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CASE NO.: Appeal (civil)  4608 of 2006

PETITIONER: Rajasthan Housing Board and another

RESPONDENT: G.S. Investments and another

DATE OF JUDGMENT: 31/10/2006

BENCH: G.P. Mathur & A.K. Mathur

JUDGMENT: J U D G M E N T CIVIL APPEAL NO. 4608 OF 2006 (Arising out of SLP (C) No. 17916 of 2006) (CC 4919/05)

G.P. Mathur, J.

       Leave granted. 2.      This appeal, by special leave, has been filed challenging the  judgments and orders dated 4.8.2004 of a learned single Judge of  Rajasthan High Court by which the writ petition filed by respondent  No. 1 M/s. G.S. Investments was disposed of with certain directions  and also the order dated 23.9.2004 passed by the Division Bench by  which the special appeal preferred by the appellants against the said  order was dismissed at the admission stage.  The appellants have also  challenged the order dated 4.4.2005 which was passed in the contempt  petition initiated by the respondent No. 1. 3.      The appellant No. 1 Rajasthan Housing Board published an  auction notice on 3.2.2002 for auction of 50 commercial plots in the  Mansarovar Scheme, which was followed by another auction notice  dated 19.2.2002.  The auction was conducted on 20.2.2002 in which  M/s. G.S. Investments (respondent No. 1) made the highest bid @  Rs.5750/- per square meter.  A news item was published in some  newspaper that large scale bungling had been done in the auction due  to which the price fetched for the plots in question was much below  the market rate.  The State Government issued a direction on  22.2.2002 summoning the records and staying all further proceeding  relating to auction of the plots.  Thereafter, an order was passed by the  State Government on 20.3.2002 directing that the officers of the  Rajasthan Housing Board, who were responsible for conducting the  auction, be placed under suspension and in future no auction shall be  conducted through the agency of Satish Auction House which had  conducted the auction on 20.2.2002 or through any other auction  agency.  After a detailed consideration of the matter, including the  report of the Financial Commissioner which showed that in the past  plots in the said area had fetched a price of Rs.10,000/- per square  meter, the State Government passed an order on 3.4.2002  disapproving the auction held on 20.2.2002 and a further direction  was issued for holding a fresh auction.  On 23.4.2002 the appellant  No. 1 sent a communication to respondent No. 1 that the auction held  on 20.2.2002 had been cancelled and it may produce the original  receipt regarding deposit of the amount so that the same may be  refunded to it.  Feeling aggrieved by the aforesaid communication, the  respondent No. 1 M/s. G.S. Investments filed a writ petition in the  High Court which was admitted by a learned single Judge on  29.5.2002 and an interim order was passed that in the meanwhile no  order prejudicial to the writ petitioner shall be passed.  The writ  petition was contested by the appellant on various grounds by filing a

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counter affidavit.  The learned single Judge by a short order dated  4.8.2004 disposed of the writ petition and the relevant portion of the  order is being reproduced below: "I have carefully examined the orders impugned.  It  appears that no opportunity of hearing was given to the  petitioner by the respondents whereas the petitioner is  willing to deposit the balance amount according to the  terms and conditions.  Consequently, the impugned  orders dated 23.4.2002 and 2.5.2002 are hereby quashed  and set aside.  The petitioner is directed to file fresh  representation before the respondents.  The respondents  are directed to consider the representation of the  petitioner and shall issue the demand note of balance  amount after filing of representation by the petitioner  within a period of one month.         With the aforesaid observation, the writ petition  stands disposed of."

The appellant preferred a special appeal against the order of the  learned single Judge before the Division Bench of the High Court  which dismissed the same at the admission stage on 23.4.2004  observing as under: - "Considering the fact that the direction was given on the  facts that there was open auction wherein the writ  petitioner was highest bidder and he had deposited initial  amount.  There is no allegation of the appellant that  auction in question was in collusion with the officers,  who conducted auction proceedings and the writ  petitioner.  In absence of such allegation and material to  support that there was collusion between the authorities  who conducted the auction proceeding, we do not find  any justification to interfere with the impugned order of  the learned single Judge.         Consequently, this special appeal is dismissed at  admission stage."        

