) 321 U. S. 649. 1041      It will  thus be  seen that  there are  several factors which may  have to  be considered  in determining  whether a corporation is  an agency  or instrumentality of Government. We have  referred to  some of  these factors and they may be summarised  as   under:  whether   there  is  any  financial assistance given  by the  State, and  if  so,  what  is  the magnitude of such assistance whether there is any other form of assistance,  given by the State, and if so, whether it is of the  usual kind  or it is extraordinary, whether there is any  control   of  the   management  and   policies  of  the corporation by  the State  and what is the nature and extent of  such  control,  whether  the  corporation  enjoys  State conferred or State protected monopoly status and whether the functions  carried   out  by   the  corporation  are  public functions closely  related to  governmental functions.  This particularisation  of   relevant  factors   is  however  not exhaustive and by its very nature it cannot be, because with increasing assumption  of new tasks, growing complexities of management  and   administration  and   the   necessity   of continuing adjustment  in relations  between the corporation and Government  calling for  flexibility, adapt  ability and innovative skills,  it is not possible to make an exhaustive enumeration of  the tests  which would invariably and in all cases provide  an unfailing answer to the question whether a corporation  is   governmental  instrumentality  or  agency. Moreover even amongst these factors which we have described, no one single factor will yield a satisfactory answer to the question and  the court will have to consider the cumulative effect of  these various  factors and arrive at its decision on the  basis of a particularised inquiry into the facts and circumstances of each case. "the dispositive question in any stale action  case," as  pointed  out  by  Douglas,  J.,  in Jackson v.  Metropolitan  Edison  Company  (supra)  "is  not whether  any   single  fact   or  relationship   presents  a sufficient degree  of state  involvement, but rather whether the aggregate  of all  relevant factors compels a finding of state responsibility."  It is not enough to examine seriatim each of  the factors  upon which a corporation is claimed to be an instrumentality or agency of Government and to dismiss each individually as being insufficient to support a finding of that  effect. It is the aggregate or cumulative affect of all the relevant factors that is controlling. G      Now,   obviously    where   a    corporation   is    an instrumentality or  agency of  Government, it  would, in the exercise of  its power or discretion, be subject to the same constitutional or  public law limitations as Government. The

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rule inhibiting arbitrary action by Government which we have discussed above must apply equally where such corporation is dealing with  the public,  whether by  way of giving jobs or entering into  contracts or  otherwise, and  it  cannot  act arbitrarily 1042 and enter  into relationship with any person it likes at its sweetwill, but  its action  must be  in conformity with some principle which meets the test of reason and relevance.      This rule  also flows  directly from  the  doctrine  of equality embodied  in Art.  14. It  is now well settled as a result of  the decisions  of this  Court hl E. P. Rayappa v. State cf  Tamil  Nadu(l)  and  Maneka  Gandhi  v.  Union  of India(2) that  Article 14  strikes at arbitrariness in State action and  ensures fairness  and equality  of treatment. It requires that State action must not be arbitrary but must be based on  some rational and relevant principle which is non- discriminatory: it  must not  be guided by any extraneous or irrelevant considerations,  because that  would be denial of equality. The  principle of  reasonableness and  rationality which is  legally as  well as  philosophically an  essential element of  equality or  non-arbitrariness is  protected  by Article 14  and it  must characterise  every  State  action, whether it  be under  authority of  law or  in  exercise  of executive power  without making  of law.  The State  cannot, therefore act  arbitrarily in  entering  into  relationship, contractual or  otherwise with a third party, but its action must conform  to some standard or norm which is rational and non-discriminatory.  This   principle  was   recognised  and applied by a Bench of this Court presided over by Ray, C.J., in Erusian  Equipment and  Chemicals v. State of West Bengal (supra) where  the learned  Chief Justice  pointed out  that "the State  can carry  on executive function by making a law or without  making a  law. The  exercise of  such powers and functions in  trade by  the State  is subject to Part III of the Constitution.  Article 14  speaks of equality before the law  and   equal  protection   of  the   laws.  Equality  of opportunity should apply to matters of public contracts. The State has  the right  to trade. The State has there the duty to observe  equality. An  ordinary individual can choose not to deal  with any  person The  Government cannot  choose  to exclude persons  by  discrimination.  The  order  of  black- listing has  the effect of depriving a person of equality of opportunity in  the matter  of public contract. A person who is on the approved list is unable to enter into advantageous relations with  the  Government  because  of  the  order  of blacklisting.... A  citizen  has  a  right  to  claim  equal treatment to  enter into  a contract  which may  be  proper, necessary and  essential to his lawful calling....It is true that neither the petitioner nor the respondent has any right to enter  into a  contract but  they are  entitled to  equal treatment with others who offer tender or quotations for the purchase of the      (1) [1974] 2 S. C. R. 348.      (2) 1978] 2 S. C. R. 621. 1043 goods." It  must, therefore  follow as a necessary corollary from the  principle of equality enshrined in Article 14 that though the  State  is  entitled  to  refuse  to  enter  into relationship with  any one,  yet if  it does  so, it  cannot arbitrarily choose  any person  it likes  for entering  into such relationship and discriminate between persons similarly circumstanced, but  it must  act  in  conformity  with  some standard or principle which meets the test of reasonableness and non-discrimination  and any departure from such standard

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or principle  would be invalid unless it can be supported or justified on some rational and non-discriminatory ground.      It is interesting to find that this rule was recognised and applied  by a Constitution Bench of this Court in a case of sale  of kendu  leaves by  the Government  of  Orissa  in Rashbihari Panda  v. State  of Orissa.(1) The trade of kendu leaves in  the State  of Orissa  was regulated by the Orissa Kendu Leaves  (Control of  Trade) Act,  1961  and  this  Act created a monopoly in favour of the State so far as purchase of kendu  leaves from  growers and  pluckers was  concerned. Section 10  of the  Act authorised the Government to sell or otherwise dispose  of kendu  leaves purchased in such manner as the Government might direct. The Government first evolved a scheme  under which  it offered  to renew  the Licences of those traders  who in  its view had worked satisfactorily in the previous year and had regularly paid the amount due from them. The  scheme was challenged and realising that it might be struck  down, the  Government  withdrew  the  scheme  and instead, decided  to invite  tenders for advance purchase of kendu  leaves   but  restricted   the  invitation  to  those individuals who  had carried  out contracts  in the previous year  without   default  and  to  the  satisfaction  of  the Government. This  method of  sale of  kendu leaves  was also challenged by  filing a  writ petition  on the  ground inter alia that  it was  violative of Articles ]4 and 19(1)(g) and this challenge,  though negatived  by the  High  Court,  was upheld by  this Court  in appeal. The Court pointed out that the original scheme of offering to enter into contracts with the old  licences and to renew their terms was open to grave objection, since  it  sought  arbitrarily  to  exclude  many persons interested  in the  trade and  the new  scheme under which the  Government  restricted  the  invitation  to  make offers to  those traders who had carried out their contracts in the previous year without default and to the satisfaction of the Government was also objectionable, since the right to make  tenders   for  the  purchase  of  kendu  leaves  being restricted to a limited      (1) [1969] 3 S.C.R. 374. 1044 class of  persons, it effectively shut out all other persons carrying on  trade in kendu leaves and also the new entrants into that  business and hence it was ex-facie discriminatory and imposed  unreasonable restrictions  upon  the  right  of persons other  than the  existing contractors  to  carry  on business. Both  the schemes  evolved by  the Government were thus held  to be  violative  of  Articles  14  and  19(1)(g) because they  "gave rise to a monopoly in the trade in kendu leaves to  certain traders and singled out other traders for discriminatory  treatment".   The  argument   that  existing contractors who  had carried  out their  obligations in  the previous year  regularly and  to  the  satisfaction  of  the Government formed  a valid basis of classification bearing a just and  reasonable relation  to the  object sought  to  be achieved by  the sales  namely, effective  execution of  the monopoly in  the public  interest, was also negatived and it was pointed  out that:  "exclusion of all persons interested in the  trade, who  were not in the previous year licencees, is ex  facie arbitrary;  it had  not direct  relation to the object of preventing exploitation of pluckers and growers of kendu leaves,  nor had it any just or reasonable relation to the securing  of the  full benefit  from the  trade, to  the State".      The Court  referred to  the offer  made by a well known manufacturer of  bidis for  purchase of  the entire  crop of kendu leaves for a sum of Rs. 3 crores which was turned down

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by  the  Government  and  expressed  its  surprise  that  no explanation was attempted to be given on behalf of the State as to  why such an offer, from which the State stood to gain more than  Rs. 1  crore, was  rejected by the Government. It will  be  seen  from  this  judgment  that  restricting  the invitation to  submit tenders  to a limited class of persons was held to be violative of the equality clause, because the classification  did   not  bear  any.  just  and  reasonable relation to  the  object  sought  to  be  achieved,  namely, selling of  kendu leaves  in the interest of general public. The standard  or  norm  laid  down  by  the  Government  for entering into  contracts of  sale of tendu leaves with third parties was  discriminatory and could not stand the scrutiny of Article  14 and  hence the scheme was held to be invalid. The Court  rejected the contention of the Government that by reason of  section 10  it was  entitled to  dispose of kendu leaves in  such manner  as it  thought fit  and there was no limitation upon  its power  to enter into contracts for sale of kendu  leaves with  such persons it liked. The Court held that the  Government was,  in the  exercise of  its power to enter into  contracts for  sale of  kendu leaves; subject to the constitutional limitation of Article 14 and it could not act arbitrarily in selecting persons with whom to enter into contracts and discriminate against others similarly situate. The Court criticised 1045 the Government  for not  giving any explanation as to why an offer for  a large  amount was  not accepted,  the  clearest implication being that the Government must act in the public interest; it  cannot act  arbitrarily and without reason and if it does so, its action would be liable to be invalidated. This decision  wholly supports  the view  we are  taking  in regard  to   The   applicability   of   the   rule   against arbitrariness in State action. B      We may also in this connection refer to the decision of this Court  in C.  K. Achuthan  v. State of Kerala(1), where Hidayatullah, J.,  speaking on  behalf  of  The  Court  made certain observation which was strongly relied upon on behalf of the  respondents. The  facts of  this case  were that the petitioner and  the 3rd  respondent Co-operative Milk Supply Union, Cannanore,  submitted tenders  for the supply of milk to the  Government hospital  at Cannanore for the year 1948- 49. The  Superintendent who scrutinised the tenders accepted that of  the petitioner and communicated the reasons for the decision to  the Director  of Public  Health. The  resulting contract  in   favour  of   the  petitioner   was,  however, subsequently cancelled  by issuing  a  notice  in  terms  of clause (2)  of the tender, in pursuance of the policy of the Government that  in  the  matter  of  supply  to  Government Medical Institutions  the  Co-operative  Milk  Supply  Union should be given contract on the basis of prices filed by the Revenue Department.  