4.      Learned counsel for the appellant Rajasthan Housing Hoard has  submitted that the respondent M/s. G.S. Investments had merely made  the highest bid in the auction held on 20.2.2002 and a highest bidder  in an auction does not acquire any legal right to have the auction  concluded in his favour.  Serious allegations were made of unholy  alliance between the officers of the Housing Board, the auctioning  agency and the respondent No. 1 and taking notice of the same the  State Government had stayed further proceedings in the matter and  after consideration of the report of the Financial Commissioner which  showed that in the past plots in the said area had fetched the price of  Rs.10,000/- per square meter, which was almost double of the price  which had been offered by the contesting respondent and also other  material, the State Government had issued a direction for initiating  disciplinary proceedings against the concerned officers and had also  passed an order disapproving the auction held on 20.2.2002.  The  State Government had taken the said action in exercise of power  conferred by Section 60 of the Rajasthan Housing Board Act, 1970.   In view of the order passed by the State Government a communication  was sent to the contesting respondent on 23.4.2002 that the auction  held on 20.2.2002 had been cancelled and it was asked to produce the  original receipt so that the amount deposited by it may be refunded.   Learned counsel has further submitted that auction of plots by the  Housing Board was purely a commercial transaction and the State  Government having come to the conclusion that the auction had not  been conducted in a fair manner and the price fetched in auction was  very low, a decision had been taken to cancel the auction which was  held earlier and to hold a fresh auction.  The decision having been  taken in the interest of public revenue, there was hardly any occasion  to interfere with the said decision under Article 226 of the

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Constitution as the scope of interference in such a case is very limited,  the court being concerned not with the decision itself but with the  process of making the decision.  Learned counsel for the contesting  respondent has, on the other hand, submitted that the auction had been  fairly conducted and the respondent having made the highest bid and  having deposited 25% of the amount within 24 hours, it had acquired  a right to have the auction concluded in its favour and the cancellation  of the auction was wholly illegal.  Learned counsel has further  submitted that the Chairman of the Housing Board having made a  proposal on 25.2.2002 for confirmation of the auction, the subsequent  order passed by the Rajasthan Housing Board on 23.4.2002 cancelling  the auction is wholly illegal. 5.      We have given our careful consideration to the submissions  made by the learned counsel for the parties.  As mentioned earlier,  after getting report of the bungling done in the auction, the State  Government had passed an order on 22.2.2002 staying all further  proceedings in connection with the auction.  On 20.3.2002  disciplinary proceedings had been initiated against the concerned  officers and they were placed under suspension and a further direction  was issued that in future no auction shall be held through any agency  including Satish Auction House, which had conducted the auction in  question.  A specific order was passed on 3.4.2002 disapproving the  auction held on 20.2.2002 and it was mentioned in the order that the  same was being done in exercise of powers conferred by Section 60 of  the Rajasthan Housing Board Act.  Section 60 of the said Act reads as  under: - "Government’s power to give directions to the Board \026  The State Government may give the Board such  directions as in its opinion are necessary or expedient for  carrying out the purposes of this Act, and it shall be the  duty of the Board to comply with such directions."

The language of the provision is very clear and it empowers the State  Government to give directions to the Housing Board as in its opinion  are necessary or expedient for carrying out the purposes of the Act.   The section further enjoins that it shall be the duty of the Board to  comply with such directions.  The section is couched in very wide  language and the Housing Board has to comply with the directions  issued by the State Government.  Therefore, the State Government  was fully empowered to issue the directions whereby it disapproved  the auction held on 20.2.2002 and no exception can be taken to such a  course of action.  The directions have been issued in the interest of the  Housing Board to generate revenue and to augment its finances, it  cannot be faulted with on any ground. 6.      The auction notice dated 3.2.2002 contained a condition to the  effect that the Chairman of the Housing Board shall have the final  authority regarding acceptance of the bid.  The second auction notice  issued on 19.2.2002 mentioned that the conditions of the auction will  be same as mentioned in the earlier auction notice.  In view of this  condition in auction notice it is obvious that a person who had made  the highest bid in the auction did not acquire any right to have the  auction concluded in his favour until the Chairman of the Housing  Board had passed an order to that effect.  Of course the Chairman of  the Housing Board could not exercise his power in an arbitrary  manner but so long as an order regarding final acceptance of the bid  had not been passed by the Chairman, the highest bidder acquired no  vested right to have the auction concluded in his favour and the  auction proceedings could always be cancelled.  What are the rights of  an auction bidder has been considered in several decisions of this  Court.  However, we will refer to only one such decision, viz.,  Laxmikant vs. Satyawan 1996 (4) SCC 208 which is almost identical  on facts as it related to auction of a plot by Nagpur Improvement  Trust.  The auction notice in this case contained a condition that the  acceptance of the highest bid shall depend upon the Board of Trustees  and further the person making the highest bid shall have no right to