The petitioner  challenged The decision of the  Government in  a petition  under Article  32 of  the Constitution on  the ground  inter alia  that there had been discrimination against  him vis-a-vis the 3rd respondent and as such,  there was  contravention  of  Article  14  of  the Constitution.   The   Constitution   Bench   rejected   this contention  of   the  petitioner   and   while   doing   so, Hidayatullah, J.,  made the following observation: "There is no discrimination,  because it  is  perfectly  open  to  the Government, even  as it  is to  a private party, to choose a person to  their liking, to fulfil contracts which they wish to be  performed. When  one person  is choosen  rather  than another, the  aggrieved party cannot claim the protection of Article 14,  because the  choice of  the person  to fulfil a

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particular contract  must be  left to  the Government."  The respondents relied  very strongly  on  this  observation  in support of  their contention  that it is open to the ’State’ to enter  into contract  with any  one it likes and choosing one person  in preference  to another  for entering  into  a contract does  not involve  violation of  Article 1a. Though the language  in which this observation is couched is rather wide, we  do not  think that in making this observation, the Court.  intended   to  lay  down  any  absolute  proposition permitting the  state to  act arbitrarily  in the  matter of entering into contract with      (1) [1959] Supp. 1 S C. R. 787. 1046 third parties.  We have  no doubt  that the  Court could not have  intended  to  lay  down  such  a  proposition  because Hidayatullah J.  who delivered  the judgment of the Court in this case  was also  a party  to the  judgment in Rashbihari Panda v.  State of  Orissa (supra) which was also a decision of the  Constitution Bench,  where it  was held  in so  many terms that  the State  cannot act  arbitrarily in  selecting persons with  whom to  enter into  contracts. Obviously what the Court meant to say was that merely because one person is chosen in  preference to  another, it  does not  follow that there is  a violation  of Article 14, because the Government must necessarily be entitled to make a choice. But that does not mean  that the  choice be  arbitrary  or  fanciful.  The choice must  be dictated  by public interest and Must not be unreasoned or unprincipled.      The respondents  also relied  on the  decision of  this Court in  Trilochan Mishra  v. State of Orissa & ors.(1) The complaint of  the petitioner  in that case was that the bids of persons  making the highest tenders were not accepted and persons who  had made  lesser bids were asked to raise their bids to  the highest  offered and  their re  vised bids were accepted. The  Constitution Bench  negatived this  complaint and speaking through Mitter, J., observed:           "With regard  to the  grievance that in some cases      the bids of persons making the highest tenders were not      accept ed,  The facts  are that  persons who  had  made      lower bids  were asked  to  raise  their  bids  to  the      highest offered  before the  same were  accepted.  Thus      there was  no loss to Government and merely because the      Government preferred one tender to another no complaint      can be entertained. Government certainly has a right to      enter into  a contract  with a  person well known to it      and specially  one who  has  faithfully  performed  his      contracts in  the past  in preference to an undesirable      or unsuitable  or untried  person. Moreover, Government      is not  bound to  accept the  highest  tender  but  may      accept a  lower one  in case  it thinks that the person      offering  the   lower   tender   is   on   an   overall      consideration to be preferred to the higher tenderer."      We fail  to see  how  this  observation  can  help  the contention of  the respondents.  It does  not say  that  the Government can  enter into  contract with  any one  it likes arbitrarily  and   without  reason.   On  the  contrary,  it postulates that  the Government  may reject  a higher tender and accept a lower one only when there is valid reason lo do so, as  for example,  where it  is satisfied that the person offering the Lower      1) [1971] 3 S. C. C. 153. 1047 tender is  on an  overall consideration  preferable  to  the higher tenderer.  There must  be some  relevant  reason  for preferring one  tenderer to  another, and  if there  is, the

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Government can certainly enter into contract with the former even though  his tender  may be  lower but  it cannot  do so arbitrarily or for extraneous reason.      There was  also one  other decision  of this  Court  in State of  Orissa v.  Harinarayan Jaiswal & ors.(1) which was strongly relied upon on behalf of the respondents. There the respondents were  the highest  bidders at an auction held by the orissa  Government through  the Excise  Commissioner for the exclusive  privilege of selling by retail country liquor in some  shops. The  auction was  held pursuant  to an order dated 6th  January, 1971  issued by the Government of orissa in exercise  of the  power conferred  under section 29(2) of the Bihar  & orissa  Excise Act, 1915 and clause (6) of this order provided  that "no  sale shall  be deemed  to be final unless confirmed  by the  State Government  who shall  be at liberty to  accept or  reject any  bid without assigning any reason therefor".  The Government  of orissa  did not accept any of  the bids  made at  the auction and subsequently sold the privilege  by negotiations  with some other parties. One of the  contentions raised  on behalf  of the petitioners in that case  was that the power retained by the Government "to accept or  reject many  bid without any reason therefor" was an arbitrary  power violative  of Articles 14 and 19(1) (g). This contention  was negatived  and Hegde,  J.  speaking  on behalf of the Court observed:           "The Government is the guardian of the finances of      the State.  It is  expected to  protect  the  financial      interest of  the  State.  