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take back his bid and the decision of the Chairman of the Board of  Trustees regarding acceptance or rejection of the bid shall be binding  on the said person.  After taking note of the aforesaid conditions it  was held:-   "From a bare reference to the aforesaid conditions, it is  apparent and explicit that even if the public auction had  been completed and the respondent was the highest  bidder, no right had accrued to him till the confirmation  letter had been issued to him. The conditions of the  auction clearly conceived and contemplated that the  acceptance of the highest bid by the Board of Trustees  was a must and the Trust reserved the right to itself to  reject the highest or any bid.  This Court has examined  the right of the highest bidder at public auctions in the  cases of Trilochan Mishra, etc. v. State of Orissa (1971) 3  SCC 153, State of Orissa v. Harinarayan Jaiswal (1972) 2  SCC 36, Union of India v. Mis. Bhim Sen Walaiti Ram  (1969) 3 SCC 146 and State of Uttar Pradesh and Ors. v.  Vijay Bahadur Singh (1982) 2 SCC 365.  It has been  repeatedly pointed out that State or the authority which  can be held to be State within the meaning of Article 12  of the Constitution is not bound to accept the highest  tender or bid. The acceptance of the highest bid is subject  to the conditions of holding the public auction and the  right of the highest bidder has to be examined in context  with the different conditions under which such auction  has been held.  In the present case no right had accrued to  the respondent either on the basis of the statutory  provision under Rule 4(3) or under the conditions of the  sale which had been notified before the public auction  was held."

This being the settled legal position, the respondent acquired no right  to claim that the auction be concluded in its favour and the High Court  clearly erred in entertaining the writ petition and in not only issuing a  direction for consideration of the representation but also issuing a  further direction to the appellant to issue a demand note of the balance  amount.  The direction relating to issuance of the demand note for  balance amount virtually amounted to confirmation of the auction in  favour of the respondent which was not the function of the High  Court. 7.      The other question which requires consideration is what are the  contours of power which the High Court would exercise in a writ  petition filed under Article 226 of the Constitution where the  challenge is to cancellation of an auction held by a public body where  the prime consideration is fairness and generation of public revenue.   This question has been examined by a catena of decisions of this  Court.  In a recent decision rendered in Master Marine Services (P)  Ltd. Vs. Metcalfe and Hodgkinson (P) Ltd. (2005) 6 SCC 138, where  after consideration of several earlier decisions, the Bench to which  one of us was a party, summarized the legal principle as under in  paragraphs 11 to 15 of the said reports: - "11.    The principles which have to be applied in judicial  review of administrative decisions, especially those  relating to acceptance of tender and award of contract,  have been considered in great detail by a three Judge  Bench in Tata Cellular v. Union of India AIR 1996 SC  11.  It was observed that the principles of judicial review  would apply to the exercise of contractual powers by  Government bodies in order to prevent arbitrariness or  favouritism.  However, it must be clearly stated that there  are inherent limitations in exercise of that power of  judicial review.   Government is the guardian of the  finances of the State.  It is expected to protect the  financial interest of the State.   The right to refuse the