Hence  quite  naturally,  the      legislature has  empowered the  Government to  see that      there is  no leakage  in its  revenue. It  is  for  the      Government to  decide whether  the price  offered in on      auction sale  is adequate. While accepting or rejecting      a bid,  it is  merely performing an executive function.      The correctness  of  its  conclusion  is  not  open  to      judicial review.  We  fail  to  see  how  the  plea  of      contravention of  Article 19(1)(g)  or Article  14  can      arise in these cases. The Governments power to sell the      exclusive privilege  set out  in  section  22  was  not      denied. It  was also not disputed that these privileges      could be  sold by  public auction.  Public auctions are      held to get the best possible price. Once these aspects      are recognised,  there  appears  to  be  no  basis  for      contending that the owner of the privileges      (1) [1972] 2 S.C.C. 36. 1048      in question who had offered to sell them cannot decline      to accept  the highest  bid if he thinks that the price      offered is inadequate." It will be seen from these observations that the validity of clause (6)  of the  order dated 6th January, 1971 was upheld by this Court on the ground that having regard to the object of holding  the  auction,  namely,  to  raise  revenue,  the Government was  entitled to  reject even the highest bid, if it thought  that  the  price  offered  was  inadequate.  The Government was  not bound to accept the tender of the person who  offered  the  highest  amount  and  if  the  Government rejected all  the bids  made at  the  auction,  it  did  not involve any  violation of  Article 14 or 19(1)(g). This is a self-evident proposition  and we do not see how it can be of any assistance to the respondents.      The last decision to which reference was made on behalf of the respondents was the decision in P. R. Quenin v. M. K. Tendel(1) This decision merely reiterates the principle laid down in  the earlier  decisions in Trilochan Mishra v. State of Orissa (supra) and State of Orissa v. Harinarayan Jaiswal

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(supra) and  points out that a condition that the Government shall be  at liberty  to accept  or reject  any bid  without assigning any reason therefor is not violative of Article 14 and  that   "in  matters  relating  to  contracts  with  the Government, the  latter is not bound to accept the tender of the person who offers the highest amount". Now where does it say that  such a  condition permits  the Government  to  act arbitrarily in accepting a tender or that under the guise or pretext of such a condition, the Government may enter into a contract with  any person  it likes, arbitrarily and without reason. In  fact the  Court pointed  out at  the end  of the judgment that the act of the Government was not "shown to be vitiated  by   such  arbitrariness   as  should   call   for interference by  the Court", recognising clearly that if the rejection  of   the  tender   of  the  1st  respondent  were arbitrary, the  Court would  have been justified in striking it down as invalid.      Now this  rule, flowing  as it  does from  Article  14, applies to  every State  action and since "State" is defined in Article  12 to  include not  only the Government of India and the  Government of  each of  the States,  but also  "all local or  other authorities within the territory of India or under the control of the Government of India", it must apply to action  of "other  authorities" and  they  must  be  held subject  to   the  same  constitutional  limitation  as  the Government. But  the question  arises what  are  the  "other authorities" contemplated  by Article  12 which  fall within the definition of ’State’ ? on this ques-      (1) [1974] 3 S. C. R. 64. 1049 tion considerable  light is  thrown by  the decision of this Court in  Rajasthan Electricity  Board v. Mohan Lal(1). That was a  case in  which this Court was called upon to consider whether the  Rajasthan Electricity  Board was an ’authority’ within the  meaning of the expression "other authorities" in Art. 12.  Bhargava,  J.,  delivering  the  judgment  of  the majority pointed out that the expression "other authorities" in Art.  12 would  include all  constitutional and statutory authorities on whom powers are conferred by law. The learned Judge also said that if any body of persons has authority to issue  directions   the  disobedience   of  which  would  be punishable  as   a  criminal   offence,  that  would  be  an indication that  that authority  is ’State’.  Shah, J.,  who delivered a  separate judgment, agreeing with the conclusion reached by  the  majority,  preferred  to  give  a  slightly different meaning  to the expression "other authorities". He said that  authorities, constitutional  or statutory,  would fall within  the expression "other authorities" only if they are invested  with the sovereign power of the State, namely, the power to make rules and regulations which have the force of law.  The ratio of this decision may thus be stated to be that a constitutional or statutory authority would be within the meaning of the expression "other authorities", if it has been  invested   with  statutory   power  to  issue  binding directions to third parties, the disobedience of which would entail penal  consequence or  it has  the sovereign power to make rules  and regulations  having the  force of  law. This test was  followed by  Ray, C.J.,  in Sukhdev  v. Bhagat Ram (supra). Mathew, J., however, in the same case, propounded a broader test,  namely, whether  the statutory corporation or other  body   or  authority,  claimed  to  fall  within  the definition of  State’, is  as instrumentality  or agency  of Government: if  it is,  it would  fall within the meaning of the expression  ’other authorities’  and  would  be  State’. Whilst accepting the test laid down in Rajasthan Electricity

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Board v.  Mohan Lal  (supra), and followed by Ray, C. J., in Sukhdev v. Bhagat Ram (supra), we would, for reasons already discussed,  prefer   to  adopt   the  test  of  Governmental instrumentality or  agency as  one more  test and  perhaps a more satisfactory  one for  determining whether  a statutory corporation,  body  or  other  authority  falls  within  the definition of  ’State’. If  a statutory corporation, body or other  authority   is  an   instrumentality  or   agency  of Government, it would be an ’authority’ and therefore ’State’ within the meaning of that expression in Article 12.      It is  necessary at  this  stage  to  refer  to  a  few decisions of this Court which seem to bear on this point and which require a little      (1) [1967] 3 S C, R 377 11-904 SCI/79 1050 explanation. The  first  is  the  decision  in  Praga  Tools Corporation v.  C. A.  Imanuel.(1) This  was a case in which some of  the workmen sought a writ of mandamus against Praga Tools Corporation  which was  a company  with 56 per cent of its share  capital held  by the  Centra1 Government,  32 per cent by  the Andhra  Pradesh Government  and 12  per cent by private individuals.  The Court held that a writ of mandamus did not  lie, because  Praga Tools  Corporation "being a non statutory body and one incorporated under the Companies Act, there was  neither a  statutory nor a public duty imposed on it by  a statute  in respect  of which  enforcement could be sought by  means of  mandamus, nor  was there in its workmen any corresponding  legal right  for enforcement  of any such statutory  or  public  duty."  (emphasis  supplied).  It  is difficult to  see how  this decision  can be  of any help in deciding the  present issue  before us.  This was not a case where   Praga   Tools   Corporation   claimed   to   be   an instrumentality of  government or  an ’authority’ within the meaning of  Article 12. The only question was whether a writ of mandamus  could lie  and it was held that since there was no duty  imposed on  Praga Tool  Corporation by  statute, no writ of mandamus could issue against it.      The second  decision to  which we must refer is that in Heavy Engineering  Mazdoor Union  v. State  of Bihar(2). The question which arose in this case was whether a reference of an  industrial   dispute  between   the  Heavy   Engineering Corporation  Limited   (hereinafter  referred   to  as   the ’Corporation’) and  the Union  made by  the State  of  Bihar under section  10 of  the Industrial  Disputes Act, 1947 was valid. The  argument of  the Union  was that the industry in question was  "carried on under the authority of the Central Government" and the reference could, therefore, be made only by the  Central Government.  The Court  held that  the words "under the  authority" mean "pursuant to the authority, such as where an agent or a servant acts under of pursuant to the authority of  his principal or master" and on this view, the Court  addressed   itself  to   the  question   whether  the Corporation  could  be  said  to  be  carrying  on  business pursuant to  the authority  of the  Central Government.  The answer to  this question  was  obviously  ’no’  because  the Corporation was  carrying  on  business  in  virtue  of  the authority  derived  from  its  memorandum  and  articles  of association and  not by  reason of  any authority granted by the Central  Government. The  Corporation,  in  carrying  on business, was  acting on its own behalf and not on behalf of the Central Government and it was therefore not a servant or agent of  the Central  Government  in  the  sense  that  its actions would bind the Central Government. There      (1) [1969] 3 S. C. R. 773,

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    (2) [1969] 3 S. C. R 995. 1051 was no  question in this case whether the Corporation was an instrumentality of  the Central  Government and therefore an ’authority within  the meaning  of Article  12. We may point out here  that when  we speak  of  a  Corporation  being  an instrumentality or  agency of  Government, we do not mean to suggest that  the Corporation  should be  an  agent  of  the Government in  the sense  that whatever  it does  should  be binding on  the Government.  It is  not the  relationship of principal and  agent which  is  relevant  and  material  but wether  the   Corporation  is   an  instrumentality  of  the Government in  the sense  that a part of the governing power of the  State is  located in  the Corporation and though the Corporation is acting on its own behalf and not on behalf of the Government,  its action is really in the nature of State action. This  decision dealing  with an altogether different point has no bearing on the present issue.      We may  then refer to the decision in S. L. Aggarwal v. General Manager,  Hindustan Steel  Limited.(1) This decision has also no relevance to the point at issue before us, since the only  question in  that case  was wether  all  Assistant Surgeon in  the employment  of Hindustan Steel Limited could be said  to be  holding a  civil post  under the  Union or a State so  as to  be entitled  to the  protection of  Article 311(2) of  the Constitution.  The Court  held that Hindustan Steel Limited  was not  a department  of the  Government nor were its  employees holding posts under the State within the meaning of  Article 311(2).  The decision  was clearly right and indeed  it could  not be otherwise since Hindustan Steel Limited, which  was a distinct and independent legal entity, was not  a department  of the  Government and  could not  be regarded as  State for the purpose of Article 311(2). It may be noted  that the Court was not concerned with the question whether Hindustan  Steel Limited  was an  ’authority’ within the meaning of Articlc 12.      Lastly, we  must refer  to the  decision  in  Sarbhajit Tewari v.  Union of  India &  ors.(2) where the question was whether the  Council of  Scientific and  Industrial Research was an  ’authority’ within  the meaning  of Article  12. The Court no  doubt took the view on the basis of facts relevant to the  constitution and  functioning of the council that it was not an ’authority’, but we do not find any discussion in this case  as to what are the features which must be present before a  corporation can  be  regarded  as  an  ’authority’ within the meaning of Article 12. This decision does not lay down any  principle or  test for  the purpose of determining when a  corporation can  be said to be an ’authority’. If at all any test can be gleaned from the decision, it is      (1) [1970] 3 S. C. R. 363.      (2) [1975] 1 S. C. C. 485. 1052 whether  the   Corporation  is  ’really  an  agency  of  the Government". The  Court seemed to hold on The facts that the Council was  not  an  agency  of  the  Government  and  was, therefore, not an ’authority’.      We may  examine,  in  the  light  of  this  discussion, whether  the   1st  respondent,  namely,  the  International Airport Authority  of India,, can be said to be an authority falling within  the definition  of ’State’ in Article 12. It is necessary  to refer  to some  of the  provisions  of  the International  Airport   Authority  Act,  1971  (hereinafter referred to  as the Act) for the purpose of determining this question. Sub-section  (1) of  section 3 of the Act provides that the Central Government shall constitute an authority to