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lowest or any other tender is always available to the  Government.  But, the principles laid down in Article 14  of the Constitution have to be kept in view while  accepting or refusing a tender.  There can be no question  of infringement of Article 14 if the Government tries to  get the best person or the best quotation.   The right to  choose cannot be considered to be an arbitrary power.  Of  course, if the said power is exercised for any collateral  purpose the exercise of that power will be struck down.   (See para 85 of the reports, SCC para 70) 12.     After an exhaustive consideration of a large  number of decisions and standard books on  Administrative Law, the Court enunciated the principle  that the modern trend points to judicial restraint in  administrative action.  The Court does not sit as a court  of appeal but merely reviews the manner in which the  decision was made.  The Court does not have the  expertise to correct the administrative decision.  If a  review of the administrative decision is permitted it will  be substituting its own decision, without the necessary  expertise, which itself may be fallible.  The Government  must have freedom of contract.  In other words, fairplay  in the joints is a necessary concomitant for an  administrative body functioning in an administrative  sphere or quasi- administrative sphere.   However, the  decision must not only be tested by the application of  Wednesbury principles of reasonableness but also must  be free from arbitrariness not affected by bias or actuated  by mala fides.  It was also pointed out that quashing  decisions may impose heavy administrative burden on  the administration and lead to increased and unbudgeted  expenditure. (See para 113 of the reports, SCC para 94.) 13.     In Sterling Computers Ltd. v. M/s M.N.  Publications Ltd. AIR 1996 SC 51 it was held as under:  (SCC p. 458, paras 18-19) "18.    While exercising the power of judicial  review, in respect of contracts entered into on  behalf of the State, the Court is concerned  primarily as to whether there has been any  infirmity in the "decision making process."....   By  way of judicial review the Court cannot examine  the details of the terms of the contract which have  been entered into by the public bodies or the State.    Court have inherent limitations on the scope of any  such enquiry.   But at the same time ... the Courts  can certainly examine whether "decision making  process" was reasonable rational, not arbitrary and  violative of Article 14 of the Constitution.    19.     If the contract has been entered into without  ignoring the procedure which can be said to be  basic in nature and after an objective consideration  of different options available taking into account  the interest of the State and the public, then Court  cannot act as an appellate authority by substituting  its opinion in respect of selection made for  entering into such contract." 14.     In Raunaq International Ltd. v. I.V.R. Construction  Ltd. 1999 (1) SCC 492 it was observed that the award of  a contract, whether it is by a private party or by a public  body or the State, is essentially a commercial transaction.    In arriving at a commercial decision, considerations  which are of paramount importance are commercial  considerations, which would include, inter alia, the price  at which the party is willing to work, whether the goods  or services offered are of the requisite specifications and

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whether the person tendering is of ability to deliver the  goods or services as per specifications. 15.     The law relating to award of contract by State and  public sector corporations was reviewed in Air India Ltd.  v. Cochin International Airport Ltd. 2000 (2) SCC 617  and it was held that the award of a contract, whether by a  private party or by a State, is essentially a commercial  transaction.   It can choose its own method to arrive at a  decision and it is free to grant any relaxation for bona  fide reasons, if the tender conditions permit such a  relaxation.   It was further held that the State, its  corporations, instrumentalities and agencies have the  public duty to be fair to all concerned.   Even when some  defect is found in the decision making process, the Court  must exercise its discretionary powers under Article 226  with great caution and should exercise it only in  furtherance of public interest and not merely on the  making out of a legal point.   The Court should always  keep the larger public interest in mind in order to decide  whether its intervention is called for or not.   Only when  it comes to a conclusion that overwhelming public  interest requires interference, the Court should interfere."

8.      The sale of plots by the Rajasthan Housing Board by means of  an auction is essentially a commercial transaction.  Even if some  defect was found in the ultimate decision resulting in cancellation of  the auction, the court should exercise its discretionary power under  Article 226 of the Constitution with great care and caution and should  exercise it only in furtherance of public interest.  The court should  always keep the larger public interest in mind in order to decide  whether it should interfere with the decision of the authority.  In the  present case there was enough material before the State Government  to show that in the past plots in the area had fetched a price of  Rs.10,000/- per square meter and the highest bid made by the  respondent in the present case was nearly half, i.e., Rs.5750/- per  square meter, which clearly indicated that the auction had not been  conducted in a fair manner.  If in such a case the State Government  took a decision to disapprove the auction held and issued a direction  for holding of a fresh auction, obviously the said decision was taken  in larger public interest.  In these circumstances there was absolutely  no occasion for the High Court to entertain the writ petition and issue  any direction in favour of the contesting respondent.  The orders  passed by the learned single Judge on 4.8.2004 and the order passed  by the Division Bench of the High Court on 23.9.2004 are clearly  erroneous in law and are liable to be set aside. 9.      It appears that the respondent initiated contempt proceedings  against the appellants in which a learned single Judge passed an order  on 4.4.2005 observing that the order passed by the court on 4.8.2004  had not been complied with in letter and spirit and a further direction  was issued to comply with the said order within two weeks.  The  material placed before us shows that the appellant No. 1 had issued a  notice to the respondent on 15.3.2005 and after giving a personal  hearing on the next day, had rejected its representation by the order  dated 18.3.2005.  In these circumstances there was no occasion for  initiating any contempt proceedings against the appellants. 10.     In the result the appeal is allowed with costs.  The order dated  4.8.2004 passed by the learned single Judge and the order dated  23.9.2004 passed by the Division Bench of the High Court are set  aside and the writ petition filed by the respondent is dismissed.  The  order dated 4.4.2005 passed by the learned single Judge in contempt  proceedings is also set aside and the contempt petition filed by the  respondent is dismissed.  The money deposited by the respondent No.  1 shall be refunded to it forthwith. 28162