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be called  the International  Airport Authority of India, to whom we  shall hereafter  refer as  the 1st respondent. Sub- section (2)  states that the 1 st respondent shall be a body corporate having  perpetual succession and a common seal and sub-section (3) enacts that the Ist respondent shall consist of a Chairman to be appointed by the Central Government, the Director General  of Civil  Aviation exofficio  and not less than six  and not more than thirteen members to be appointed by the  Central Government.  The term  of  office  of  every member of  the 1st  respondent is  prescribed by sub-section (1) of  section 5  to be 3 years, but the Central Government is  given   under  the   Proviso  power   to  terminate  the appointment of  any member  who is  not  a  servant  of  the Government after  giving him  notice as also to terminate at any time  the appointment  of any member who is a servant of the Government.  The power  to remove  a member  in  certain specified  circumstances  is  also  vested  in  the  Central Government under  section 6.  Section  32,  sub-section  (1) provides that  as from  the date  appointed by  the  Central Government all  properties and  other assets vested in the p Central Government  for the  purposes  of  the  airport  and administered by  the  Director  General  of  Civil  Aviation immediately  before   such  date   shall  vest  in  the  1st respondent  and   all  debts,  obligations  and  liabilities incurred, all  contracts entered  into and  all matters  and things engaged  to be  done by,  with  or  for  the  Central Government immediately  before such  date shall be deemed to have been  incurred, entered into and engaged to be done by, with or  for the  1st respondent. This sub-section also says that all  non-recurring expenditure  incurred by the Central Government for  or in  connection with  the purposes  of the airport upto  the appointed  date and declared to be capital expenditure by  the Central  Government shall  be treated as the capital  provided by  the Central  Government to the 1st respondent  and  all  sums  of  money  due  to  the  Central Government in relation to the airport immediately before the appointed date  shall  be  deemed  to  be  due  to  the  1st respondent. The  1st respondent  is also  given the power to institute or continue all suits 1053 and other  legal proceedings  instituted or which could have been instituted by or against the Central Government for any matter in relation to the airport and every employee holding any office  under the  Central Government immediately before the appointed  date solely  or mainly  for or  in connection with the  affairs of  the airport  shall be  treated  as  on deputation with  the  1st  respondent.  Sub-section  (1)  of section 12 also enacts similar provisions with regard to the air navigation  services and  the buildings used exclusively for such services immediately before the appointed date. The functions of the 1st respondent are specified in section 16: sub-section (l) provides that, subject to the rules, if any, made by  the Central  Government in this behalf, it shall be the function  of the  1st respondent  to manage the airports efficiently and sub-section (2) casts an obligation on the 1 st respondent  to provide  at the airports such services and facilities as  are necessary  or desirable for the efficient operation of  air transport  services and  certain  specific functions  to   be  performed  by  the  1st  respondent  are particularised in  sub-section (3).  These. functions  were, until the  appointed date,  being carried out by the Central Government but  now under Section 16 they are transferred to the ]  st respondent.  Section 20 provides that after making provision  for   reserve  funds,  bad  and  doubtful  debts, depreciation in  assets  and  an  other  matters  which  are

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usually provided  for by companies, the 1st respondent shall pay the  balance of  its annual  net profits  to the Central Government. Section 21 requires the 1st respondent to submit for the  approval of  the Central  Government a statement of the programme  of  its  activities  during  the  forthcoming financial year  as well as its financial estimate in respect thereof at  least three  months before  the commencement  of each  financial  year  and  section  24  provides  that  the accounts of  the 1st respondent shall be audited annually by the Comptroller  and Auditor  General and  the  accounts  as certified by  the Comptroller  and Auditor  General  or  any other person  appointed by him in this behalf, together with the audit  report thereon, shall be forwarded to the Central Government and  the Central  Government shall cause the same to be  laid  before  both  Houses  of  Parliament.  The  1st respondent is  also required  by section  25 to  prepare and submit to  the Central  Government, as  soon as may be after the end  of each  financial year, a report giving an account of its  activities during the financial year and this report has to  be laid  before both  Houses of  Parliament  by  the Central Government.  The officers  and employees  of the 1st respondent are  deemed by  section 28  to be public servants and section 29 gives them immunity from suit, prosecution or other legal  proceeding for  anything in  good faith done or intended to  he done  in pursuance of the Act or any rule or regulation made  under it.  Section 33  confers power on the Central Government 1054 to temporarily divest the 1st respondent from the management of any  airport and  to direct the 1st respondent to entrust such management  to any other person. The Central Government is also  empowered  by  section  34  lo  supersede  the  1st respondent under certain specified circumstances. Section 35 gives power  to the Central Government to give directions in writing from  time  to  time  on  questions  of  policy  and provides that  the 1 st respondent shall in the discharge of its functions,  and duties,  be bound  by  such  directions. Section  36   confers  rule  making  power  on  the  Central Government for  carrying out  the purposes  of the  Act  and power to make regulations is conferred on the 1st respondent under section  37. Section  39 provides  that any regulation made by  the 1st  respondent under any of the clauses (g) to (m) of  sub-section (2)  of section  37 may make it Penal to contravene such regulation.      lt will  be seen  from these  provisions that there are certain features  of the  1 st respondent which are eloquent and throw  considerable light  on the true nature of the 1st respondent. In  the first place, the chairman and members of the 1st  respondent are all persons nominated by the Central Government and  the Central Government has also the power to terminate their  appointment  as  also  to  remove  them  in certain specified  circumstances. The  Central Government is also vested  with the  power to  take away the management of any airport from the 1st respondent and to entrust it to any other person  or authority  and for certain special reasons, the  Central   Government  can   also  supersede   the   Ist respondent. The  Central Government  has also  power to give directions in  writing,, from  time to  time on questions of policy and  these directions are declared binding on the 1st respondent. The  1st respondent has no share capital but the capital needed  by it  for carrying  out  its  functions  is provided wholly  by the  Central Government.  The balance of the not  profit made  by the  Ist  respondent  after  making provision for  various charges,  such as  reserve funds, had and doubtful  debts depreciation  in assets  etc.  does  not

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remain with  the 1st  respondent and  is required to be paid over lo  the Central  Government. The 1st respondent is also required  to  submit  to  the  Central  Government  for  its approval a  statement of  the programme of its activities as also  the  financial  estimate  and  it  must  follow  as  a necessary corollary  that the  1 st respondent can carry out only such  activities and  incur only such expenditure as is approved by  the Central Government. The audited accounts of the 1st respondent together with the audit report have to be forwarded to the Central Government and they are required to be laid  before both  Houses of  Parliament. So  far as  the functions of  the 1st  respondent are  concerned, the entire department  of   the  Central  Government  relating  to  the administration  of  airports  and  air  nevigation  services together with its 1055 properties and  assets, debts,  obligations and liabilities, contracts, causes  A of  action and  pending  litigation  is transferred to  the 1st respondent and the 1st respondent is charged with  carrying out  the same  functions which  were, until the  appointed date,  being carried out by the Central Government. The employees and officers on the 1st respondent are also deemed to be public servants and the 1st respondent as well  as its  members, officers  and employees  are given immunity for  anything  which  is  in  good  faith  done  or intended to  be done  in pursuance of the Act or any rule or regulation made  under it.  The 1st respondent is also given power to frame Regulations and to provide that contravention of  certain   specified  Regulations   shall  entail   penal consequence. These  provisions clearly  show that every test discussed  above  is  satisfied  in  the  case  of  the  1st respondent and  they leave  no doubt that the 1st respondent is an  instrumentality or  agency of  the Central Government and falls  within the  definition of  ’State’  both  on  the ’narrow view  taken by the majority in Sukhdev v. Bhagat Ram (supra) as  also on  the broader view of Mathew, J., adopted by us.      It is,  therefore, obvious  that both  having regard to the  constitutional  mandate  of  Article  14  as  also  the judicially evolved  rule  of  administrative  law,  the  1st respondent was  not entitled to act arbitrarily in accepting the tender  of the 4th respondents, but was bound to conform to the  standard or  norm laid  down in  paragraph 1  of the notice inviting  tenders which  required that  only a person running a  registered IInd  Class hotel  or  restaurant  and having at  least S  years’  experience  as  such  should  be eligible to  tender.  It  was  not  the  contention  of  the appellant that  this standard  or norm prescribed by the 1st respondent was  discriminatory having  no just or reasonable relation to  the object of inviting tenders namely, to award the contract  to a sufficiently experienced person who would be able  to run  efficiently a  IInd class restaurant at the airport. Admittedly  the standard or norm was reasonable and non-discriminatory and  once such  a standard  or  norm  for running a  IInd Class  restaurant should be awarded was laid down, the  1st respondent was not entitled to depart from it and to award the contract to the 4th respondents who did not satisfy the  condition  of  eligibility  prescribed  by  the standard or  norm. If  there was no acceptable tender from a person who  satisfied the  condition of eligibility, the 1st respondent could have rejected the tenders and invited fresh tenders on  the basis  of a less stringent standard or norm, but it could not depart from the standard or norm prescribed by  it   and  arbitrarily  accept  the  tender  of  the  4th respondents. When  the 1st respondent entertained the tender

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of the  4th respondents  even though  they did  not  have  5 years’ experience of running a IInd Class 1056 restaurant or  hotel,  denied  equality  of  opportunity  to others similarly  situate in the matter of tendering for the contract. There  might have been many other persons, in fact the appellant himself claimed to be one such person, who did not have  5  years’  experience  of  running  a  IInd  Class restaurant, but  who were  otherwise competent to run such a restaurant and  they might  also have  competed with the 4th respondents  for  obtaining  the  contract,  but  they  were precluded from  doing so  by the  condition  of  eligibility requiring five  years’ experience.  The action  of  the  1st respondent in  accepting the  tender of the 4th respondents, even though they did not satisfy the prescribed condition of eligibility, was  clearly discriminatory,  since it excluded other  person  similarly  situate  from  tendering  for  the contract and  it was  plainly arbitrary  and without reason. The acceptance  of the tender of the 4th respondents was, in the circumstances invalid as being violative of the equality clause  of   the  Constitution   as  also  of  the  rule  of administrative law inhibiting arbitrary action.      Now, on  this view  we should have ordinarily set aside the decision of the,- 1st respondent accepting the tender of the 4th  respondents and  the contract  resulting from  such acceptance  but   in  view   of  the   peculiar  facts   and circumstances of  the present case, we do not think it would be a  sound exercise of discretion on our part to upset that decision and  void the  contract. It  does appear  from  the affidavits filed  by the  parties that  the appellant has no real interest  in the result of the litigation, but has been put up  by A.  S. Irani for depriving the 4th respondents of the benefit  of the contract secured by them. We find that a number of  proceedings have been instituted for this purpose from time  to time  by A.  S. Irani  either personally or by instigating others to take such proceedings. The first salvo in the battle against the 4th respondents was fired by K. S. Irani, proprietor  of  Cafe  Excelsior,  who  filed  a  suit challenging the decision of the 1st respondent to accept the tender of the 4th respondents, but in this suit he failed to obtain an interim injunction and his appeal was dismissed by the High Court on 19th October, 1977. It is significant that when the  tenders were  opened in  the office of the Airport Director, Cafe  Excelsior was  represented by  A. S.  Irani, which shows  that either  Cafe Excelsior was a nominee of A. S. Irani  or in  any event  K. S.  Irani, proprietor of Cafe Excelsior, was closely connected with A. S. Irani. Moreover, it is  interesting to note that though the tender of the 4th respondents was accepted as far back as 19th April, 1977, K. S. Irani did not adopt any proceedings immediately but filed the suit  only after A. S. Irani was informed by the Airport Director on  22nd August,  1977 that  a final order has been received from the Ministry 1057 requiring  A.   S.  Irani  to  immediately  close  down  his restaurant and  snack bars.  It is  also a  circumstance not without significance  that A.  S. Irani  did not immediately take any  proceeding for  challenging the  acceptance of the tender of  the 4th  respondents, but filed a suit in his own name only  after the  appeal of K. S. Irani was dismissed by the High  Court on  19th October,  1977. These circumstances clearly indicate  that the  suit was filed by K. S. Irani at the instance  of A. S. Irani or in any event in concert with him and  when the  suit of K. S. Irani failed to achieve the desired result, A. S. Irani stepped into the arena and filed

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his own  suit. This  suit was  for  a  mandatory  injunction seeking removal  of the  two snack  bars which  had  in  the meantime’ been put up by the 4th respondents pursuant to the acceptance of  their tender  by the  1st respondent.  But in this proceeding  also A.  S. Irani  failed to  obtain an ad- interim injunction.  It was only after the failure to obtain interim relief  in these two proceedings, one by K. S. Irani and the  other by  A. S. Irani, that the appellant filed the present  writ   petition  in   the  High   Court  of  Bombay challenging the decision of the 1st respondent to accept the tender of  the 4th  respondents. Now,  it appears  from  the record  that   the  appellant   was  at  the  material  time conducting a  restaurant called  Royal Restaurant  and Store which was  owned in partnership by three persons, namely, J. K. Irani,  K. M.  Irani and  G. S. Irani. G. S. Irani is the brother of A. S. Irani and he was managing and looking after the restaurant  of A.  S. Irani  at the  airport. It  would, therefore, be  a fair  inference to  make that the appellant was well  connected with  A. S. Irani and from the manner in which proceedings  with a  view to  thwarting the attempt of the 4th respondents to obtain the benefit of their contract, have been adopted one after the other in different names, it does appear  that the  appellant has filed the writ petition at the instance of A. S. Irani with a view to helping him to obtain the  contract for  the restaurant and the snack bars. It is  difficult to understand why the appellant should have waited until  8th November,  1977 to  file the writ petition when the  tender of  the 4th respondents was accepted as far hack as  19th April,  1977. The  explanation  given  by  the appellant is  that he was not aware of the acceptance of the tender of  the 4th  respondents but  that is  a rather naive explanation which  cannot  be  easily  accepted  It  is  not possible to  believe that  the appellant  who  was  so  well connected with A. S. Irani and G. S. Irani did not know that A. S.  Irani had  failed to  obtain the contract for running the restaurant and the snack bars and that this contract had been awarded  to the 4th respondents as a result of which A. S. Irani  was being pressed to close down his restaurant and snack bars.  We have grave doubts whether this writ petition was commenced by the appellant bona fide 1058 with a  view to  protecting his  own interest. Moreover, the writ petition  was filed  by the  appellant more  than  five months after  the  acceptance  of  the  tender  of  the  4th respondents and  during this  period,  the  4th  respondents incurred considerable  expenditure aggregating  to about Rs. 1,25,000/-  in   making  arrangements  for  putting  up  the restaurant and  the snack  bars and in fact set up the snack bars and  started running  the same.  It would  now be  most inequitous to set aside the contracts of the 4th respondents at the  instance of  the appellant.  The position would have been different  if the appellant had filed the writ petition immediately after  the acceptance  of the  tender of the 4th respondents but  the appellant allowed a period of over five months to  elapse during  which the  4th respondents altered their position.  We are, therefore, of the view that this is not a fit case in which we should interfere and grant relief to the  appellant in  the exercise  of our  discretion under Article 136 read with Article 226 of the Constitution.      We accordingly dismiss the appeal and confirm the order of the  High Court  rejecting the  writ petition. But in the circumstances of the case there will be no order as to costs throughout. P.B.R                                      Appeal dismissed. 1059

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